Manager Managed LLC Operating Agreement

Home » Agreement Articles » Manager Managed LLC Operating Agreement

Manager Managed LLC Operating Agreement

A Brief Introduction of Manager Managed LLC Operating Agreement

In this Manager Managed LLC Operating Agreement, managers are appointed to look after the routine operations of the company. The members of the LLC appoint managers so that their names do not appear in public records, and their privacy is protected.

In a member-managed LLC operating agreement, the day-to-day affairs of the company are managed by the members themselves, as opposed to the LLC operated by managers where the managers are given authority to operate the company. The manager-operated LLC’s also lay down certain rules for the members with regard to individual percentages for sharing of profit and loss, the status of members when the company winds up and the process, of buying the share of other members.

Where a single-member manager-managed LLC operating agreement is used, the member is the owner as well as the manager. However, they can hire a manager if required. These agreements would contain details regarding company formation, capital contributions of the members, distribution of profits and losses among members, how managers are chosen and their responsibilities, compensation, maintenance of books of accounts, transfer of membership, and dissolution of the LLC.

Each member needs to sign the signature page, acknowledging they have understood and accepted the terms and conditions given in the agreement.

Who Takes the Manager Managed LLC Operating Agreement

In such agreements, the parties involved are the members of the LLC, and the managers appointed to run the LLC. The managers are responsible for looking after the day-to-day affairs of the company, and the members share the profits and losses according to a given percentage.

Purpose of the Manager Managed LLC Operating Agreement

In such agreements, a member may be a manager, and such a member is known as a managing member. However, a manager-managed LLC appoints a manager who is not a member of the LLC. Multiple-member LLC’s are required to have one registered manager. The manager is like a CEO and is paid a salary but does not get a share of the profits. The manager takes charge of the daily affairs of the company. Major company decisions, however, are taken by the members of the LLC.

Having a manager provides the members with additional privacy. The documents which are publicly available require the names of either the members of the managers. If the manager’s name is provided, the name of the members doesn’t need to be disclosed.

Contents of Manager Managed LLC Operating Agreement

A manager managed LLC operating agreement would usually contain the following information:

  • Company information: Details about the members, registered agent, events leading to dissolution and process of adding new members
  • Capital contribution: The initial contribution made by members in the form of money or other assets
  • Profits, losses, and distributions: As investors, the members are entitled to the profits and losses of the LLC which are determined annually and distributed after deduction of expenses
  • Management: The managers are not liable for losses or damages due to decisions taken in good faith
  • Transfers: The process for the transfer of membership interest

How to Draft the Manager Managed LLC Operating Agreement

The agreement can be drafted by referring to a manager-managed LLC operating agreement template. The points to consider for this agreement are:

  • Eligibility to contract: The parties should be of legal age and should not be coerced to sign the contract
  • Compensation payable: The compensation payable to the manager and other benefits
  • Terms of the contract: The duties and responsibilities assigned to the manager and the compensation should be fair. 
  • Confidentiality clause: The proprietary information that the manager has access to during their tenure should not be shared with any third party
  • Dispute resolution clause: Whether arbitration or litigation will be used in case there is a dispute between the members and the manager, sharing of legal expenses and jurisdiction
  • Governing laws: The agreement should adhere to the laws of the state
  • Signature: The last page of the agreement should be reserved for the signatures

Negotiation Strategy

When appointing a manager for a manager-managed LLC operating agreement, the past experience of the manager is considered for negotiating the salary, and an offer is made. The manager should study the agreement and make a counteroffer. Both parties should agree on the compensation before signing the agreement.

Benefits & Drawbacks of the Manager Managed LLC Operating Agreement

The benefits of a manager-managed LLC operating agreement are given below:

  • Protection of interest of both parties: The members and the manager’s interests are protected by the agreement. The manager knows that salary payment is assured on satisfactory completion of his or her duties. The members can depend on the manager for the day-to-day running of the company
  • Privacy of the members: Since the managers sign the public documents of the company, the identity of the members are kept confidential
  • Termination of the agreement is possible by sending a notice
  • Legal action possible for violation of contract

The drawbacks of a manager managed LLC operating agreement:

  • No legal remedy in case of non-performance without a contract

What Happens in Case of Violation

If there is a violation of the manager-managed LLC operating agreement by either party, a legal notice will be sent(1). If there is a total breach of contract, then the injured party will claim money damages, including lost profits. If the breach is partial, then the charges for replacing the manager will be claimed.

If fraud was involved while either party entered the contract, then either the contract will be canceled under rescission or a new contract drafted under reformation. If the manager is incapable, then any money or property received will have to be returned.

Managers are appointed in a manager managed LLC operating agreement to take care of the daily affairs of the company. The agreement should have a clause for the resolution of disputes and a confidentiality clause to protect the interests of both parties to the contract(2).