LLC Forms: Everything You Need to Know
LLC forms, or LLC operating structures, are the different ways you can set up your LLC depending on your business needs.4 min read
2. What Are the LLC Forms?
3. LLC Advantages
4. LLC Disadvantages
LLC forms, or LLC operating structures, are the different ways you can set up your LLC depending on your business needs. The LLC — or limited liability company — has quickly become a very popular business structure amongst new and small businesses, in great part due to its simplicity and flexibility.
It provides the same limited liability protection of a corporation without much of the complexity and formality. In an LLC, management is usually handled by the LLC members. They have complete control of their operation and act as officers, directors, and shareholders would in a corporation. This allows the LLC to more easily respond to changing business conditions than a corporation.
What Are the LLC Forms?
The different forms of LLCs are as follows:
- This is an LLC operated and formed within your state of residence. Such LLCs are governed by the state’s authority.
- Foreign LLC.
- This is an LLC operating in a state other than the one of its formation.
- Member-managed LLC.
- This is an LLC where the owners, or members, operate the business equally. This is the most common form of LLC.
- Manager-managed LLC.
- This is an LLC where some or all owners turn over day-to-day operations to a designated manager or managers, who may either be members of the company or foreign entities.
- Single-member LLC.
- This is an LLC owned and operated by one member.
- Multi-member LLC.
- This is an LLC with more than one member. It should spell out carefully in its operating agreement the rights and responsibilities of each member.
- This is an LLC that operates as an umbrella LLC for a variety of other legal entities, including assets, managers, members, and interests. It is available in eight states: Illinois, Delaware, Nevada, Iowa, Tennessee, Oklahoma, Utah, and Texas.
- Restricted LLCs.
- This is an LLC that is currently only an option in Nevada. These LLCs are restricted in their articles of organization to prevent some business distributions from being made amongst members until ten years prior to LLC formation.
- This is an LLC that has a philanthropic purpose but is for-profit. Its business structure is a hybrid that combines an LLC’s tax and legal flexibility, a nonprofit’s social benefits, and a social enterprise’s marketing and branding advantages.
- Anonymous LLCs.
- This is an LLC whose ownership is not publicly stated. Only a few states allow these as an option.
There are many advantages to forming a limited liability company. Some of the main ones are:
- Limited liability protection.
- With an LLC, the members will not be liable for business liabilities and debts beyond what they have invested in the company. Personal assets are protected under this arrangement.
- With this, the LLC is not taxed, but instead, the income or losses are “passed through” to the owners or members, and this is taxed like personal income.
- Unrestricted ownership.
- There are no citizenship or residency restrictions for LLCs, meaning foreign nationals can own and operate LLCs.
- Corporations or other LLCs may be owners in whole or in part of an LLC.
- Tax status flexibility.
- Profit distribution flexibility.
- LLC profits can be distributed in varying proportions to be determined by the members, whereas corporations must distribute profits equally.
- Minimal compliance requirements.
- LLCs must only comply with annual state filing requirements and ongoing formalities. In contrast, corporations must have an annual shareholder and director meeting, adopt bylaws, and maintain minutes of all meetings and corporate resolutions.
- LLCs are not required to have meetings or maintain minutes.
Depending on your situation, LLCs may have disadvantages, as well. These could include:
- Self-employment taxes.
- Pass-through taxation can sometimes be higher than it would be for a corporation.
- LLCs are subject to federal inclusions like Social Security and Medicare.
- Personal record keeping.
- If you own an LLC, it is your responsibility to keep business records and keep them apart from personal finance records. If you don’t, you may lose your limited liability.
- LLC termination.
- If a member departs from an LLC for whatever reason, then in most cases, the LLC is terminated. Corporations, on the other hand, can exist regardless of the status of their members.
- A business bank account will be required to keep business finances apart from personal finances.
- Business bank accounts are generally subject to various fees and monthly expenses related to their upkeep.
- A check made to you LLC must be deposited in the LLC bank account.
- Articles of organization fee.
- LLCs must pay a filing fee when submitting articles of organization.
Considering all this, one can see that there are many important choices to make when forming an LLC.
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