MBE Rules · Business Associations
LLC Management — Member vs. Manager
Cal. Corp. Code § 17703.01
The rule
In a member-managed LLC, each member has agency authority to bind the LLC in the ordinary course of business. In a manager-managed LLC, only the manager(s) have such authority; members have no agency power qua members. The Articles of Organization must state whether the LLC is manager-managed.
In plain English
In a member-managed LLC, all members can make decisions and enter into contracts on behalf of the company. In contrast, in a manager-managed LLC, only designated managers have the authority to act for the LLC, while the members do not have this power unless specified otherwise in the Articles of Organization.
Worked example
In a member-managed LLC called Green Ventures, all three members decide to enter into a contract with a supplier. Since it is member-managed, they can do this without any issues. However, if Green Ventures were manager-managed and only one member was appointed as the manager, the other members could not bind the LLC to the contract without the manager's approval. The contract would be valid in the member-managed scenario but invalid in the manager-managed scenario without the manager's consent.
Memory hook
Members manage; managers command!
The trap
Exams often present scenarios where students must determine whether an LLC is member-managed or manager-managed, leading to confusion about who has authority. Students might mistakenly assume all members have authority in a manager-managed LLC.
How examiners test it
Questions typically involve fact patterns where a member or manager takes action, requiring candidates to identify the management structure and the corresponding authority to bind the LLC.
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