How Many Owners Can an LLC Have: Everything You Need to Know
How many owners can an LLC have? A Limited Liability Company is usually required to have at least one member, but can have as many as they desire beyond that. 3 min read
How many owners can an LLC have? A Limited Liability Company is usually required to have at least one member, but can have as many as they desire beyond that.
Forming an LLC
First, business owners need to choose a name for their LLC and file articles of organization with the Secretary of State in the state in which they plan to conduct business.
Articles of organization include the following information about your business:
- Names of LLC owners (also called members)
- Business address
- Registered agent name and address
You can find a form to fill out for your articles of organization (or formation documents) on the Secretary of State website or their division for businesses and corporations.
Operating agreements are also required by some states. Even if your particular state does not require your LLC to file an operating agreement, it's still a good idea to do so in order to ensure that all of the LLC's members are on the same page. Operating agreements spell out the rights, responsibilities, and ownership percentages of each of the members.
It's a good idea to check with a business lawyer to learn more about the advantages of an LLC to see if this business structure is the right fit for your company. You can find out the cost of an LLC versus a corporation and the process for startup. Some states make the process of forming an LLC very quick and simple.
Sometimes business owners will choose a certain business structure when starting their company, but their needs will change over time. It can be beneficial to regularly assess your business needs and see if you might need to change the structure. Changes in the number of owners that your business has could cause you to need to change your entity type.
Some states don't allow single-member LLCs, so if you only have one owner, you might not be able to form an LLC. Frequently, business owners will add their spouse as a second owner in order to be able to maintain their chosen structure. This additional member can remain nominally involved in the business so they don't have to file any additional tax forms or worry about liability.
Single Member or Multiple Member LLCs
When choosing the type of LLC you wish to form, the number of business owners isn't the only thing to consider. Even though the choices are single-member or multi-member LLCs, they differ in more than just how many members there are.
Single-member LLCs can be easier when it comes to taxation because only one person needs to report the company income. Multi-member LLCs might pass the business income through to each of the members causing them to all need to report. Each member will receive a Schedule K-1 form that documents how much of the company profits or losses they took on in the year. This number should be reflected on a Form 1040 Schedule C.
Some business owners might find the multi-member setup more appealing because it can help the company keep running in the event of the death of a member. Major events like member deaths, disputes, and ownership changes should be clearly outlined in the LLC's operating agreement.
Ownership in an LLC can be classified by a percentage of ownership or membership units. Membership units are like the stock shares of a corporation. Whether the owners have an ownership percentage or a membership unit, this will determine their voting rights and profit shares.
LLCs have the freedom to hand out ownership percentages however they see fit. Corporations do not offer this kind of flexibility but must give percentages that reflect each stock holder's capital contribution. LLC's can award a member a higher percentage for taking on additional management responsibilities even if their capital contribution was less than others.
LLCs can also offer different levels of ownership to allow more voting power and profit percentages to certain members over others. A higher level of ownership could award a member five votes per unit more than a base level that just awards one.
Membership interests sales should be laid out in the operating agreement, but are also subject to states and federal laws.
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