While some business start-up owners are familiar with the term, limited liability company (LLC), they may not realize that there are different types of LLCs. The following information will explain the different formations used in establishing an LLC.
Defining the Different Types of LLCs
To define the different types of LLCs, it is the easiest to distinguish between the different types of LLCs that have similar purposes. In this case, we want to compare the features of the following LLCs:
- Single-member and multi-member LLCs
- Member-managed and manager-managed LLCs
- Holding and operating LLCs
- Domestic and foreign LLCs
Let’s look at and define single-member and multimember LLCs first.
Single-member and Multimember LLCs
An owner of an LLC is also called a member. Therefore, a single-member LLC is run by one owner. However, just because one owner operates the LLC, the LLC is still different than a sole proprietorship. A sole proprietor only has to fill out a single personal tax return.
On the other hand, a single-member LLC must file a personal return and a return for the business.
A single-member LLC makes it possible for an LLC owner to separate his or her personal assets from the company assets. That means, if he or she is sued, they do not have to give up their house or car to pay off a business debt or fulfill a liability claim.
The money the company makes as a single LLC receives pass-through taxation. Therefore, the company’s earnings are recorded on the single owner’s or member’s personal tax return.
As you might have already guessed, the establishment of a multi-member LLC involves multiple owners. This type of LLC is sometimes referred to as a limited liability partnership, or LLP.
Just like an LLC with one member, a multi-member LLC provides more in the way of liability protection. In this case, a multi-member LLC, or limited liability partnership (LLP), provides the owners with more protection from personal liability than a general partnership.
Learn More About the Different Types of LLCs by Contacting Moallei Law
To make sure you can distinguish between the different types of LLCs, you can call me anytime for legal advice and guidance.
Simply email email@example.com for further information and to schedule an appointment for a consultation.
Mollaei Legal Tip
The number of employees in your LLC does not affect the status of the LLC with respect to membership. For example, you can still set yourself up as a single-member LLC and have 100 employees working for you. A single-member or multi-member LLC refers only to the number of owners running the LLC business.
An LLC can be owned by an individual or another LLC. Therefore, if you have been contemplating a more complex LLC structure, you will need my legal help. Email firstname.lastname@example.org anytime with your business inquiries.
What You Need to Do if You Establish a Multi-Member LLC
If you set up your LLC with more than one owner as a multi-member LLC, you need to create an operating agreement that outlines exactly how you plan to resolve disputes and do business.
Therefore, you will need to set up bylaws in your partnership agreement that specifies how you will handle disagreements. Set up clear guidelines so you will know the roles and responsibilities of each of the member partners.
What are the 2 Main Different Types of LLCs for Managing an LLC Business?
The 2 main different types of LLCs, with respect to management, are member-managed and manager-managed LLCs. When you register your LLC through the Secretary of State’s office where your LLC is located, you need to specify whether you are setting up a member-managed or manager-managed LLC.
In this scenario, member-managed LLCs are run by the actual members or owners. If the LLC is operated by a manager, or is set up as a manager-managed LLC, the member or members of an LLC have delegated the oversight of the LLC to a non-member.
What 2 Different Types of LLCs Cover Asset Holding and Operations
The 2 main different types of LLC used for holding assets or operating as a business include the holding (or umbrella) LLC and the operating LLC.
Therefore, some LLC companies are established to hold assets, such as real estate. They may also be established to serve as an umbrella holding company for subsidiary businesses.
In either case, both these types of LLCs are considered holding companies. Holding LLCs are designed to provide added layers of protection from lawsuits and other forms of liability.
If you set up an LLC to operate a business, it is called an operating LLC. Therefore, an operating LLC is formed to run a business as opposed to a holding LLC, which exists to hold assets.
Most small business choose to begin as operating LLCs. Therefore, these LLCs are more common than other LLCs.
What are 2 Different Types of LLCs that Base their Formation on Location?
When it comes to location, you can establish 1 of 2 main different types of LLCs for your business. You can either set up a domestic LLC or a foreign LLC.
The term, “foreign,” does not refer to an LLC in a country outside the U.S. Instead, it references an LLC that registers as a business in a state outside the owner’s current state of residence.
Therefore, a domestic or foreign LLC refers to the state where the owner creates an LLC. For instance, if you do business in California and register your LLC in California, your LLC is considered a domestic LLC.
However, if you also do business in Illinois, or have a physical presence there, you are operating in that state as a foreign LLC.
Often, a company will create a foreign LLC if the LLC owner does business in his or her state but they wish to create an LLC with more business-friendly LLC laws.
You might also create a foreign LLC if you start expanding in another state. To register a foreign LLC, you need to submit the required forms with the Secretary of State’s office for the foreign state.
If you register a domestic LLC, you will generally have a bank account in the home state, own property in the state, or have offices in the state where you hold regular meetings.
What To Do Next
To set up an LLC is not a complicated process even if different types of LLCs exist. You just need to do the following:
- Choose and enter a unique business name for your LLC
- Obtain the services of a registered agent so your company has a way to receive and sen business-related mail during the business work week
- Register your business and pay the appropriate fees
- Draft an operating agreement to reference how to manage the LLC
- Pay the annual costs assessed for operating the business
Whatever type of LLC you register, you will need ongoing legal advice and help. That is why you need to contact me and my legal team for assistance. Book a call to speak to us here: https://mollaeilaw.com.
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