Before you register your business as a limited liability company, you will need to decide between organizing as a single member LLC vs. a multi member LLC. While these business structures offer similar tax and liability protection advantages, they are appropriate for different scenarios.
How Is a Single or Multi Member LLC Formed?
A limited liability company or LLC is a business structure primarily used by smaller businesses. The largest advantage to registering your company as an LLC rather than operating as a sole proprietorship is to protect personal assets like the company owner’s home from business liability claims or debt collection.
To form an LLC, you will file documents with the state(s) in which you do business. During this process you will need to choose between a single member LLC and a multi member LLC. While you can file the paperwork through state portals, by mail, or using an authorized business filing service, you will want to know the differences between the two and consider how they affect the future of your business.
Single Member LLCs
What is a single member LLC? When a small business has a single owner, or is owned by a married couple, it can be registered as a single member LLC. This person will:
- Set up business accounts.
- Obtain pertinent state licenses for the type of business.
- Choose a registered agent for service of process.
- Establish an operating agreement to outline how the business will function.
- File appropriate paperwork to register the business.
- Be responsible for taxes, including employment taxes for employees.
Advantages of Organizing as a Single Member LLC
The benefits of a limited liability company (LLC) that is organized as a single member structure are many. Most of these center around limiting paperwork, streamlining operations, and maintaining sole control over the business.
- Single member LLCs protect the owners’ personal assets against business liability lawsuits.
- The operating agreement put in place by the single owner is completely under their control.
- The tax advantages of the LLC structure allows the owners to claim their business profit on their own income taxes, rather than filing as a separate taxable entity.
- The LLC can hire employees and management payroll taxes by using an employee identification number.
- An LLC with no employees can operate using the owners’ social security number as the business taxpayer identification number.
- Single LLC business owners have complete control over the future of their business, including possibly reorganizing in the future as a partnership, multi-member LLC, or a corporation.
The Downside of Single Member LLCs
The disadvantage of a single member LLC vs. a multi member one is that you truly will need to do most business tasks yourself. While you can hire employees and delegate some responsibilities, in the end you are solely responsible for accurate business filings, responsible business operations, managing finances, and keeping licenses up to date.
The owner of a single member LLC will need to be very diligent about keeping personal and business accounts separate and following their own operating agreements and procedures. If they do not, they may leave themselves open to personal liability claims because the tenets of the LLC were not followed.
Multi Member LLCs
What is a multi member LLC? In this business structure, the company is owned by more than one person and may have as many members as you wish. Two friends opening a business together would often choose to organize as a multi-member LLC to realize the liability protection and to formally file their business operating agreement.
- Spouses might form a multi member limited liability company in some states or if they file income taxes separately.
- Unlike the single member LLC, a multi-member LLC must have an employee identification number (EIN), even if it does not hire any employees.
- A single person cannot form a multi-member LLC, nor can any single member change the operating agreement or business structure without approval from the other members.
Multi Member LLCs Enjoy These Benefits
The same limited liability protections afforded to a single member LLC are extended to all of the members listed, protecting their personal assets from business debt or liability claims. In addition, consider these advantages:
- They leverage the skills and expertise of multiple business owners to lighten the load of responsibility on a single person.
- They share investment, working capital, retirement plans, group health insurance, and other financial advantages for members.
- Like a partnership, a multi-member LLC allows multiple business owners to remain a “pass through” tax entity, meaning the owners do not need to file corporate tax returns, and they may include their share of the profits on their personal tax forms.
- Loss of a single member does not leave the business in probate or cause it to be dissolved.
The Disadvantages of Multi Member LLCs
- Members must agree on major decisions and division of responsibilities, which reduces flexibility.
- All members must adhere to the operating agreement and separate accounting to maintain the protections of the LLC.
- Despite having multiple members, your business cannot go public or sell shares, without reorganizing as a corporation.
- Annual business filings are slightly more complex, but still minor compared to larger structures like corporations.
- Some types of businesses are better organized with a single leader and invested employees than being run by a group of members.
Other Factors to Consider with LLCs
- While you can file your LLC taxes as part of your personal taxes as the business owner, you can also choose to be taxed as a C corp or an S corp under IRS guidelines.
- An LLC might be organized as a single person or multi-person entity, but a sole proprietorship cannot.
- You must register your business as an LLC to enjoy the personal liability and debt protection that a sole proprietorship does not provide.
- Another alternative to an LLC for multiple owners would be a partnership, which is treated in a similar way for tax purposes, except that each partner reports their share of the profits on their own income taxes.
- Married couples may own a single member LLC provided they live in a community property state and agree to file their taxes jointly.
Business Filings for Single Member LLCs vs. Multi Member LLCs
Once you have chosen the right structure for your LLC, partnership, or sole proprietorship, you will need to complete the filings to register your business name and receive a sales tax license. To file for a single member LLC, you can do all the steps yourself with your state offices and county clerk’s office, or you can use FastFilings authorized service to get started now.
If you will be registering as a multi-member LLC, you will need to work together with other members or be the designated agent of record to complete your filings by yourself or through our online service. FastFilings provides wholesale licenses and sales tax permits, as well as certificates of good standing, and it expedites all paperwork after error-checking for the most hassle-free path to establishing and maintaining your good standing with the state.