Types of LLC: Everything You Need to Know
There are several different types of LLCs or limited liability companies in the United States.3 min read
6. What Is Member-Managed vs. Manager-Managed?
There are several different types of LLCs or limited liability companies in the United States. Each one of these business entities is state-governed and created by statute. Although different states regulate LLCs by their own specific legislation, the legal principles across the U.S. are alike for their formation, structure, taxation, and management, among other things.
The owners of an LLC are its members. The business formation structure of a limited liability company is attractive to members because the entity laws are designed to protect them from the personal responsibilities and obligations that could come from lawsuits and damage claims against the company. Treatment under the tax code is another attractive reason for small business owners and entrepreneurs to start an LLC in any of its forms.
Below are the different types of limited liability companies:
- Series LLC
- Single-Member or Multi-Member LLC
- Domestic or Foreign LLC
- Member-Managed or Manager-Managed LLC
If an LLC does its business in the same state where it got registered, it is domestic. For an owner to form an LLC, he or she must file Articles of Organization or Association with the Secretary of State. The papers contain specific company details. In most states, the owners must nominate a registered agent to have responsibility for receiving all legal documents and official process. An LLC must have its registered office in the same state of its registration.
If a limited liability company conducts business in additional areas outside of its registered state, an owner must register it as a foreign LLC in each of the places it operates. Additionally, a business owner may want to work in only one state but want to form the company someplace else because it has more desirable advantages to offer. A foreign LLC can get formed this way too. Reasons an owner might register outside the predetermined state for doing business could be due to the other state's:
A business owner seeking the legal protection of limited liability and wanting to remain the company's only owner may form a single-member LLC. The owner can choose a tax situation as either a sole proprietor or corporation. If the owner does not elect a corporation identification for taxes, the IRS will classify the business as a "disregarded entity." The owner gets taxed as a sole proprietor.
If there are many members of an LLC, each owner collaborates on the details of an operating agreement, which is a legal document to regulate how the business is to run. All members unanimously agree to an outlined structure of the company's management, the protocol if the state dissolves the LLC, and a description of member responsibilities to make up the final agreement.
For this particular business form, a group of different companies, divided into sub-units, make up a collective business entity, known as the series LLC. All rights, obligations, and debts are dealt with by the different units. They each have members of their own and sometimes even individual business purposes. They also file separate taxes.
What Is Member-Managed vs. Manager-Managed?
Because members have an ownership interest in the LLC, they have the power to determine how the company runs. If the formation structure for your LLC is multi-member, the members must agree on a management structure, which can either be as member-management or manager-management. As mentioned above, the operating agreement outlines the roles and responsibilities of members and how the business should conduct business.
- With a member-managed LLC, the owners each have managerial authority to decide about the day-to-day operations and any issues that may arise. Members can negotiate contracts or take out a business loan and perform other financial duties.
- The members of a manager-managed company have selected one or more managers to decide what is best for the company when it comes to everyday issues. These individuals have the responsibility to make efficient choices to keep the business operating with no involvement from the members.
Members might not know how they want to set up the business's management structure right away. Unless the formation documents say otherwise when they get filed, most states make limited liability companies member-managed entities by default.
If you need help with types of LLCs, you can post your legal need in 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.