When I filed my LLC paperwork last year, I picked 'member-managed' basically because it was the default and I didn't know any better. Now I'm trying to figure out if that was a mistake. We're two equal partners and we've started having some disagreements about spending and adding a third person. Someone mentioned manager-managed might be cleaner but I don't even know what that would change day to day. Is it a big deal to switch? I feel like I should have read more before checking that box.
LLC
I chose member-managed without really understanding the difference
Honestly for two equal partners member-managed is usually fine. The bigger issue is whether your operating agreement spells out who can sign checks and how decisions get made. The management structure label matters less than the document nobody reads.
We were member-managed for years and it worked until we weren't equal anymore. Once you bring in a third person the voting gets messy. Not saying you have to switch but you do need to decide if decisions are by majority or unanimous.
This is the exact reason I hired someone to file ours. No offense but a checkbox on a form shouldn't be where you learn corporate governance.
What state are you in? The default rules differ and some states make it annoying to amend the formation document later.
We're in Colorado if that matters.
Member-managed just means the owners run it. Manager-managed means you appoint someone (could still be an owner) to run it. If you and your partner are both working in the business every day, switching probably adds paperwork without helping much. If one of you is passive and the other is active, that's a different conversation, though.
I'd focus on the operating agreement first. You can define management authority there without changing the formation document.
Kind of what I was getting at. Also if the disagreement is about adding a third person, that's an ownership question, not a management structure question. Member-managed vs manager-managed won't solve that.
Not a lawyer but I've seen this trip people up. If you're manager-managed, a member who isn't a manager can still be liable for things they participate in. It's not a magic liability shield. Get actual advice for your situation.
That last part is important. People think the label changes everything and it really doesn't.
Also worth checking whether your bank or any contracts you signed assume member management. Switching can mean updating account authorizations. Annoying but not hard.
Colorado is pretty flexible about amendments. If you do decide to switch it's a filing and a fee. But I'd sort out the operating agreement first so you're not amending twice.
One more thing — if you add a third member you'll probably want to revisit everything anyway. Might as well fix the agreement and the management structure at the same time instead of piecemeal.