A corporate manager is a person appointed to run a business entity’s day-to-day operations and make binding decisions on its behalf. The term shows up most often in limited liability companies that have chosen a manager-managed structure, where one or more designated managers handle operations while the members (owners) step back from daily decisions. In a traditional corporation, the same functions are split between directors, who set policy, and officers like a CEO or CFO, who execute it. An LLC manager tends to combine those two roles into one, and that manager does not have to be an owner at all.1BIA.gov. Revised Uniform Limited Liability Company Act (2006)
The choice between a member-managed and a manager-managed structure has to be documented, usually in the articles of organization filed with the state or in the operating agreement. Without that, disputes over who gets to speak for the company are almost guaranteed. Once the structure is set, the manager’s powers, duties, and legal exposure follow from a mix of statute, the governing documents, and general agency law.
What a Manager Can Decide Alone
Under the Revised Uniform Limited Liability Company Act (RULLCA), which many states have adopted in some form, any matter relating to the company’s activities in a manager-managed LLC is decided exclusively by the manager, or by a majority of the managers if there is more than one.1BIA.gov. Revised Uniform Limited Liability Company Act (2006) In practice that covers signing checks, hiring and firing employees, negotiating vendor contracts, leasing space, directing operations, and the usual run of ordinary business.
Some decisions, though, are too big for a manager to make alone. RULLCA requires unanimous consent of all members for any action outside the ordinary course of business or to amend the operating agreement.1BIA.gov. Revised Uniform Limited Liability Company Act (2006) Most operating agreements expand that list. Decisions commonly reserved for member approval include:
- Admitting new members, which dilutes everyone’s stake
- Selling all or substantially all of the company’s assets
- Dissolving the company
- Taking on major debt or guarantees that put the company at significant financial risk
Everything else is the manager’s call. That is a lot of latitude, which is the point of concentrating authority in the first place.
How a Manager Binds the Company
When a manager signs a contract or closes a deal, the manager is acting as a legal agent of the company. The company becomes obligated, not the manager personally. This runs on two overlapping ideas: actual authority and apparent authority.
Actual authority is whatever the operating agreement or bylaws say the manager can do. If the documents authorize the manager to sign leases up to $50,000, that figure is the actual authority for leasing.
Apparent authority is where companies get caught off guard. Under established agency principles, apparent authority exists whenever a third party reasonably believes the manager has authority to act and that belief traces back to something the company itself did or said. Give someone the title of “General Manager,” hand them a company credit card, let them negotiate deals for years, and a vendor has every reason to believe that person can commit the company to a contract, even if the operating agreement says otherwise. The practical consequence is that a company can be bound by a manager’s unauthorized deal if the company created the impression of authority. That is why serious limits need to be spelled out in writing and communicated to the vendors and partners where they matter.
Fiduciary Duties That Come With the Job
A manager owes fiduciary duties to the company and its owners. These are legally enforceable, not aspirational, and a breach can result in personal liability. RULLCA codifies two core duties for managers of manager-managed LLCs, and similar standards apply to corporate officers and directors.
Duty of Loyalty
Loyalty means putting the company’s interests ahead of the manager’s own. Under RULLCA, this includes accounting to the company for any property or profit derived from using company resources, avoiding transactions where the manager has an interest adverse to the company, and not competing with the company before it dissolves. A manager who steers a business opportunity to a side company they personally own, or who sits on both sides of a contract with the LLC, is in breach. Members can ratify a conflicted transaction after full disclosure of all material facts, but the manager cannot do it quietly and hope no one notices.1BIA.gov. Revised Uniform Limited Liability Company Act (2006)
Duty of Care
Care does not require perfect decisions. Under RULLCA, the standard is to avoid grossly negligent or reckless conduct, intentional misconduct, and knowing violations of law.1BIA.gov. Revised Uniform Limited Liability Company Act (2006) A manager who researches the options, considers them, and makes a decision that turns out poorly has met the standard. A manager who signs a major contract without reading it, or gambles company funds on a hunch with no analysis, probably has not.
Good Faith and Fair Dealing
Beyond loyalty and care, RULLCA requires managers to act consistently with the obligation of good faith and fair dealing.1BIA.gov. Revised Uniform Limited Liability Company Act (2006) This prevents a manager from using technical compliance with the operating agreement to undermine the members’ reasonable expectations. Following the letter of every clause while weaponizing ambiguities for personal advantage is not good faith.
