Commercial litigation can be a very expensive process for most businesses in terms of distraction and potentially derailing the main purpose of the business. The majority of businesses expect commercial disputes to be solved efficiently and quickly, while maintaining the core business objectives at the front.
In this post we look at the definition of a managing member and the role they play during commercial litigation.
Who is a Managing Member?
While their title may change depending on the type of business, a manging member is any individual who is involved in the daily running of a business or company. A managing member should have shared interest with the company as a n owner with an authoritative position that gives them the authority to act on behalf of the company.
As an authoritative figure, the managing member can represent a company during contract negotiations and agreeing to the conditions of a binding contract.
It is important to note that a managing member is not a workplace title since the individual owns and manages the company or business at the same time.
However, there is a difference between a manger managed business and a managing member business.
The former is when members of an organisation decide to hire either one or more manager who are responsible for running the daily operation of the business. For manager managed organisations the members are not involved in the running of daily operations of the organisation and the manager should not be a member of the organisation.
Benefits Of Being a Managing Member
There are two main benefits if being a manager member for an organisation The first benefit is personal liabilities. The majority if managing members often retain the limitations of personal liabilities from the organisation.
However, as a managing member you are responsible for any actions that are outside the usual operations of the organization.
In the case of commercial litigation, a managing member is also subjected to personal liability if it comes from the organization they are working under. This mostly happens if others members can prove that the actions of the managing member caused harm to the organization.
The other benefit affects the taxation of managing members. Since the managing member is actively running the daily operations of the organization as an owner, the IRS considers a partial or full amount of the profit to be considered as profit.
This makes the income to be subjected under the self-employment tax and to avoid complications in the future, it would be best if you seek the services of a tax professional. Other benefits include:
- The direct running of an organization
- Purchase and sale of properties owned by the organization.
- Hiring and firing employees
- Agreeing to binding contracts
- Health insurance benefits are exempt from income tax
Disadvantages of Being a Managing Member
The main disadvantage of being a managing member is that after they receive their share of the distributed revenue from an organization, they are liable to pay for their self-employment tax. The current self-employment tax stands at 12.4% which can be a lot for most managing members.
Additionally, the majority of income for managing members is considered as gross income which is subject to taxes.
The Role of Managing Members in Commercial Litigation
The majority of organizations often choose to employ the services of a commercial litigation lawyer to avoid any complications to their businesses.
The current situation of the legal and litigation environment leads to many organizations to have challenges during litigation management, risk managers, insures and claim professionals have a ton of legal needs. As a managing member you should be aware of the three main pillars of managing commercial litigation.
Wisely Choosing A Commercial Litigation Attorney
Before selecting a commercial litigation attorney, the managing member should do due diligence when deciding on which law firm or attorney to pick. Some of the big law firms (International Association of Défense Counsel and the American Law Firm Association) provide specialty directories that can help managing members with particular issues.
Managing members should actively be networking with other industry colleague to get an understanding of what to do in case commercial litigation affects their business. To that end, there are forums and websites available to make networking much easier.
As a managing member, you should approach the decision of selectin a commercial litigation symmetrically. The process starts by selecting a few approved counsels who are either form the organization or from the insurer.
Proper Control Of Costs
The role of a managing member involves the control of costs for the organization.
When dealing with commercial litigation, the managing member should prepare written guidelines especially for external commercial attorneys. However, the managing member should prepare two guidelines, the first one for when the commercial litigation makes your list and the second one after they have been assigned a case.
The guidelines should cover the basics of what you the managing member or organization is willing to pay in terms of hourly rates, the format and rate of payments or any other budgeting and expense forecasting requirements.
However, you should remember that if the commercial litigation attorney is hired by the insurance company, the attorney is still under the managing manager. The managing member also has to insist on written budgets, especially after 90 days since the commercial litigation attorney was assigned the case.
The managing member should have a list of written requirements which are often communicated to outside counsel. Remember that commercial litigation goes beyond cost management and the guidelines provided earlier and should dover service standards and not only billing issues. The standards give managing members a framework for their client’s “bill of rights”.
Based on the service standards, the managing member can create a regular assessment which checks their overall performance in the key sectors such as results, costs and services. Using the report, focus on areas that need major improvement and if the managing member is not satisfied with the level of legal counsel, this is a great opportunity to let them go.
Managing members are often involved with the business in terms of running the organization and also ownership. However, when it comes to commercial litigation, they should have a clear guideline of what they are to do to avoid the organization facing losses.
While a managing-member and managing manger have different roles, the former proves to be more beneficial when it comes to solving commercial litigation issues.