LLC owners, typically referred to as members, don't always want to have an active role in business operations. The managing partner of an LLC takes care of day-to-day business activities and has the authority to act on behalf of the company. Nonmembers can serve as managers and the LLC can have as many managing partners as it wishes.
In an LLC, a managing partner is a manager tasked with actively overseeing the company's day-to-day operations.
The difference between a managing partner vs. owner is simple: An owner can collect passive income from a company, whereas a managing partner has to be actively involved. By managing partner definition, the income a managing partner takes home is earned income and taxed as such.
Member-Managed Versus Manager-Managed LLCs
An LLC can either be member-managed or manager-managed. A member-managed LLC is one in which all members have a say in the business and the authority to transact on behalf of the business. This structure works well if you have a small group of members who are knowledgeable in the field and have time to devote to the business.
However, some LLC members might rather be passive investors and not get involved in the day-to-day business aspects. Or, there may be so many members that giving them all a voice in the running of the business would be challenging at best. In this situation, a manager-managed LLC is ideal. In this structure, one or more managing partners can be chosen to manage the company. If this option is chosen, only the managing partners are authorized to act on behalf of the company.
The Role of the Managing Partner vs. Owner
The exact role and requirements of the managing partner are determined by the LLC's organizational documents. Typically, LLCs that choose a managing partner will assign him with the duty of loyalty and the duty of care. The duty of loyalty is the duty to put the LLC interests above personal interests and to manage the company in good faith. The duty of care means that the managing partner must act in a diligent and prudent manner.
On a more practical level, the managing partner is responsible for running the day-to-day activities of the business. This includes responsibilities like hiring, firing, managing employees, and working with clients and vendors. It's best to outline specific roles and responsibilities in the organizational documents to avoid confusion down the line.
While the managing partner definition is that of an individual with numerous day-to-day responsibilities, the definition of a business owner is more broad. The only requirement for a business owner is that she owns the business; there is no specific amount of involvement required of business owners.
Who Can Be a Managing Partner
LLCs offer flexibility when it comes to managing partners. An LLC can have as many or as few managing partners as it chooses. Usually it's another member that's chosen to be a manager, but it doesn't have to be. Non-members are allowed to be managers and act on behalf of the company.
Differences From Regular Members
Like regular members, managing partners have limited liability for company debts and employee actions. This means their personal assets are protected in the event that someone sues the LLC, or it goes bankrupt.
Managing partners can make decisions on behalf of the company. Managing partners also receive profits from their companies. For members not involved in day-to-day operations, this is considered passive income. Since the managing partners are actively involved in the business, their income is considered to be earned income. Managing partners will owe self-employment taxes on earned income, which is generally higher than taxes on passive income.