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Independent Manager – Why?

In our blog “What is an Independent Manager?” we briefly touched on why an LLC would appoint an Independent Manager.independent manager - why? Before we dig a little deeper into the why of Independent Representation – did you know there are other names this special role goes by, dependent upon the type of entity? Independent Director, Springing Member, and Special Member are some of the other terms you will hear when referring to this special type of representation within a company’s board. An Independent Director and a Springing Member are both types of Special Members. A Springing Member is a member that sits dormant until an event triggers the need to bring the Member into action. This could then cause them to be an Independent Manager. For the sake of this blog, we’ll stick to discussing an Independent Manager on an LLC’s board of managers.

So, why appoint someone to this special role? There are various reasons for appointing this position, but a common motive for appointment is to protect the lender.    As an independent party with no financial relationship with the LLC, an Independent Manager simply fulfills their obligation as indicated in the operating agreement. This section of the operating agreement is drafted with consent by the lending party, so this independent party acts as a representative for the financial institution.

As long as there is a debt held by the lender or financial institution, the Independent Manager would remain active and required to vote in the interest of the lender or financial institution, including voting against bankruptcy, thus safeguarding the lender.

While the situations and names may vary, the role is rather consistent. If you have any questions about or need to appoint Independent Representation, just give us a call or email us.

 

Amanda No Comments

What is an Independent Manager?

This week’s informational blog covers the basics of what Independent Representation is byIndependent Manager answering the question – What is an Independent Manager?

A Limited Liability Company (LLC) is managed by a board of managers.  The board of managers oversees the activities of  an LLC.  An Independent Manager is a special type of manager appointed to the LLC’s board that has no equity relationship with the entity and thus is considered to be independent of the LLC’s ownership.  The role of this unique position is usually outlined in the LLC’s operating agreement.

So…Why would an LLC appoint an Independent Manager? Appointment of Independent Representation may be a lender or third party requirement in a transaction. This special position provides a level of security for the third party. (Think of it as insurance.) As we previously mentioned, the third party will detail the Independent Manager’s duties when drafting the operating agreement. These duties generally require the Independent Manager be a party to and vote in certain major board decisions. Again, the specific types of decisions the Independent Manager must give consent for are also outlined in the operating agreement of the LLC.  By requiring this unique position, the third party retains some control over the LLC without actively managing the entity.

These are just the basics. If you want to learn more, have questions about, or need to appoint Independent Representation, feel free to reach out to us. We would be happy to assist you. And don’t forget to keep an eye on our blog for more info to come…