Small businesses in Pennsylvania often choose the limited liability company (LLC) form for its flexibility, liability protection, and operational simplicity. However, understanding the roles, duties, and limitations of LLC members, particularly in a manager-managed structure, is critical for success and legal compliance.

The powers and responsibilities of members in manager-managed Pennsylvania LLCs depend primarily on the company’s operating agreement and its consent provisions. Working with experienced start-up business formation attorneys ensures these agreements are drafted to clearly define authority, protect member rights, and minimize disputes.

Understanding the Manager-Managed LLC Structure

In a Pennsylvania manager-managed LLC, the members delegate management responsibilities to one or more designated managers. These managers may be members themselves or outside appointees. Unlike member-managed LLCs, where all members participate in day-to-day operations, a manager-managed structure is designed for situations in which certain members (or outsiders) are entrusted with running the business, while others act primarily as investors.

The Pennsylvania Uniform Limited Liability Company Act of 2016 (the “LLC Act”) allows for this structure so long as it is clearly stated in the LLC’s operating agreement. If not, the “default” under the LLC Act is a member-managed structure—making the operating agreement essential to reflect member intentions and to establish a clear division of authority between members (the owners) and managers (the operators).

Typical Member Duties in Pennsylvania Manager-Managed LLCs

Generally, in manager-managed LLCs, ordinary business decisions and operations are handled by the manager(s). Members, by default, do not hold management authority. However, the LLC Act and most well-drafted operating agreements assign members specific crucial duties and reserve major decision-making to member approval, including:

  • Contributing initial or additional capital as stipulated in the agreement
  • Attending or participating in member meetings, especially for significant decisions
  • Voting on fundamental changes—such as amendments to the operating agreement, admitting new members, mergers, dissolutions, conversions, or sales of the business

Importantly, while members typically do not owe management-based fiduciary duties in a manager-managed LLC, they are bound by the duty of good faith and fair dealing in exercising their rights and fulfilling obligations under the operating agreement and Pennsylvania law.

A hallmark of a well-crafted operating agreement is detailed consent provisions. This outlines which actions require member approval and the level of consent necessary (majority, supermajority, or unanimous). Some of the most common consent requirements include:

  • Major Transactions: Selling company assets outside the ordinary course of business, mergers, conversions, dissolutions, or taking on substantial debt are usually subject to member consent, not just manager action.
  • Admission of New Members: Most operating agreements require existing members to approve any new member by a specified voting threshold, protecting ownership interests.
  • Amendments to the Operating Agreement: Nearly all amendments must be approved by the members, ensuring foundational rules can’t be altered without the broad agreement of the business owners.
  • Manager Appointment or Removal: The ability to elect, remove, or replace managers almost always rests with the members, though the operating agreement determines the voting threshold.
  • Capital Calls and Financing: Requiring additional capital contributions or issuing new interests often needs member consent to avoid diluting ownership or imposing unanticipated financial obligations.

These provisions both empower and protect members, creating a safeguard against unilateral manager action on issues that fundamentally alter the company or member interests.

Limitations of Member Power

In manager-managed LLCs, members generally lack the authority to make or bind the company to ordinary business decisions or contracts—that authority is vested in the manager(s) alone (that’s the whole point of appointing a manager). The operating agreement can further limit member authority by:

  • Restricting member participation solely to reserved powers enumerated in the operating agreement.
  • Requiring a specified process (like a formal vote at a meeting or written consent) for exercising those reserved powers.
  • Prohibiting members from acting as agents of the company unless designated.

This clear separation of authority simplifies external dealings—third parties can rely on the manager’s authority. At the same time, knowing members lack default authority to act for the company unless the matter expressly requires member approval.

Fiduciary Duties and Good Faith Obligations

The LLC Act expressly allows the operating agreement to expand, restrict, or even eliminate fiduciary duties of members, except for the duty to act in good faith and adhere to the implied contractual covenant of good faith and fair dealing. Any attempt to waive this core duty is subject to the standard of “manifest unreasonableness” and is generally not enforceable.

As a result, members must always act honestly and fairly in exercising any reserved powers or enforcing rights under the operating agreement.

Drafting and Updating the Operating Agreement

Given the importance of the operating agreement, Pennsylvania small businesses are strongly advised to:

  • Clearly delineate manager and member roles from the outset
  • Specify which foremost transactions or changes require member consent and set appropriate voting and notice procedures
  • Revisit and update the agreement as the business grows, member composition changes, or new regulatory needs arise

A thoughtful approach ensures both the effective delegation of daily operational authority and the preservation of member safeguards on significant issues.  Operating agreements are creatures of contract, so they can contain nearly any provision the company finds most helpful for allocating responsibility and authority.

Defining Member Roles to Strengthen LLC Governance

Members of Pennsylvania manager-managed LLCs typically serve as investors, with their powers reserved for key issues. Their scope of duty focuses on exercising consent for fundamental decisions, contributing capital, fulfilling contractual commitments, and acting in good faith. The operating agreement—customized to the business’s needs—defines both the limits of members’ power and the consent process, serving as the keystone of governance and the protection of rights. Contact us today to schedule a consultation.