What are the Different Types of LLC?
LLCs are a popular business entity, and there are various types of LLC you can choose from. For example, a limited liability company or an LLC is a business structure that effectively combines the pass-through taxation advantage while providing liability protection simultaneously.
LLCs are relatively easy to form by contacting LLC lawyers and creating a staunch LLC operating agreement. However, the type of LLC you choose will affect your business protection and federal tax clauses.
Here's a list of the different types of LLC to give you further insight on the subject:
Single-Member LLC
A single-member LLC comprises a single owner without any legal partners. As far as taxation is concerned, a single-member LLC is considered a 'disregarded' or sole business entity like a sole proprietorship.
Furthermore, because this LLC has no employees, its operating agreement is created with minimal clauses to identify its status as a separate entity. Most importantly, single-member LLC owners need to keep their personal and business assets separate for tax purposes.
Multi-Member LLC
Multi-member LLCs are simply LLCs with partners. Whether the LLC has two or more partners, each will have a share percentage in the company depending on their investment.
This percentage should be specified in the LLC's operating agreement to avoid future inconveniences. The IRS treats a multi-member LLC as a business partnership regarding taxation.
Manager-Managed LLC
A manager-managed LLC also comprises more than one member but has a different operating agreement than a multi-member LLC. The members select a manager among themselves or from a third party to oversee the basic operations of the business.
Apart from overseeing everyday operations, the manager will also have the right to make any decisions regarding the company without any input from the other members.
Member-Managed LLC
As the name suggests, a member-managed LLC is the opposite of a manager-managed LLC. In these types of LLC, the members have complete control over the crucial decisions and everyday operations conducted for their business.
However, the share percentage outlined for each member in the operating agreement will decide which member has the final say.
Family LLC
A family LLC consists entirely of family members. Any family member can be a part of this business entity, including blood relatives, adopted children, and spouses.
The state treats these LLCs as regular multi-member LLCs for taxation purposes. The articles of the organization define the controlling members of the LLC. However, the family members typically pick one or two members to manage the business.
Investment LLC
A group of people willing to invest in a particular business entity can form an LLC. An investment LLC combined some characteristics of a corporation and a partnership in terms of taxation and member benefits.
Real Estate LLC
A real estate LLC is a domestic limited liability company devised for investing in real estate.
However, the owner legally remains separate from the properties involved in the LLC. Therefore, in case of a transition to a different owner, rental property deeds won't need to be renewed. Contracts are solely between the property and the tenants without any legal involvement of the LLC owner.
Holding Company LLC
A holding company LLC, also known as an umbrella LLC, is a type of LLC that owns other small businesses. Usually, large business entities use LLC holding companies to divide their subsidiaries into separate legal entities.
Anonymous LLC
Anonymous LLCs are devised to protect the owner's privacy. Currently, only a few states let owners of domestic limited liability companies remain anonymous. These include Delaware, Nevada, Wyoming, and New Mexico.
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What Is an LLC?
An LLC or limited liability company is an innovative business structure introduced in the US. The structure is designed to protect owners from the responsibilities of business ownership. These include debts, liabilities, and taxes.
Created in 1977, LLCs are mainly hybrid business formats that provide unique characteristics from other business structures.
For example, its limited liability feature makes it similar to a corporation. At the same time, the pass-through taxation system is the main feature of a partnership. Today, there are many types of LLCs operating in the US for business owners to choose from.
Here is an article about choosing the proper business structure to see if LLCs are right for you.
How Many Types of LLCs Are There?
There are many types of LLCs operating under the limited liability legal system. Mainly, LLCs are divided based on their ownership and management.
Meaning an LLC can be either single-member or multi-member in terms of ownership. A sole business owner can create an LLC or make it by multiple owners having their share percentage.
On the other hand, an LLC can be member-managed or manager-managed. This depends on how the owner or owners choose to manage their LLC.
Based on these two main structures, the LLC can belong to other sub-types of LLC. These include family LLCs, holding company LLCs, and real estate LLCs.
Here is an article about the different kinds of LLCs you can work with.
Can an LLC Be an S Corp?
Usually, the terms LLC and S Corps are used alongside each other, while both carry entirely different meanings. For example, an LLC is a type of business entity. On the other hand, an S corp denotes a tax classification.
That's why, in some cases, a company can be both an LLC and an S corp. For example, a business owner can form an LLC but can be taxed as an S corp. In this case, your company will still be taxed under the basic LLC taxation system.
Here's an article about the differences between LLCs and S corps.
Which Types of LLC Are Best for Me?
Choosing the correct option from the multiple types of LLCs can be a tricky task.
You can start by analyzing the main goals of your business and considering the laws of your state. Besides that, you'll also have to consider the members involved.
For example, if you're going for a sole proprietorship, then a single-member LLC is the structure for you. However, if multiple members are involved in your business venture, you should go for multiple-member LLC.
Further, you'll have to discuss with your fellow members about the management technique of your company. In this case, you'll have to choose between member-managed and manager-managed LLCs.
The best way is to get some professional help. If you're wondering how much a lawyer charges for an LLC, here's an article about how to get an LLC to help you out.
How Do I Get an LLC?
Getting an LLC is a straightforward task. However, you'll have to follow some steps to form a proper organization.
- Choose a Name. Your business’ name goes on to become the face of your company. That's why you should choose a suitable name for marketing purposes and helps you create a positive brand identity.
- Get a DBA Name. If you want to run your company under a different name, you'll have to register a DBA. Meaning you're doing business under the assumed name.
- Fill the Articles of Organizations. Next, you will need to file articles of organization according to your state laws. Again, this is a simple document that you can get from your state's business or filing office.
- Create an Operating Agreement. After filing for an article of organization, you'll need to draft an operating agreement. Here, you'll have to take the different types of LLC into account. For example, if yours is a multiple-member LLC, your contract will specify the ownership percentage of each member.
And that's it. Once you have created your LLC, your state might require you to announce it through various publications or obtain other relevant licenses and permits.
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