What Are the Different Types of LLC?

A single-member LLC (SMLLC) has one owner, while a multi-member LLC (MMLLC) has more than one owner. A Professional LLC (PLLC) is reserved for licensed professionals such as doctors, lawyers, and accountants.

The different types of LLCs are:

• Single-member LLCs

• Multi-member LLCs

• Member-managed LLCs

• Manager-managed LLCs

• Professional limited liability companies (PLLCs)

• L3C companies

• Series LLCs (only available in some states)

• Restricted LLCs (only available in Nevada)

• Anonymous LLCs (only available in Delaware, Nevada, New Mexico, and Wyoming)

You may have heard about domestic LLCs and foreign LLCs. A domestic LLC is created in the state where the business operates. A foreign LLC is formed in another state. This FindLaw article will describe the various types of LLCs, their uses, and how they are taxed.

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Why LLCs Are a Popular Choice

An LLC is a reliable choice for new business owners and startups because it limits the risk of an owner’s personal assets being seized to pay the debts and obligations of the company.

Additionally, owners can elect a pass-through tax status as a disregarded entity. That means any business profits bypass taxation at the corporate level and are assessed entirely on an owner’s personal income tax return. This avoids the double taxation issue common with corporations that choose C corporation (C-corp) tax status.

LLCs are easy to organize and maintain if you register the business with the state, pay the renewal fees, and follow the required formalities. Still, LLCs have many facets, and not all of them are apparent at first glance. LLCs come in various types, which can vary from state to state. Knowing about these LLC types and where they are available can help you decide which is right for your business.

Understanding Different Types of LLCs

You might think LLCs seem straightforward. However, the many intricacies of business have necessitated the creation of different types of LLCs over time.

LLCs are governed by the state laws in which they are organized. Organizing an LLC means registering the business with the state’s governmental business authority (typically a secretary of state). This process includes drafting an operating agreement between the owners and filing articles of organization with the state. Once the LLC is created, the government will view it as a separate legal entity from its owner. With an LLC, your personal assets are protected if the LLC has debts or faces a lawsuit.

A critical point in organizing your company will be choosing what kind of LLC your business will be. For an important decision like this, you must research what types of LLCs are offered in the state where you plan to organize.

Single-Member LLCs

Single-member LLCs are recognized in every state and are the most common type of LLC. Here, the word “member” is a stand-in for “owner.” Single-member LLCs have an individual owner. The Internal Revenue Service (IRS) treats them as sole proprietorships for tax purposes. Many sole proprietors become single-member LLCs for the limited liability protection and to report net income and profits on their personal tax returns.

Multi-Member LLCs

Multi-member LLCs are simply LLCs with multiple owners. Multi-member LLCs have an advantage over limited partnerships (LPs) in that all members enjoy limited liability protections. In a LP, the general partner has unlimited liability, and only limited partners have liability limited to their investment. Entrepreneurs with a limited partnership may want to change their structure to a multi-member LLC.

Members each have the option to decide how they want to pay taxes on their share of the business’s profits.

Member-Managed LLCs

This is an LLC that the members or owners of the company manage. The decision of whether to be member-managed or manager-managed is made when the LLC is organized. Of the two, member-managed LLCs are more common in the United States.

Manager-Managed LLCs

In manager-managed LLCs, the members decide on managers and ascribe responsibilities and duties. Managers are named in the operating agreement, which the owners then sign. Owners can be managers. Any owners who aren’t also managers are not required to partake in the management of the business if they do not wish to.

PLLCs

Professional limited liability companies or PLLCs are for industries that require professional licensure. They are a typical structure for accountants, doctors, and lawyers. PLLCs ensure that owners are not legally responsible for the malpractice of other owners.

Requirements for PLLCs can be different from state to state. If you’re an owner in an industry requiring state licensure, it’s best to consult your state’s governmental business authority to determine what’s needed.

L3C Companies

A low-profit limited liability company or L3C is a for-profit entity formed for humanitarian efforts. L3Cs are often chosen for their pass-through taxation and their similarity to non-profits. However, the for-profit pursuit must come after the primary charitable purpose.

Series LLCs

A Series LLC is a structure that allows for many LLCs under one LLC umbrella. The parent LLC can take the company’s debts and obligations and attribute them to smaller units within the LLC, called series. Each smaller LLC has its own members, managers, and company assets.

Suppose that a series LLC has designated its debts and obligations to you, an owner of the company. In this circumstance, these debts and obligations are your responsibility and can be enforced if commitments are not met. It can often be a big responsibility for designated units of a series LLC.

This type of LLC is currently available in Alabama, Arkansas, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin, and Wyoming. Each state offers different protections.

Restricted LLCs

Restricted LLCs work differently for business owners than more traditional formats. That’s because owners have a 10-year waiting period from organizing before they can start receiving business distributions. Restricted LLCs can be used to manage and transfer family assets or real estate from one generation to another, deferring state and federal income taxes.

Restricted LLCs are only available in Nevada.

Anonymous LLCs

Anonymous LLCs are for owners who want to keep their company’s details private. Here, information access is restricted, so the public cannot obtain details on ownership and structure.

Anonymous LLCs are currently only available in Delaware, Nevada, New Mexico, and Wyoming

When filing your LLC business with the state, you must indicate on the formation document what type of LLC you want to organize. You may also have to note the management structure.

Key Takeaways

• LLCs limit personal asset risk while affording owners various tax options, such as avoiding a corporate tax by electing an S corporation (S-corp) tax status.

• The diverse needs and goals of LLC owners have necessitated the creation of different types of LLCs.

• LLCs all have similar characteristics (such as limited liability and pass-through taxation) but come in all shapes and sizes.

• Some LLC types are only available in certain states, so check with your state’s governmental business authority (such as the secretary of state) to determine what’s available to you.

Need Help Deciding Which Type of LLC to Choose?

There are many types of businesses with different needs. Choosing the proper business structure is an essential step in forming an LLC. The laws applying to LLCs differ depending on state law. While this affords owners more options, it often means doing much research. It is best to contact a local small business attorney to learn more about LLCs.