What are the Different Types of LLC: Everything You Need to Know
Each state has its own rules regarding LLCs, but the legal structure is similar. The owner of an LLC is a member, and LLCs can have one member or multiple members.3 min read
An LLC is a business created by a statute and governed by the laws of its operating state. The business structure uses pass-through taxation of a sole proprietorship or a partnership combined with the limited liability of a corporation. This is an ideal situation for most business owners.
Each state has its own rules regarding LLCs, but the legal structure is similar. The owner of an LLC is a member, and LLCs can have one member or multiple members.
Forming an LLC provides the ability to keep your personal and business assets separate, results in a much lower amount of paperwork than a traditional corporation, and has the additional flexibility in tailoring your company to your situation.
Some LLCs are designed for professional services, such as doctors or lawyers, while others are used to take advantage of interstate commerce laws. Smart business owners often use LLCs over corporations to benefit from the personal liability protection without dealing with red tape, paperwork, or formalities that can be difficult for a small business, young business, or sole entrepreneur.
Single-Member LLC/Sole Proprietorship
- Company transactions
- Debts the business owes.
If a single-member LLC chooses not to become a corporation, it is classified as a “disregarded entity" and is taxed as a sole proprietorship. LLCs can also be taxed as a corporation.
Single-member is the most popular filing type and is the most affordable LLC formation. There is also significantly less paperwork required.
When an LLC will be formed with multiple members, a general partnership is the preferred structure. This means that all owners take responsibility for transactions, debts, and taxes from the business. Each member can also determine when assets are sold, and he or she pays taxes on his or her business income share.
The LLC is helpful for a small- or medium-sized business. General partnerships and limited partnerships are similar in that multiple people share responsibilities. But one important difference is that a single member has to maintain total liability. This also leaves one member to keep the least liability.
Family Limited Partnerships
Family limited partnership structure is similar to a limited partnership, except that family members own it. Families usually form an LLC as a limited or general partnership and put their property into the company. They can also designate control and change the membership to give other relatives complete control of their property.
Series LLCs are business entities that designate debts, obligations, and rights to smaller cells, which are called series. This can include:
Delaware was the first state to offer series LLC formation, and currently they are only available in:
Though it's only available here, the debts and liabilities of each unit are generally only enforceable against that unit. Each unit is taxed separately as well, though the individual cases will be considered according to their situation.
A restricted LLC is a form of limited liability company that is presently only available in Nevada. It began in 2009. The Articles of Organization are restricted for this type of LLC, meaning there is a 10-year waiting period after its formation before LLC members can receive business distributions.
L3C companies are for-profit institutions for a philanthropic purpose. These companies offer many of the same tax benefits of a limited liability company, while also providing the prestige of a not-for-profit institution and the marketing strategies that are commonly associated with a social enterprise.
Anonymous LLCs are companies where ownership details are restricted for viewing by the public. Presently, only New Mexico allows formation of a completely anonymous LLC.
Member-Managed LLC or Manager-Managed LLC
When forming an LLC, you must set up your desired structure in the operating agreement. This gives you the option of member-managed or manager-managed LLC.
A member-managed LLC is run by the owners of the company, and it's the simplest structure. Every owner has the authority to act on behalf of the business.
A manager-managed LLC is used when there are passive members of the LLC, like investors.
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