6 Del. C. § 18-402 explained: § 18-402 Management for Delaware LLC founders (2026)

What 6 Del. C. § 18-402 says

Section 18-402 establishes the default: member-managed LLCs unless the Operating Agreement specifies manager-managed. Members have authority to bind the LLC in transactions with third parties unless restricted.

Why this section matters

Defines who has authority to act on the LLC's behalf. Default rule applies when Operating Agreement is silent.

What this means for non-resident Delaware LLC founders

Most non-resident bootstrap LLCs are member-managed. The single member has full authority to bind the LLC.

Common pitfalls

• In multi-member LLCs, any member can bind the LLC under default member-managed rules.
• Manager-managed structure requires explicit Operating Agreement provisions.

How 6 Del. C. § 18-402 interacts with the Operating Agreement

The Delaware LLC Act is largely a set of default rules that apply when the Operating Agreement is silent. Section 18-1101 directs courts to give "maximum effect to the principle of freedom of contract," meaning members can contract around most defaults via their Operating Agreement. The implied covenant of good faith and fair dealing always applies and cannot be eliminated by contract.

Practical implication: 6 Del. C. § 18-402's default rule applies only if your Operating Agreement does not address the same topic. A well-drafted Operating Agreement supersedes most Delaware Act default rules. For solo single-member LLCs, this matters less; for multi-member LLCs and complex structures, it matters significantly.

Primary source

The text of 6 Del. C. § 18-402 can be read at the official Delaware Code website: delcode.delaware.gov/title6/c018/. The Delaware Division of Corporations publishes guidance and forms at corp.delaware.gov.

Related Delaware LLC Act sections

Related sections in the management category and adjacent topics include the formation sections (§ 18-201 to § 18-213), member rights (§ 18-301 to § 18-306), management (§ 18-401 to § 18-402), distributions (§ 18-501 to § 18-507), and dissolution (§ 18-801 to § 18-803). For a full mapping, see the Delaware LLC Act glossary entry.

See all Delaware LLC statutes →

What does Section 18-402 actually decide?

Section 18-402 of the Delaware Limited Liability Company Act answers a single, foundational question about any Delaware LLC: who is allowed to run it and act in its name? The statute sets a default rule that the LLC is managed by its members. In plain language, that means the people who own the company are also the people who make decisions and sign on its behalf, unless the company's own internal contract says otherwise. The section also recognizes a second model, the manager-managed LLC, where management authority is placed in the hands of one or more managers who may or may not be members. The choice between these two structures is not forced on you by the state. Delaware leaves it to the Operating Agreement, and Section 18-402 simply fills the gap when that agreement is silent.

It helps to read this section as a piece of background plumbing rather than a command. It does not order you to organize your company in a particular way. Instead, it describes what the law will assume in the absence of a clear choice. That distinction matters because so much of the Delaware LLC Act is built on freedom of contract. The members can design almost any management arrangement they want inside the Operating Agreement, and Section 18-402 only steps in to supply an answer where the founders have not supplied one themselves. For a non-resident founder reading the statute for the first time, the practical takeaway is that the default favors owner control, which is usually exactly what a small founder-led company wants.

Member-managed versus manager-managed in everyday terms

The two structures recognized by Section 18-402 describe different chains of authority. In a member-managed LLC, each member ordinarily has the power to participate in running the business and to act for the company in ordinary dealings. In a manager-managed LLC, that operating authority is concentrated in designated managers, and members step back into a more passive, investor-like role. The Operating Agreement is where you express which model applies and how finely you want to slice the powers involved. Delaware does not require you to pick from a fixed menu. You can blend features, reserve certain decisions for member votes, and grant day-to-day authority to a manager for everything else.

Here is a simple way to frame the difference when you are deciding:

• Member-managed fits founders who want hands-on control and direct signing authority over the company.
• Manager-managed fits arrangements where owners want to invest but delegate running the business to someone else.
• A single-member LLC is almost always member-managed by default, because there is only one owner to run it.
• You can name a manager who is not an owner, which is useful when a passive investor structure is involved.

Because Section 18-402 supplies the member-managed default, a company that never addresses the question in writing will be treated as member-managed. That is rarely a problem for a solo founder, but it becomes important the moment a second owner joins, because the default then spreads operating authority across every member at once.

