When starting an LLC, carefully consider the powers granted to an LLC manager. Your operating agreement should have customized provisions regarding what the manager(s) can and cannot do – do not just accept some form language. As an LLC attorney, I encourage my clients to carefully consider the powers that their LLC managers should, and should not, have.
Once you have determined whether your limited liability company will be manager managed and you have procedures in place for how you will elect and remove a manager , you need to carefully consider what powers you will give the manager(s) and what limitations you will set on those powers. The business of the LLC is critical to determining what you need to put in your operating agreement. For example, in a real estate investment LLC, make sure the manager has the specific rights to sign deeds and loan documents without going to a vote of the members.
The list of potential powers (and limitations on powers) of the managers is endless, but here are some items to consider:
- Day to day operations authority
- Entering into contracts (up to a certain dollar amount?)
- Opening bank accounts, designating signing authority
- Paying debts, signing checks
- Hiring professionals like lawyers and accountants
- Obtaining insurance at the expense of the company
- Borrowing funds, refinancing debt
- Investing company funds
- Requesting capital from Members
- Bringing or defending lawsuits
- Determining cash available for distributions
- Selling assets of the Company
- Purchasing major assets
- Accepting additional Members
- Approving transfers of membership interests
- Creating new classes of membership interests
- Appointing officers, delegating authority
- Signing tax returns and dealing with tax audits
- Transacting business with the company, individually or through affiliates
- Competing with the company’s business or maintaining other employment
If the managers are supposed to be actively participating in the business, rather than simply managing an investment, the LLC agreement should be careful to not only list the powers the manager has, but also the duties and responsibilities that the manager must perform. Make sure you consider the business of your LLC carefully and consider your expectations for the manager position. And once you know what the expectations are for the manager, you need to consider how they should be paid for fulfilling these expectations and include those provisions in your LLC operating agreement as well.
Tamara B. Pow is a founding partner of Strategy Law, LLP in downtown San Jose, California where she practices business and real estate law including formations, operations, transfers, conversions and dissolutions of LLCs and other business entities. Her personal experience acting as a manager in real estate limited liability companies as well as her MBA and real estate brokers license help her in advising owners of limited liability companies and other business entities.
The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.