Types of LLCs
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Types of LLCs range from the popular single member LLC to much more specialized forms. Curious about nonprofit LLCs? Series LLCs? LLCs taxed as S-corps? Below, we provide an overview of different types of LLCs, including their benefits and drawbacks. Need a deeper dive on a particular type of LLC? We also provide links to more in-depth pages on each topic.
Learn about Different Types of LLCs
Single Member LLC
An LLC with only one owner is called a single member LLC. Generally, single member LLCs have similar requirements and enjoy the same benefits as LLCs with multiple members. Both types of LLCs form by filing articles with the state, offer limited liability and have flexible tax and organization options.
However, single member LLCs have some additional challenges, especially when it comes to limited liability. As just one person, a single member LLC owner can struggle to keep personal and business finances separate, compromising their liability protection. Also, many states don’t provide the same degree of protection from creditors for single member LLCs as they do for multi-member LLCs.
Interested in how a single member LLC stacks up to a multi-member LLC or sole proprietorship? Our Single Member LLC page goes over taxes, requirements, liability and more.
One of the benefits of an LLC is the ability to change the company’s tax status. By default, the IRS taxes an LLC as either a disregarded entity or a partnership. A major drawback to both of these default statuses is that all business income is subject to self-employment taxes (15.3%).
However, an LLC can file paperwork with the IRS to be taxed as an S-corp. An LLC S-corp still pays self-employment taxes on salary. However, LLC S-corps can also make distributions to shareholders. Distributions are not subject to self-employment taxes, so some LLCs can see a tax savings with an S-corp election.
Is an LLC S-corp right for you? See our S-Corp vs LLC page for a comparison of standard LLCs and LLC S-corps.
A Series LLC is a type of LLC with special divisions known as “series.” Each series is not actually a separate business but has many of the qualities of a separate business. For instance, each series can have its own business purpose, tax election, assets and liability—separate from other series and from the “parent” LLC. Forming multiple LLCs can be expensive, so the Series LLC can be appealing to those who might otherwise form many LLCs (such as real estate companies).
There are downsides, however—Series LLCs can only be formed in roughly a dozen states, including Delaware, Illinois and Texas. In some cases, it may not be much cheaper or easier to have a Series LLC than to have separate LLCs. Additionally, Series LLCs are a recent creation, so the strength of their liability protections is still relatively unproven.
Considering a Series LLC? Check out our Series LLC page for everything you need to know.
Member Managed LLC
When the owners of an LLC make all the decisions for the business, it’s called a “member managed LLC.” This type of LLC operates much like a partnership. If the owners of an LLC take a more passive role in the business instead (giving decision-making power to one or more managers), it’s called a “manager managed LLC.” In this case, the LLC operates more like a traditional corporation.
“Member managed” and “manager managed” are simply organizational styles. Many small LLCs choose to be member managed for a greater degree of control over their business. However, a manager managed LLC can offer greater privacy. When an LLC is managed by managers, member names are not usually required on public documents, like articles and annual reports.
Not sure whether a member or manager-managed LLC is right for you? Check out our LLC Members and Managers page for the benefits of each management style.
You’re most likely familiar with nonprofit corporations—but what about nonprofit LLCs? Although nonprofit LLCs are fairly uncommon, there’s growing interest in the topic. At the moment, only a few states (like Kentucky and Minnesota) have laws on the books that specifically govern nonprofit LLCs.
One of the biggest challenges nonprofit LLCs face is in seeking federal tax exempt status. A nonprofit LLC faces many more restrictions and requirements than a nonprofit corporation. For instance, to get 501(c)(3) tax-exempt status, all LLC members must themselves be 501(c)(3) tax-exempt organizations.
Learn how to form a nonprofit LLC. See our article on Nonprofit LLCs.