LLCs differ from their often mistakenly equated namesake, companies limited by shares (Companies) — which are generally incorporated pursuant to the Companies Act 1981 (Companies Act) — in that LLCs are effectively a hybrid between partnerships and Companies that offer the flexibility of a partnership within a corporate vehicle.

The LLC Act provides that the members of an LLC must enter into an LLC agreement (LLC Agreement), which can be highly bespoke and which governs the business and affairs of the LLC.

Today, I am going to highlight one example of the flexibility offered that has already started to gain attention among industry stakeholders, namely that the management of LLCs can be structured so as to accommodate the commercial intentions and practical considerations for which each LLC is formed. Some of the more striking examples are explored below.

An LLC can be incorporated by an individual member (similar to a shareholder of a Company) who is also responsible for the management of the LLC (which, in the context of a Company, would typically be vested in the board of directors). Such member management structure is the default position under the LLC Act. This arrangement allows for the member to utilise a separate legal entity and benefit from the consequential limitation of liability afforded to an ‘owner’ by a corporate structure, while also being involved in the day-to-day control of the LLC. In the event of multiple members, the LLC Agreement can specify how the members can, together, manage the business of the LLC in a way not dissimilar from a traditional partnership.

Noting the default statutory position described above, that management of an LLC is vested in its members, the LLC Act provides that an LLC Agreement can modify this arrangement, allowing for the management of an LLC to be vested in one or more managers who are responsible for the management of the LLC. Further, the LLC Agreement may set out the extent to which management is delegated to such managers (in whole or in part) allowing for members to retain control in certain, previously agreed, circumstances.

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