Insight
Member-managed vs. manager-managed LLC: who runs the company in Washington
Member-managed or manager-managed is a box on the operating agreement most people check without thinking. It decides who runs the company, who can bind it, and who owes the owners a duty.
Published
June 12, 2026
Updated
June 12, 2026
Halfway through forming an LLC, the operating agreement asks a question most people answer without slowing down: member-managed or manager-managed? It reads like a formatting choice. It is actually the decision that sets who runs the company, who can sign a contract that binds it, and who owes the other owners a legal duty. Checked without thought, it is also one of the easiest things to get wrong at formation and one of the more awkward to fix later.
The two structures answer one question: who has the authority to manage. In a member-managed LLC, the owners run the company themselves, and each of them can ordinarily bind it. In a manager-managed LLC, the members appoint one or more managers to run things, and the members who are not managers step back from day-to-day control. Washington’s default, if the operating agreement says nothing, is member-managed.
Member-managed vs. manager-managed
The split runs through three things: who decides, who can bind the company, and who owes fiduciary duties.
In a member-managed LLC, management authority sits with the members as a group, and each member is an agent who can bind the company in the ordinary course of business. That is efficient for a small company where the owners are the operators, and it is the structure Washington assumes unless you choose otherwise under RCW 25.15.151. The trade-off is that every owner carries the authority to commit the business, which is fine among two or three working partners and a problem the moment an owner is passive, absent, or simply not someone you want signing on the company’s behalf.
A manager-managed LLC separates ownership from control. The members designate a manager, who can be one of the members or an outsider, and only the manager has the authority to run the company and bind it. Members who are not managers become more like investors: they share in profits and vote on major questions the agreement reserves to them, but they do not run the business or sign for it. This is the structure that fits passive investors, a larger or more dispersed ownership group, or a family company where some owners are involved and others are not.
When manager-managed earns its keep
Most small, owner-operated LLCs are member-managed, and rightly so. The reason to switch to manager-managed is a specific one: someone is putting in money without running the business, or control needs to sit with fewer hands than there are owners. An investor who wants a stake but not a job, a second-generation owner who holds units but does not work in the company, an outside operator brought in to manage, each of these is a reason to centralize authority in a manager and take it out of the hands of every member by default.
The choice is not permanent. An LLC can move from member-managed to manager-managed, or the reverse, by amending the operating agreement and the management designation. But the change touches who can bind the company and how third parties rely on that authority, so it is cleaner decided at formation than renegotiated once owners have settled into roles.
The duties run either way
Whichever structure you pick, the people in control owe the company and its owners fiduciary duties. Under RCW 25.15.038, a manager in a manager-managed LLC, and a managing member in a member-managed one, owes duties of loyalty and care: account for company opportunities, avoid undisclosed self-dealing, and refrain from grossly negligent or reckless conduct. Washington lets the operating agreement narrow those duties, which sophisticated parties often do, but it does not let the agreement erase the duty of good faith and fair dealing or license intentional misconduct.
Here is how the LLC structures line up next to a corporation, the third common way Washington companies organize governance.
How an LLC compares to a corporation
The table puts the corporation alongside the two LLC structures because the same fiduciary duties run through all three; what changes is the paperwork and the formality. A corporation is governed by articles and bylaws, run by a board that appoints officers, and held to a calendar of required shareholder and director meetings under the Business Corporation Act, with directors’ duties set out in RCW 23B.08.300. An LLC, manager-managed or member-managed, is governed by a single operating agreement and sets its own meeting and record-keeping rhythm.
That flexibility is the LLC’s advantage and its risk. A corporation’s formalities are rigid but well-mapped, which is what outside investors and stock-option plans expect. An LLC can be tailored to how the owners actually work, but the looseness invites skipped records and vague authority, which is exactly what a buyer’s lawyer or a litigating co-owner later picks apart. Lower required formality is not the same as no formality.
What the operating agreement should actually say
The default rules matter only for what the operating agreement leaves unsaid, so the agreement is where the real governance lives. A well-drafted one names the management structure plainly, says who can bind the company and up to what dollar amount, sets how managers are appointed and removed, lists the decisions that need member approval rather than manager discretion, and states whether the fiduciary duties are being modified from the statutory baseline. For a manager-managed LLC especially, the document should make a third party able to tell, without guessing, who actually has authority to sign.
For the Bellevue and Seattle companies we form, the management choice and the operating agreement are drafted together, because the label means little without the terms that put it into practice.
How to choose
The structure follows how the owners actually relate to the business.
- Everyone who owns the company also works in it, and there are only a few of you: member-managed is simpler and matches reality. Keep light but real records anyway.
- Some owners are passive, the group is large, or an investor wants a stake without a role: manager-managed centralizes authority where the work happens and keeps passive owners from binding the company.
- You expect outside investment, stock options, or an eventual sale: look hard at a corporation instead, because that is the governance investors and option plans are built around.
Whatever the structure, the operating agreement has to say it clearly. A management label with no terms behind it is the governance equivalent of a handshake, fine until the day someone tests it.
Frequently asked questions
What is the difference between a member-managed and a manager-managed LLC?
In a member-managed LLC, the owners run the company and each member can bind it in the ordinary course of business. In a manager-managed LLC, the members appoint one or more managers to run the company, and only the managers have that authority. The non-manager members become passive owners who vote on major issues but do not run day-to-day operations.
Which is the default in Washington?
Member-managed. Under RCW 25.15.151, a Washington LLC is member-managed unless its operating agreement provides that it is manager-managed. If the agreement is silent, every member has management authority.
Can an LLC switch from member-managed to manager-managed later?
Yes. The LLC amends its operating agreement and management designation. Because the change affects who can bind the company, it should be documented clearly and communicated to the banks and counterparties that rely on the old authority, which is why it is cleaner to decide at formation.
Do LLC managers owe fiduciary duties?
Yes. Under RCW 25.15.038, managers and managing members owe duties of loyalty and care to the company and its members. Washington allows the operating agreement to narrow those duties, but it cannot eliminate the implied duty of good faith and fair dealing or permit intentional misconduct.
Should a single-member LLC be member-managed or manager-managed?
Usually member-managed, since the one owner runs everything anyway. Manager-managed can make sense when the owner wants to install a non-owner manager, keep a layer between ownership and signing authority, or match a structure an investor or lender expects.
The management label is only as good as the operating agreement behind it. Our corporate governance attorneys in Bellevue and Seattle draft the structure and the agreement together, so authority is clear before anyone tests it. Talk to us when you form the company, not after a dispute over who could sign.
