Potential Manager

I recommend Single Member LLCs designate a trusted person to stand as the LLC’s “potential” manager. A “potential” manager’s function is to act as LLC manger if needed. This option is raised in the Pre-Organization Questionnaire Letter.

The “potential” manager only has power with respect to the LLC when and to the extent described in the LLC Operating Agreement. The “potential” manager does not have or get an ownership interest in the LLC.

The “potential” manager only becomes involved in the LLC upon 1) the request of the LLC’s single owner/member, 2) physician determined mental disability of the single owner/member, or 3) the death of the single owner/member, and then, in each of these scenarios, the “potential” manager becomes acting LLC manager only if the “potential” manager contemporaneously consents to do so.

Having someone to step in and manage the LLC if needed gives a Single Member LLC the stability and viability of a Multi-Member LLC in certain situations which allows a Single Member LLC so organized to deliver greater value to the client. Additionally, having a “potential” manager adds a level of sophistication to the Single Member LLC that may bolsters a defense against attempts to set aside LLC asset and liability protection.

If a “potential” manager provision is used, to protect the “potential” manager, I modify the statutorily imposed fiduciary duties and include an alternative dispute resolution provision in the LLC Operating Agreement. (See Single Member LLC Fiduciary Duties and Alternative Dispute Resolution).

When I organized “Form” LLCs I did not offer a “potential” manager provision.