Why this matters to a non-resident single-member owner

If you are a non-resident founder running a single-member Delaware LLC, Section 18-402 is the reason you, as the sole member, hold full authority to act for the company. There is no separate manager class standing between you and the business unless you deliberately create one in the Operating Agreement. This is the structure most bootstrap LLCs use, and it keeps things simple. You open the bank account, you sign vendor agreements, and you bind the company in ordinary transactions, all flowing from your status as the managing member under the default rule. The statute does not make you prove residency or appoint a local manager to gain this authority.

The simplicity is a genuine advantage, but it carries a quiet responsibility. Because you alone hold authority, there is no internal check on your decisions, and there is no co-manager to share signing duties when you are unavailable. For a founder operating across time zones, that can matter. Many solo founders address this by naming a backup or by granting a limited power of attorney through the Operating Agreement, all of which Section 18-402 permits because it defers to the agreement the members write. The section gives you the default control you want and the contractual freedom to adjust it when your situation grows more complex.

How it interacts with your Operating Agreement

The Operating Agreement is the document that overrides or refines the default in Section 18-402. The statute works on a gap-filling basis, which means anything the agreement clearly states takes priority, and the default only governs the spaces the agreement leaves blank. This is why a well-drafted Operating Agreement is the most important governance document for a Delaware LLC. If you want manager-managed status, the agreement is where you declare it. If you want to limit which transactions a member can authorize alone, the agreement is where you set those limits. Section 18-402 will not invent those restrictions for you, so silence in the agreement is read as acceptance of the broad default.

Consider what the agreement can do alongside this section:

• Declare the company member-managed or manager-managed and name who holds authority.
• Require approval from multiple members before certain large transactions can bind the company.
• Carve out specific powers, such as borrowing money or selling major assets, for a separate vote.
• Set how managers are appointed, removed, and replaced over the life of the company.

For a single-member LLC, even a short Operating Agreement that confirms the member runs the company helps document the structure for banks and payment processors, which often ask to see it. It also makes your intended management model explicit instead of leaving it to a statutory assumption.

Where the Certificate of Formation fits

The Certificate of Formation is the public document filed with the Delaware Division of Corporations to bring the LLC into existence, and the standard filing fee for it is $110. It is intentionally minimal. Unlike some states, Delaware does not require the Certificate of Formation to declare whether the LLC is member-managed or manager-managed. That governance choice lives in the private Operating Agreement, not in the public record. So Section 18-402 and the Certificate of Formation play very different roles: the certificate creates the legal entity, while Section 18-402 and your Operating Agreement decide how that entity is run.

This separation is useful for non-resident founders who value privacy. Because management structure is not printed in the Certificate of Formation, the details of who controls the company are not part of the public filing. A reader of the public record will see that the LLC exists, but not the internal authority map. That keeps sensitive arrangements inside the Operating Agreement where the members control access to them. It also means you should not expect the certificate to prove your authority to a third party. When a bank or counterpart wants evidence that you can sign for the company, they typically look to the Operating Agreement, which is the document that reflects the structure Section 18-402 either confirms or defers to.

A few practical scenarios

Imagine a solo non-resident founder who never writes an Operating Agreement and simply files the Certificate of Formation. Under Section 18-402, that LLC is member-managed by default, and the founder holds full authority to bind it. The arrangement works, but the founder may struggle to satisfy a bank that asks for governing documents showing signing authority. Writing even a brief agreement solves that friction without changing the underlying default.

Now imagine two founders who go into business together without addressing management in writing. The default member-managed rule means either one of them can bind the company in ordinary transactions on their own. Common situations that flow from this include:

• One partner signs a vendor contract the other did not approve, and the company is still bound to it.
• Each member assumes the other is handling a filing, and no one does, because authority was never assigned.
• A dispute arises over spending, with no internal approval threshold to point to because none was written.

A third scenario is a founder who wants a passive investor to fund the business while a working partner runs it. Here, a manager-managed structure declared in the Operating Agreement matches the intent far better than the default, because it concentrates authority in the working partner and keeps the investor in a non-managing role.

