What to Know About the Different Types of LLCs

Share this post
Business Start-Up Essentials

Know Your Choices for the Different Types of LLCs

We love a choice. You may not have known that an LLC, limited liability company, can have a variety of business structures. So, you have a choice. Which will best suit your needs? Let’s look at the types of LLCs and what kinds of businesses they might be most beneficial for.

For background, a limited liability company is a separate legal entity from its owners and therefore offers personal liability protection. It also is a pass-through entity for tax purposes and offers tax flexibility via the option of S corporation election (if it meets the IRS’s qualification criteria). LLCs are simple to form and has relatively few ongoing compliance formalities. Keep in mind that getting advice from a licensed legal professional can help ensure they select the ideal entity.

Some of the LLC types overlap a little. For example, single-member LLCs can also be a member-managed LLC. Remember that the limited liability structure is a state construct, and LLCs rules and requirements vary from state to state.

Types of LLCs

  • Single-member LLC-This is a limited liability company with one owner. A single-member LLC is taxed as a sole proprietorship. This can be an attractive entity choice for an individual owner or a married couple who jointly owns a business.
  • Multi-member LLC-When LLCs have more than one owner, it’s considered a multi-member LLC. Multi-member LLCs get taxed as a general partnership. The structure is a popular option for co-owners who want the liability protection of a corporation without all the corporate compliance formalities.
  • Domestic LLC-A domestic LLC operates in the state where it has registered its formation documents (articles of organization)
  • Foreign LLC-For LLCs registered as domestic in one state and conducts business in another, it must get permission to operate as a foreign LLC in the other state. That involves a filing called foreign qualification. It is critical for business owners operating in multiple states to carefully research the requirements and talk with trusted legal and tax professionals so they understand their obligations.
  • Member-managed LLC-An LLC is member-managed when the owners are actively involved in the day-to-day operations and management of the business. This is the management structure most LLCs choose.
  • Manager-managed LLC-For LLCs with members would rather be hands-off with the day-in, day-out management of the company, they can instead appoint or hire one or more managers to handle the daily operations. The members primarily oversee higher-level decisions or are passive investors in the business.
  • Professional LLC-A PLLC is a limited liability company owned by licensed professionals, such as doctors, accountants, architects and attorneys. Some states require professionals with certain licenses to form a PLLC rather than a standard LLC. There may be extra steps, such as getting the professionals’ state licensing board to approve the entity’s formation documents.
  • Series LLC-With series LLCs, business owners can have multiple LLCs (series) under the umbrella of another LLC ( i.e.”master” or “parent” LLC). Each individual LLC within a series typically has its own assets, members, managers, rights, debts and obligations. The main advantage of the series LLC structure is that each LLC in the series is protected from the liabilities and debts of the other LLCs. Series LLCs are more legally complex to form and maintain, so it’s helpful to get guidance from an attorney when setting them up.

Selecting an entity type is one of the most impactful decisions you will make. It has ongoing legal and financial effects, so staying informed and working with trusted advisors are of major importance.