The main difference between a single-member vs. multi-member limited liability companies is obvious. A single-member LLC has one owner, and a multi-member LLC has, well, more than one owner. These two LLC types share many characteristics, but potential business owners must decide whether one or more owners is the right fit.
When choosing which LLC is the right fit, one must consider ownership, asset protection, management, income taxes, formation, and compliance. It is important to research each type’s pros and cons and consult with a business attorney and an accountant.
If a member of a single-member LLC is sued and loses, a court may order that the assets of the entity can be used to satisfy the judgment. If a member of a multi-member LLC is sued and loses, a court can only order that any distributions to that member are to be paid to the judgment creditor.
What to Consider When Deciding Between a Single-Member vs Multi-Member Limited Liability Companies
All 50 states allow for the formation of an LLC business structure. A single-Member LLC has one owner with complete control of the company. A multi-member LLC has two or more owners who share control of the company. The owners are separate from the LLC, and there may be an unlimited number of members.
In a single-member LLC, the single-member is considered the manager. In a multi-member LLC, the owners must decide if the business will be member-managed or manager-managed. Whether the business is member-managed or manager-managed, there needs to be an operating agreement to ensure all owners are on the same page about who will operate the business.
Member-managed LLC – All of the members participate in business’ work. When making decisions, the company must have majority approval from all of its members.
Manager-managed LLC – Members agree on a manager, either a particular member or members of the LLC or a third-party, to whom they give authority to manage the business’s day-to-day operations and decisions.
3. Personal Asset Protection
Both LLCs protect the owner’s assets since the LLC is separate from an owner’s personal property. If a party sues an LLC, members do not have to worry about losing their home or car, even if the business can not pay the debt. Owners who have committed fraud or did not adhere to the LLC’s operating agreement may be held personally responsible and may have their personal property at risk.
4. Income Taxes
For federal income tax purposes, a single-member LLC is treated the same as a sole proprietor, and a Multi-member LLC is treated as a partnership.
5. LLC Formation
Whether Forming a Single-member LLC or Multi-member LLC, the steps are similar:
- Choose a business name
- Apply for an EIN (Employer Identification Number)
- Designate a registered agent
- File Articles of Organization with the state
- Complete Entity Classification Election Form (IRS Form 8832)
- Create an operating agreement
- Open a business bank account
- Obtain the necessary business licenses and permits
- Know and abide by hiring and employment laws
- Learn what is required to stay in good standing
Single-member and multi-member LLCs both have compliance tasks they must maintain to run their business. Multi-member LLCs have more complex requirements than single-member ones. LLC compliance includes paying taxes, submitting annual reports, renewing licenses. and organizing records.
Paul J. Burkhart
If you have reached a decision on which LLC you prefer, contact the Law Offices of Paul J. Burkhart, P.L. The Law Offices of Paul J.Burkhart have experienced attorneys who can help you with the hardships businesses face.
Our team assists both individuals and business clients with all their legal needs, including business and Corporate Transactions, Business/Commercial and Civil Litigation, Real Estate, Intellectual Property, Family Law, Probate, and Estate Planning matters. We are a full-service private law firm ready to assist you with any request, large or small. Call 561-880-0155 or visit our website.
Law Offices of Paul J Burkhart, PL
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Palm Beach Gardens, FL 33410
Phone: (561) 880-0155
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