Common misunderstandings about Section 18-402

A frequent misunderstanding is that the management structure must be filed with the state or appear in the Certificate of Formation. As described above, Delaware keeps that choice in the Operating Agreement, so there is nothing to register publicly to confirm whether you are member-managed or manager-managed. Another misunderstanding is that Section 18-402 by itself limits a member's authority to act for the company. The default actually does the opposite for a member-managed LLC: it grants broad authority unless the Operating Agreement restricts it. Founders who assume the statute quietly protects them from a co-owner's unilateral decisions are often surprised to learn that the protection has to be written into the agreement.

People also sometimes conflate management with ownership. Section 18-402 is about who runs the company and who can act in its name. It is not the same as who owns the economic interest, and it is not the same as the tax classification you select with the IRS. A single-member LLC can apply for a free EIN using Form SS-4 regardless of its management model, and the management default does not change federal filing duties such as the Form 5472 plus a pro forma Form 1120 that many foreign-owned single-member LLCs must file. Treating management, ownership, and tax as one undifferentiated topic leads founders to expect Section 18-402 to answer questions it was never meant to address.

What happens if you ignore the question

Ignoring the management question does not break your LLC. The company still exists once the Certificate of Formation is filed, and the default in Section 18-402 quietly governs. For a solo founder, ignoring it usually causes no harm beyond the occasional inconvenience of not having an Operating Agreement to show a bank. The consequences grow with the number of owners. With multiple members and no written agreement, the broad member-managed default means any member can commit the company, and there is no internal record of who decided what. That ambiguity tends to surface at the worst time, during a disagreement or a transaction someone later regrets.

The realistic costs of leaving the question unaddressed look like this:

• Friction proving signing authority to banks, processors, or counterparts who ask for governing documents.
• Disputes among co-owners over decisions that no one was clearly authorized to make alone.
• Confusion when ownership changes, because there is no written process for adding or removing managers.
• A weaker paper trail if the company ever needs to demonstrate how it was governed.

None of these are statutory penalties. They are practical risks that come from relying on a default rule meant to be a fallback rather than a deliberate design. The fix is almost always an Operating Agreement that states the structure you actually want.

How the default rule compares to a written choice

The contrast between the Section 18-402 default and a deliberately drafted structure is the contrast between accepting an assumption and making a decision. The default assumes member management and broad member authority. A written choice lets you keep that, narrow it, or replace it entirely with manager management. Both paths are valid under the Delaware LLC Act, because the statute is designed to defer to the members' agreement. The question is whether the default happens to match your intent. For a single-member LLC, it usually does, which is why so many non-resident founders rely on it without conflict.

For anything more involved than a solo company, a written choice tends to be the more durable approach. It removes guesswork about who can act, it documents how authority moves when people join or leave, and it gives third parties something concrete to rely on. The default is not a trap, and it is not second-class. It is simply a general rule that cannot anticipate the specific arrangement two or more founders may want. Section 18-402 gives you both options and lets the Operating Agreement decide between them, which is the broader pattern across the Delaware LLC Act and a large part of why the state is a common home for founder-led companies.

Putting Section 18-402 to work for your company

For most non-resident founders, the sensible response to this section is short and concrete. Decide whether you want member-managed or manager-managed structure, write it into an Operating Agreement, and keep that document with your formation records alongside the Certificate of Formation. If you are a sole owner, confirming member-managed status in writing aligns your paperwork with the default and removes any doubt for banks and payment processors. If you have partners or investors, the agreement is where you assign authority precisely so the broad default does not produce surprises later. This general information is not legal advice, and a founder with an unusual structure may benefit from professional drafting help.

It also helps to keep management separate in your mind from the other obligations that come with a Delaware LLC. Section 18-402 governs control, while ongoing items like the $300 flat annual franchise tax due June 1 sit in a different part of your compliance calendar, and federal items such as the free EIN obtained through Form SS-4 or the Form 5472 and pro forma Form 1120 filings live with the IRS. Keeping these buckets distinct makes the law easier to follow. Management is about who acts, the franchise tax is about staying in good standing, and the federal forms are about reporting. Section 18-402 sits squarely in the first bucket, and treating it that way keeps your governance clear as the company grows.