In Minnesota, a limited liability company (LLC) is allowed to select one of the following three management structures: member-managed, manager-managed, and board-managed. This is usually done when the LLC is created, but it can be changed later by agreement of the members/owners. These three options became available to LLC owners in 2014 when Minnesota overhauled its laws for limited liability companies.

Quick Overview: Three LLC Structure Options

Here is a quick summary. You may find it helpful to think of these three management options in this way:

Member-Managed LLC

This is similar to a traditional partnership.

Example: Two sisters open a dental practice together, trust each other, and are comfortable with either one of them making decisions for the business without involving the other sister.

Manager-Managed LLC

This is similar to a limited partnership with a general manager or multiple general managers. With a single manager, one person is in charge (the manager) and the other owners have no management role.

Example 1: a 90% owner manages the company, and two employees each own 5% of the company.

Example 2: two LLC owners may hire an outside management company to manage the business for them.

Board-Managed LLC

This is similar to a traditional corporation.

Example: ten people own an LLC, they want three people to serve on a board of governors/directors, and the board will oversee the officers of the company.

What Are the Differences?

Member-Managed LLC

This is the typical approach used by partnerships: each member has authority to manage the company. This is also the default, so if you don’t designate a different structure, your LLC is a member-managed LLC.

In a member-managed LLC, the management and conduct of the LLC are vested in the members. Each member has equal rights in the management and conduct of the LLC’s activities. A difference arising among members as to a matter in the ordinary course of the activities of the company may be decided by a majority of the members. An act outside the ordinary course of the activities of the LLC may be undertaken only with the consent of all members.

Manager-Managed LLC

This structure is similar to having a “managing partner” in a limited partnership: one owner (or multiple) is selected to manage the company and other owners have no management role.

A manager-managed LLC can have a single manager or multiple managers. If there is only one manager, it’s obvious who makes the decisions because there is only one person in charge. If there are multiple managers, it’s more complicated.

With multiple managers, the managers may make decisions like an informal board: they collaborate and decide together. Each manager has equal rights in the management and conduct of the activities of the company. A difference arising among managers as to a matter in the ordinary course of the activities of the LLC may be decided by a majority of the managers. The consent of all members is required to: (1) sell, lease, exchange, or otherwise dispose of all, or substantially all, of the LLC’s property, with or without the good will, outside the ordinary course of the company’s activities; (2) approve a merger, conversion, or domestication under sections 322C.1001 to 322C.1015; (3) undertake any other act outside the ordinary course of the LLC’s activities; and (4) amend the operating agreement. A manager may be chosen at any time by the consent of a majority of the members and remains a manager until a successor has been chosen, unless the manager at an earlier time resigns, is removed, or dies, or, in the case of a manager that is not an individual, terminates. A manager may be removed at any time by the consent of a majority of the members without notice or cause. A person need not be a member to be a manager, but the dissociation of a member that is also a manager removes the person as a manager. If a person that is both a manager and a member ceases to be a manager, that cessation does not by itself dissociate the person as a member. A person’s ceasing to be a manager does not discharge any debt, obligation, or other liability to the limited liability company or members which the person incurred while a manager.

Board-Managed LLC

This structure is similar to the traditional management of a corporation. That is, this involves more complexities and formalities. For example, a corporation has three levels: shareholders, board of directors, and officers. Likewise, in a board-managed LLC, there are also three levels with similar roles: the board of governors, officers, and members. In a board-managed LLC, the members (owners) elect board members. The board manages the operations of the LLC, which usually includes hiring and firing officers.

In a board-managed LLC, there are more rules because this structure is more complex. These rules are provided in Minn. Stat. § 322C.0407, subdiv. 4.

Can You Do a Hybrid of These 3 Structures?

Yes, hybrids of these three options are available. The Minnesota LLC Act provides a lot of flexibility for business owners. I have seen board-managed LLCs that operate more like manager-managed LLCs and vice versa. In other words, you should look at the LLC’s operating agreement to fully understand how the management will be structured.

Which Structure is Right for Your LLC?

The answer to this question depends on your circumstances. Usually this decision is made by an attorney after the attorney has taken time to understand the company’s plans. If there is only one owner, member-managed is appropriate. If there are many owners, board-managed is often preferred. When there are 2-5 owners, more analysis is needed.

One way to look at this question is to ask how many people will actually be equally leading the company. If the owners want a board to make the big decisions, then board-managed is probably appropriate. If the owners want one person to make the big decisions, manager-managed is probably appropriate. If the owners trust any single owner to unilaterally (i.e. without consulting with other owners) make big decisions, member-managed is probably appropriate.

Selecting the management structure that is right for your company involves legal and business considerations. For this reason, the decision should usually be made after a discussion between the owners and an attorney experienced in Minnesota LLC law.