Prior to the recent changes to Washington’s LLC Act, individuals forming a new limited liability company (LLC) in Washington (presumably without the guidance of a business attorney) frequently found themselves flummoxed. In obtaining a Certificate of Formation from the Secretary of State, how to do you respond to the question inquiring whether the LLC would be member-managed or manager-managed? This confusion was evidenced by the number of members who inconsistently identified the LLC’s management in annual reports filed with the Secretary of State’s office, as compared with the original selection made in the Certificate of Formation.
As I noted in previous posts discussing the changes to Washington’s LLC Act that went into effect in 2016, the new law seeks to address inconsistent and potentially confusing provisions from the statutes governing business entities. To that end, identifying the LLC’s management method is no longer required in the Certificate of Formation. Instead, the LLC Agreement will determine whether a company is member-managed or manager-managed.
What does it mean for a company to be manager managed? The term is now defined at RCW 25.15.005(9): “’Manager-managed’ means, with respect to a limited liability company, that the limited liability company agreement vests management of the limited liability company in one or more managers.”
What about member managed? The term “member-managed” is now defined at RCW 25.15.005(11) as follows: “’Member-managed’ means, with respect to a limited liability company, that the limited liability company is not manager-managed.”
If a company either lacks a LLC Agreement or the LLC Agreement does not indicate whether it is member-managed or manager-managed, the law presumes a LLC is member-managed. However, best practices dictate that a company indicate how it has elected to be managed in its Certificate of Formation, its LLC Agreement and in its annual reports. This makes it clear to individuals and businesses dealing with the LLC, as well as the LLC members themselves, who has authority to make decisions or otherwise act on behalf of the LLC.
Questions about determining what management scheme makes sense for your LLC? Give us a call!
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This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.