Key Takeaways

  • LLCs offer flexibility, liability protection, and tax advantages for a wide range of business types.
  • There are multiple types of LLCs, including standard, series, anonymous, and nonprofit-style variants like L3Cs.
  • Choosing between single-member and multi-member, domestic vs. foreign, and member-managed vs. manager-managed LLCs is foundational.
  • Some LLC types, like PLLCs and Restricted LLCs, are state-specific and have unique formation requirements.
  • Knowing what type of LLC you have can impact your tax obligations, liability exposure, and management rights.
  • If you're unsure what type of LLC you have or should form, you can consult a lawyer through UpCounsel's legal network.

What type of entity is an LLC? The first limited liability company (LLC) was formed in the late 1970s to give small business owners the flexibility to run their business as they wanted while giving them liability protection. In the mid-2000s, the LLC business structure was the most popular type of business structure, superseding the corporate entity. LLCs remain a commonly used structure for business owners.

What Is a Limited Liability Company

A limited liability company is a hybrid business structure that offers its owners (called members) the same liability protection corporations enjoy while having the flexibility associated with a sole proprietorship or partnership. LLC features include the following:

  • Pass-through taxation
  • Liability protection
  • Organizational structure flexibility
  • Discretion in member-interest distribution.

While LLCs come with many benefits, there are a few caveats. Understanding your business needs will help you pick the right type of setup.

Types of LLCs

An LLC's characteristics are based on several factors, including location, member count, management structure, association with other entities (such as members and corporations), restrictions, and anonymity.

  • Domestic LLC vs. Foreign LLC. If you operate your LLC in the same state where it was formed, then you have a domestic LLC. On the other hand, if you created your LLC in one state and run your business in a different state, then you have a foreign LLC.
  • Single-Member LLC vs. Multi-Member LLC. If you are the sole owner of your LLC, then you have a single-member LLC. If you have partners, then you have a multi-member LLC.
  • Member-Managed LLC vs. Manager-Managed LLC. Most LLCs are member-managed. This means that that all members help run the business operation. If an LLC is manager-managed, it means that at least one of its members are not involved in the day-to-day business operation. LLCs members can also hire a non-member to manage the business.
  • Series LLCs. These LLCs act has a master LLC for other entities.
  • Restricted LLCs. These are not as flexible as regular LLCs. Restricted LLCs are only available in Nevada and are limited in the member distributions they can make in the first ten years.
  • L3Cs. L3Cs are hybrid structures that combine the legal and tax flexibility of LLCs with non-profit social benefits.
  • Anonymous LLCs. With anonymous LLCs, ownership details are not made public.

Additional LLC Classifications and Use Cases

Beyond basic classifications, several other LLC variations exist based on specific legal, professional, or operational needs. These can affect how your LLC is taxed, managed, or recognized by your state. Understanding these can help answer the question: what type of LLC do I have?

Additional LLC Types:

  • Professional LLC (PLLC):
    Designed for licensed professionals such as doctors, attorneys, architects, or accountants. Not all states permit PLLCs, and formation typically requires proof of licensure. PLLCs offer liability protection but may not shield members from malpractice claims.
  • Series LLC:
    A master LLC that contains separate “series” within it, each with its own members, assets, and liabilities. This is useful for real estate investors or businesses with multiple product lines. Only available in certain states like Delaware, Texas, Illinois, and Nevada.
  • Low-Profit LLC (L3C):
    Created for businesses with social missions that also seek to earn profit. Commonly used for social enterprises, these are eligible for certain types of funding not available to standard LLCs.
  • Anonymous LLC:
    Formed in states like New Mexico, Wyoming, or Delaware, these LLCs allow owners to keep their identities private. This can be advantageous for privacy, security, or estate planning purposes.
  • Nonprofit LLC:
    Though not commonly recognized in every state, nonprofit LLCs combine the structure of an LLC with a nonprofit mission. They must comply with both state laws and IRS requirements to be tax-exempt.
  • Restricted LLC:
    A unique form available only in Nevada. This type of LLC limits distributions to members for 10 years, which can be beneficial for estate planning and asset protection.
  • Public Benefit LLC:
    Some states allow LLCs to register as public benefit entities. This designation allows the company to balance profit with broader societal goals.

