It's a Bird, It's a Plane, No, It's a Board-Managed LLC!
Bus. L. Today, No. 7, (Mar. 2017)
6 Pages Posted: 25 Mar 2017 Last revised: 24 Aug 2017
Date Written: March 24, 2017
The familiarity with corporate boards may prompt some business owners and their advisors to consider creating board-managed LLCs. Business owners who adopt such structures may be sorry for doing so for a number of reasons. Generally speaking, such structures are too complicated for closely held LLCs, which would benefit from simpler member-managed or manager-managed structures. Because LLC statutes generally do not provide for board-managed LLCs, boards of LLCs generally are the product of management provisions in LLC operating agreements. The lack of a statutory framework provides flexibility but also creates more room for adopting unwanted agreements. Terms such as “board of managers” and “board of directors” could, for instance, have different meanings, and could either grant authority to the board as a whole or to members of the board as managers. Finally, recent case law also indicates that courts will use corporate law to decide disputes that arise among members and managers of board-managed LLCs, corporifying the management structure of those LLCs. Thus, business owners and their advisors must use caution when considering whether to create board-managed LLCs. If they decide that such structures are a must, perhaps they will benefit from forming the LLC in one of three states that have statutory board structures. This brief article introduces these matters.
Keywords: LLC, limited liability company, board-managed LLC, member-managed LLC, manager-managed LLC, corporification
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