Chapter 14 - § 14.6 • MANAGERS

• Jurisdiction: Colorado

§ 14.6 • MANAGERS

§ 14.6.1—Manager Managed Versus Member Managed

When forming an LLC, the members must make a decision as to how the affairs of the LLC will be managed. This decision must be designated in the LLC's initial articles of organization.²⁵⁵ Thus, the decision will need to be made early and can only be changed by a proper amendment of the articles of organization.

If management of the LLC's affairs is to be by all of the members, both current and future members, then it must be understood that each member, no matter how small the member's interest, will be an agent of the LLC "for the purposes of [the LLC's] business."²⁵⁶ This agency can only be eliminated by ensuring that the articles of organization reflect that the LLC is to be managed by its managers.

If an LLC is managed by managers, then each manager has agency authority "for the purposes of [the LLC's] business,"²⁵⁷ and members have no agency authority.²⁵⁸ Thus, the managers, even a "board of managers" is not like the board of directors of a corporation, which operates by majority vote. The operating agreement can attempt to define or eliminate the agency authority of directors, but under agency law such a limitation is only effective against third parties with actual notice.

Even though articles of organization of an LLC may reflect that an LLC is to be managed by managers, there is no obligation that the LLC actually appoint managers. The operating agreement can authorize the members, in the absence of any manager, to appoint officers.²⁵⁹ In that way, no person has the statutory agency authority, and the rights of the officers are defined in the resolutions appointing them.

For these and other reasons, it may be best, and some find it to be a "best practice," to designate management by managers from the outset and just appoint all of the initial members as managers as well.²⁶⁰

§ 14.6.2—How Many Managers Must an LLC Have?

As it is not required that the affairs of a Colorado LLC be managed by managers, there is not necessarily a minimum number of managers that must be appointed. As noted, the LLC Act does not even require that if management is to be by managers, there must be at least one manager.²⁶¹

§ 14.6.3—Who Can Be a Manager?

If the management of the affairs of the LLC is vested in managers, any managers must be at least 18 years old, if the manager is an individual.²⁶² There is no requirement in the LLC Act that managers be individuals. Also, there is no requirement that the...