Advantages of Starting an LLC

The LLC structure was formed so that business owners could have liability protection without the corporate hassles. The benefits associated with creating an LLC are a direct result of that goal. The following are some of these advantages:

  • Pass-through taxes. LLC members do not have to report taxes for the LLC. Instead, members report their portion of profits and losses on their tax returns.
  • No residency requirements. You need neither U.S. citizenship or permanent residency to start a business.
  • Limited liability protection. An LLC structure protects LLC members from personal liability for the business debt.
  • Ownership flexibility. An LLC can own other corporations and LLCs.
  • Versatile tax treatment options. An LLC, by default, is treated like either a sole proprietorship for single-member LLCs or a partnership for multi-member LLCs. However, members can opt to tax their LLC like a C corporation or an S Corporation.
  • Flexible profit distribution. Member profit distribution does not have to match their ownership percentage in the company.
  • Informal structure. LLCs have fewer regulations than a corporation. They are not required to have formal meetings, nor are they mandated to keep meeting minutes.

Disadvantages of Starting an LLC

LLCs may not be as cumbersome to start as a corporation, but they come with some drawbacks, including the following:

  • Limited growth. LLCs cannot issue shares of stock to raise money.
  • Payroll taxes. LLC members are subject to payroll taxes, which are higher than corporate dividend taxes.
  • Termination risk. LLC members must make sure they separate their business transactions from their personal dealings. If there is not a clear delineation between your personal finances and the LLC's, your LLC structure is subject to termination.

LCCs are hybrid entities that minimize the barriers to setting up a sound business. While it is simple to set up, you need to understand the various characteristics so that you set up an LLC that suits your business needs.

How to Determine What Type of LLC You Have

If you’re asking “what type of LLC do I have,” you’ll need to consider several foundational details about your business structure and state filings. Here’s how to find out:

  1. Check Your Operating Agreement or Articles of Organization
    These documents typically indicate whether your LLC is single- or multi-member, member-managed or manager-managed, and if any special designation applies (e.g., PLLC, Series LLC).
  2. Review Your State Filing
    The Secretary of State website where you registered your LLC will often specify its classification, including whether it’s domestic or foreign, and its official name.
  3. Consult with a Legal or Tax Advisor
    Certain types, such as Anonymous LLCs or Series LLCs, may not be easily identifiable without legal expertise. A professional can help clarify what structure was filed and if it aligns with your intended operations.
  4. Analyze Your Tax Classification
    How your LLC is taxed can also give clues. For example, if you’ve filed IRS Form 8832 or 2553, your LLC might be treated as a C Corporation or S Corporation, respectively.
  5. Consider Your Business Activities
    If your LLC operates across state lines, holds multiple lines of business, or serves a charitable mission, you may have a specialized LLC structure like a Foreign LLC, Series LLC, or L3C.

Frequently Asked Questions

  1. What type of LLC do I have if I’m the only owner?
    You likely have a single-member LLC unless you have elected a different tax treatment or filed under a specific category such as a PLLC or Anonymous LLC.
  2. Can I change my LLC type after formation?
    Yes, in many cases. You may convert to a different LLC type (e.g., from single-member to multi-member, or to a PLLC), but it usually requires amending your formation documents and notifying the state.
  3. How do I know if I have a Series LLC?
    Your Articles of Organization or state filing will explicitly state if you’re registered as a Series LLC. This structure is only available in certain states.
  4. What’s the difference between a Domestic and Foreign LLC?
    A Domestic LLC operates in the state where it was originally formed. A Foreign LLC operates in a different state and must register as such to conduct business legally.
  5. Is a Professional LLC (PLLC) different from a regular LLC?
    Yes. PLLCs are intended for licensed professionals and may require additional paperwork, including verification of credentials, during formation.

If you need help understanding and forming an LLC, 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.