The Business Judgment Rule
Fiduciary duties can sound like an invitation to second-guess every decision, but courts provide a significant safety net. The business judgment rule creates a presumption that a manager’s decision was sound as long as it was made in good faith, with reasonable care, and with an honest belief that it served the company’s interests. Courts will not substitute their own judgment just because a decision led to a bad outcome. The protection evaporates when a manager acts in bad faith, has a personal financial conflict, or makes decisions without any real deliberation.
When a Manager Is Personally on the Hook
The whole reason businesses operate through entities is to shield individuals from the company’s debts. Managers generally benefit from that shield. When a manager signs a contract on behalf of the LLC, the LLC is liable on the contract, not the manager. But several situations punch through:
- Tortious conduct. A manager who personally commits a wrongful act that harms a third party is liable for that conduct whether or not they were acting on the company’s behalf. The LLC may also be liable, but “I was just doing my job” is not a defense.
- Personal guarantees. If a manager personally guarantees a company loan or lease, they are on the hook if the company cannot pay. Lenders routinely demand this from smaller businesses.
- Fraud or misrepresentation. Fraudulent statements to third parties expose the manager personally, even when made in a representative capacity.
- Professional services. A manager who is also a licensed professional rendering services through the LLC can face personal malpractice liability.
Leaving the role does not wipe the slate clean. RULLCA explicitly states that a person’s departure from the manager role does not discharge any liability to the company or its members that arose while the person served.1BIA.gov. Revised Uniform Limited Liability Company Act (2006)
If the manager mismanages the company and the owners decide to act, they can file a derivative lawsuit on the company’s behalf. Any recovery goes to the company. These suits are procedurally demanding, generally requiring the plaintiff to have owned their interest at the time of the alleged wrongdoing and to have first demanded that the company address the problem internally, unless that demand would be futile. They are expensive and hard to win, but they exist as a real check on manager accountability.
Protecting Yourself Before Taking the Role
Two protections matter before you accept a manager position. An indemnification agreement is a contract between the manager and the company requiring the company to cover legal costs and settlements arising from good-faith decisions made on the company’s behalf. Directors-and-officers (D&O) insurance adds another layer by covering claims for breach of fiduciary duty, mismanagement allegations, and similar suits. For anyone taking on real decision-making authority, having both in place before problems arise is basic hygiene.
How Managers Are Appointed and Removed
Hiring, tenure, and firing are all governed by the operating agreement or corporate bylaws. Under RULLCA, a manager in a manager-managed LLC can be chosen at any time by a majority vote of the members and serves until a successor is chosen or until the manager resigns, is removed, or dies. Removal is equally direct: a majority of members can remove a manager at any time, without notice and without cause.1BIA.gov. Revised Uniform Limited Liability Company Act (2006)
Operating agreements often modify these defaults. Some require supermajority votes for removal, impose fixed terms, or require notice periods. Well-drafted agreements also cover the mechanics: how meetings are called, how votes are documented, and what happens to the former manager’s access to accounts, records, and signing authority the moment they leave. Once a manager is out, the company should update its records and notify banks, vendors, and any relevant state agencies right away.
Resignation runs the other direction. No federal or state law mandates a specific notice period. Two weeks is customary, though a manager deeply embedded in operations may need three or four to transition cleanly. The operating agreement may set its own notice requirement. A departing manager should give written notice stating the last day and cooperate with the transition, since claims of breach of duty during the wind-down are a real risk.
Tax Exposure for Manager-Members
If you are a manager and also a member of a multi-member LLC taxed as a partnership, pay attention to self-employment tax. The IRS generally treats a managing member’s share of LLC income as self-employment income, meaning it is subject to Social Security and Medicare taxes on top of regular income tax. This mirrors the treatment of general partners.
The IRS proposed regulations in 1997 that would have clarified when an LLC member qualifies as a “limited partner” exempt from self-employment tax on distributive income. Those proposed regulations were never finalized and remain in limbo. In the absence of final guidance, the safe assumption for any LLC manager actively participating in the business is that the distributive share is subject to self-employment tax. An LLC that elects to be taxed as an S corporation can reduce the exposure, because only the manager’s reasonable salary rather than distributions would be subject to payroll taxes. The strategy has its own compliance requirements and is worth working through with a tax professional before relying on it.