LLC Types: Everything You Need to Know
Choosing between LLC types are one of the many activities a business owner has to do when launching a business. 3 min read
Choosing between LLC types are one of the many activities a business owner has to do when launching a business. Each type of LLC has its own benefit, and you'll need to understand which benefits will suit your business type. There are a few different types of LLCs including; single-member LLCs, member-managed LLCs, multiple-member LLCs, and manager-managed LLCs.
Types of LLCs: Overview
LLCs form for different reasons, some are specifically for medicine or law while others are intended to benefit from interstate commerce laws. The main type of partnership is a Limited Liability Company or LLC. You've certainly heard of an LLC and are familiar with it unless you are new to conducting business or new to the U.S.
An LLC business structure has a great deal of flexibility regarding how it is organized, managed, and where the company is formed. A Limited Liability Company protects everyone involved, including your close family members who decide to work for you. This is unlike a Limited Partnership which offers liability protection only to some partners.
The personal property of you and your partners will be safe and protected when you form an LLC, unless some outlandish criminal offense takes place.
Regarding a Limited Liability Company, you can consider that there is only one disadvantage, which is that it is a partnership. Therefore, to properly form an LLC, a partner is needed. Even if you live in a state where you can operate an LLC alone, you have liability advantages with a partner -- this is detailed further in the book Limited Liability Companies for Dummies.
Also, if you live in a state where you can operate an LLC alone, you have liability advantages with a partner-this is detailed further in the book Limited Liability Companies for Dummies.
Single Member LLC or Multiple Member LLC
An LLC or Limited Liability Company business type is a popular structure to set up for startup companies. A new business, startup, or entrepreneur can be burdened by the procedure of becoming a traditional corporation and will often choose an LLC because of the personal liability it offers.
Owners of small businesses may be surprised to find out there are options when it comes to LLCs. The LLC types are:
- Single-member LLC
- Member-managed LLC
- Multiple-member LLC
- Manager-managed LLC
How do you know which selection to make? The differences are clear and simple to understand. A single member LLC is also referred to as an SLLC, and a multi-member LLC belongs to multiple owners.
For example, Gemma who owns a marketing company can hire managers and employees. Therefore, Gemma can form a single-member LLC, since the income is not divided, and there are no separate taxes to file. Alternatively, a business with multiple owners or a partnership has divided income.
Manager Managed LLC or Member Managed LLC
When a multi-member LLC forms, it's necessary to include the structure of the LLC within the operating agreement; either manager-managed or member-managed.
Regarding a member-managed LLC, it is managed by the company owners. This structure provides the smoothest way for company owners to handle contracts, take out a business loan, and conduct business related to operations and finance.
Back to business owner Gemma. Let's say she launches a business with her colleague, Thomas. Both people are going to be active in the business. Thomas will handle administration, and Gemma will manage client relations. Since Gemma and Thomas will be involved in the business to a large extent, it makes the most sense to form a member-managed LLC between them.
In this scenario, Gemma and Thomas need funding in order to get their business launched. It's likely that their family and friends will invest into the business, making the manager-managed LLC is a great choice.
A manager-managed LLC is ideal for businesses that have members who are passively involved and not included in daily operations, such as investors.
If you need help deciding which LLC type is best for your business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.