Different Types of LLC Corporation: Everything to Know
Types of LLC corporation include domestic, foreign, member-managed, manager-managed, single-member, multiple-member, series, restricted, L3C, and anonymous LLC.3 min read
What Is an LLC?
An LLC, or a Limited Liability Company, is a popular type of business entity for small businesses since it is simple and flexible to operate in contrast with the more formal corporate setup. You can set up an LLC by filing Articles of Organization or some similar formation document with your state.
Wyoming became the first state in 1977 to make laws for registering an LLC. The intention was to offer a new form of business structure that offered the benefits of personal liability protection, but could be taxed and managed like a partnership firm.
An LLC is a distinct legal entity different from its owners. The owners of an LLC are called its members. An LLC can have one or more members.
An LLC operating agreement outlines the rules and regulations for functioning of the company, including its ownership, governance, and changes in membership. This agreement between members of the LLC is an internal document of the company and is not filed with the state.
When Should You Choose the LLC Structure?
LLC can be the right structure for your business:
- If you don't need huge investments but need protection for your personal assets and flexibility in management and taxation.
- If you anticipate losses for initial few years and want to set off those losses against your income from other sources.
- If you want to have flexibility in your accounting method.
- If you need to own real estate in the course of your business.
- If you want to minimize formalities involved in the formation and functioning of your business unlike in case of a corporation, such as holding annual meetings and maintaining detailed records.
- If you want to distribute business profits among owners.
- If you are setting up a small business with a high level of risk and want to shield your personal liability.
Note that you can't form an LLC for certain types of businesses like banks and insurance agencies. Several states place additional restrictions on the types of businesses allowed to function as an LLC. For instance, California doesn't allow forming an LLC for architects, accountants, and health care providers.
Different Types of LLCs
A domestic LLC is one that operates in the same state in which it is formed.
A foreign LLC is one that was formed in a different state than the one where it operates or carries out its business. For instance, an LLC formed in Texas and operating in Georgia would be a foreign LLC for the state of Georgia.
If all the members of an LLC operate the business themselves, it is known as a member-managed LLC.
If some of the members are passive or are not actively involved in running the business, then such an LLC is called a manager-managed LLC. It can appoint a member or a nonmember as its manager.
It is an LLC with a single owner or member.
If an LLC has more than one member, it is known as a multiple-member LLC. In this type of LLC, you should clearly spell out the rights and obligations of each member in its operating agreement, especially in case of a death or disagreement.
A Series LLC is like an umbrella LLC over a number of different legal entities. It can be a series of anything, for example, members, managers, or assets. Delaware was the first state to start this type of LLC. Even today, it's available only in eight of the states.
- This type of LLC is available only in the state of Nevada.
- It was started in 2009.
- It restricts certain types of business distributions to its members for a period of 10 years from formation.
- The restriction is placed through the Articles of Organization.
An L3C or a low-profit limited liability company is a hybrid business entity that facilitates investment in socially-relevant, for-profit ventures. It offers the benefit of simplified compliance with the IRS rules.
The ownership details of an anonymous LLC are kept confidential by the state where it is registered. New Mexico is the only state that registers an anonymous LLC.
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