When selecting a Delaware LLC, the type of management it has (member-managed or manager-managed) can have an impact on its tax structure as well as how many managers and members you require.
When selecting which corporation is right for you, it’s important to take into account your individual situation and objectives. Generally speaking, C corporations are the preferred option among small business owners due to their tax deductions and advantages; however, S corporations may also provide advantages depending on what your goals are.
Member-managed
Member-managed LLCs are more prevalent than manager-managed LLCs and can be an attractive option for small companies with few shareholders who want a say in decision-making processes.
A member-managed LLC allows all members to have the power of contract and participate in daily management decisions. Furthermore, they have the opportunity to vote on significant matters like capital contributions, buy-out provisions and other crucial business and management matters.
Steven Sinatra, co-owner of World Pawn Shop, recommends that member-managed LLCs (M LLCs) are an ideal option for small businesses that don’t require a large board or administrative structure. He adds that M LLCs may also be suitable for companies needing highly specialized knowledge or skillsets.
When forming your LLC in Delaware, you must decide who will manage it: members or managers? This decision must be clearly documented in the articles of organization that you file when forming the company.
Manager-managed
No matter the size of your business – from a small retail shop to an international conglomerate – selecting the correct management structure for your Delaware LLC can have significant effects on how it operates. Manager-managed and member-managed options exist, and which option you select will have an immense effect on daily decisions and operations.
One advantage of a manager-managed structure is it allows for faster, more centralized decision making by enabling managers to make choices without needing unanimous agreement from all owners. This helps prevent the “too many cooks” issue wherein too few individuals possess enough expertise or experience to make strategic business decisions.
Another advantage of a manager-managed LLC is that it provides greater freedom when structuring rights and responsibilities for managers. You can divide members into classes, each with its own level of economic privileges, reporting requirements, voting power or other responsibilities.
Your decision regarding management of your Delaware LLC has a significant effect on daily operations and decision-making processes, as well as any legal liability you may be exposed to as an owner. To reduce risks and safeguard yourself legally, draft an effective Delaware LLC Operating Agreement that addresses all pertinent details.
Shareholder-managed
Making the management structure for your LLC is a crucial decision that affects both personal preference and the future success of your business. Not only does this matter in terms of personal preference, but it has significant effects on other aspects of operations as well.
Manager-managed LLCs delegate the authority of its members to a person or persons who can bind the LLC in contracts and agreements and manage its business operations – these individuals being known as “managers.”
Manager-managed LLCs are the most common form of LLC.
This simpler form of management may be easier for some to comprehend. It’s ideal for small companies with few members or businesses with family members interested in the business but don’t wish to become managers.
No matter your management structure, whether member-managed or manager-managed, it should be formalized in your articles of incorporation and operating agreement. While not necessary, this step can save time and money in the long run while also guaranteeing your business runs efficiently.
Multi-class
Delaware may be a small state, but it offers plenty of advantages for entrepreneurs. One such benefit is its low tax system which has attracted over one million entities to incorporate there.
Another key characteristic of a Delaware LLC is that its members can be organized into multiple classes with distinct economic, reporting, voting, and other rights arrangements. These rights and privileges are clearly spelled out in the LLC Operating Agreement and assigned to each class.
This flexibility gives LLC founders the power to structure their company and define its relationships in a way that works best for their individual circumstances. This gives organizers of an LLC freedom in setting boundaries around authority, accountability, governance, as well as any other relevant LLC details.
