The Company Agreement Explained: Types of Decisions Made by Managers and Members
March 12, 2014 | By Vela Wood
In my previous blog post, The Company Agreement Explained: Manager and Member Meetings, I discussed the meeting requirements for managers and members pursuant to the TBOC and provided additional provisions that should be considered when adopting or amending an LLC company agreement. I also made a statement that the type of business conducted and decisions made during manager meetings may be different than decisions made at member meetings. This blog will discuss those differences.
Before going into depth about the decisions made by managers and decisions made by members, it is important to reiterate the differences between managers and members of an LLC, specifically what purposes the managers and members serve in an LLC. Generally, managers run the day-to-day operations of the LLC while the members “own” the LLC. Members are similar to shareholders in a company; they don’t operate a company, but they have certain voting rights. Keep this information in mind while reading through the rest of the blog.
Decisions Made by Managers
Generally, the managers of an LLC have the exclusive control of the management and business affairs of the LLC. As a result, the managers can take any action not otherwise provided in the company agreement. Some of the decisions managers may be able to make include the following: entering into contracts and agreements on behalf of the LLC, opening and maintaining bank accounts, paying debts and obligations of the LLC, borrowing money on behalf of the LLC, and determining distributions.
The company agreement should also set forth the restrictions, if any, placed on the managers regarding the types of decisions that they can make without the members’ consent. These restrictions may vary depending on your specific situation.
Decisions Made by Members
Taking into consideration that the managers make the operational decisions of the LLC, the members likely won’t have much say in the day-to-day decisions of the LLC, but they may have some say in the over-arching decisions made by the LLC. Examples of these types of decisions may include adding members, amending the company agreement, or entering into a fundamental business transaction.
Remember – one of the advantages of an LLC is its flexibility. Every business situation requires different considerations. If you want to limit the managers’ decision making authority – you can!; if you want to increase the members’ decision making authority – you can! We recommend reaching out to an attorney to make sure your company agreement meets your LLC’s needs.
Posted in Company Agreement Series
Vela | Wood is a boutique corporate law firm that focuses on small businesses, entrepreneurs, and startups.