Manager-Managed LLCs

If you are an entrepreneur and you want to learn how to form an LLC in California or Nevada, you may also want to learn about naming managers to manage your company who do not have to be included as LLC members. If your LLC will include members who will not take part in day-to-day decision-making for your company, appointing third-party managers may make sense. Members that will function as managers may also be appointed from within the ranks of the LLC members.

Decision-Making Authority

If you decide to form a manager-managed LLC in California or Nevada, only the managing members of your LLC will have decision-making authority about the important aspects of the business. This includes the ability to form contracts and enter into agreements on behalf of the business. Non-managing members of the LLC are still entitled to a portion of the generated profits as outlined in the operating agreement for the company.

Appointing Outside Investors

If you wish, you can appoint an outside investor as a manager who has some say in the company’s business dealings. They can then have a say along with the members who are managers, but they won’t be a member of the LLC itself.

Operating Agreements and Your LLC

If you decide that a manager-managed LLC is right for your company, it is important that you have an operating agreement in place. This agreement should clearly outline the vote that will be necessary among the managing members for the business to act. It should also provide the means by which managers can be removed and replaced. These agreements should also clearly state that members who are managers do not assume personal liability for the decisions that are made for the business. Finally, it is a good idea to include an indemnification provision in the operating agreement, which states that the business will be liable to pay the debts incurred by an individual manager in their business operations.

Self-Employment Taxes and Non-Managing LLC Members

While managing members of LLCs will be required to pay self-employment taxes, non-managing members will not be. For the specific tax implications, non-managing members should consult with a tax law attorney.

Securities Registration Requirements

If you have multiple members and a manager-managed LLC, it is important for you to understand the securities registration laws and the exemptions that may apply. If your non-managing members are investing money in your business, your business may be considered to be a security and thus subject to registration requirements. If these interests will be considered to be securities, it is important for you to seek an exemption from the requirements before any of the original investors invest any money. If all of the owners live in the same state, the Securities and Exchange Commission will exempt the business from registration requirements if all of the sales also occur within the state. Another possible exemption is the private offering federal exemption. In private offerings, investments are not advertised and are limited to 35 or fewer people. The exemption may also apply when the investors are people who have net incomes or assets that make it reasonably likely they will be able to take care of their own investments without the need for intervention. If you find out that you do not meet the exemptions, you must register your business’s sales of interests with the Securities and Exchange Commission as well as with the state in which it is located.

Considerations for Single-Member LLCs

If your company will either be a single-member LLC or one that is owned by you together with your spouse, it is a good idea to draft an operating agreement that appoints you as a member-manager of the company. While there may not be a large day-to-day difference in how a single-member LLC with an appointed manager and without one is run, naming yourself as a manager allows you to detail succession managers in the event you no longer wish to be actively involved in the day-to-day operations and dealings of the business. Your business law attorney may advise you on how to effective draft the operation agreement you will need for your company whether it will be a single-member LLC or one with multiple included members.

Contact an Attorney About How to Form an LLC in Wyoming or Forming an LLC in Nevada

To speak with a lawyer about how to form an LLC in California or forming an LLC in Nevada, call the Sutton Law Center at (775) 824-0300.