Member Managed v Manager Managed LLCs and succession planning

So you are ready to start your own business? Great! Choosing the right management structure when forming your LLC is paramount. When forming a Texas LLC, you will have the option to form a Member Managed LLC or a Manager Managed LLC.

One perk of forming an LLC as a Manager Managed LLC rather than a Member Managed LLC is it allows for membership interest to be gifted without also gifting authority for the inheritor of the membership interest. This means that the member will not have the ability to make decisions on behalf of the company. In other words, when an LLC is structured as a Member Managed LLC then any member with any level of membership interest has the ability to take part in company decisions.

Member Managed LLCs can create a particularly difficult situation in a parent child relationship where a parent is attempting to gift their child or young adult membership interest for any number of reasons. In this specific situation, when the parent gifts their child membership interest the child now has decision making authority. Generally, Manager Managed LLCs offer a more desirable structure.