Different Kinds of LLCs

By River Braun, J.D.

Different Kinds of LLCs

By River Braun, J.D.

A limited liability company (LLC) is a business entity governed by state law that provides business owners with protection over their personal assets. The owners of an LLC are referred to as members. Members are typically not liable for business debts unless the member signs a personal guarantee for the debt.

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Forming an LLCrequires less paperwork, formality, and filing requirements than creating a corporation. Though forming an LLC is a less complex process, it is a good idea to review the different types so you are sure to choose the right one.

The Single Member LLC for the Solo Entrepreneur

Single member LLCs are a popular choice for individuals operating a sole proprietorship. Sole proprietors operate a business under their own social security number without forming a separate entity. A single member LLC provides more legitimacy than a sole proprietorship, while also offering additional benefits, including more protection over the owner's personal assets. Single member LLCs are still taxed as sole proprietors, so you don't have to worry about the double taxation that comes with a formal corporation.

The Multi-Member LLC for Two or More Members

A multi-member LLC with two or more members is a useful business structure for small- to medium-sized companies. An operating agreement defines each member's rights and responsibilities. This agreement also dictates the management structure for the company, how new members are added, how members may leave, and the procedure for dissolving the LLC. Unless the LLC chooses a corporate tax structure, multi-member LLCs are taxed as partnerships.

The Domestic LLC for In-State Activities

A domestic LLC only does business within the state in which it is registered. The laws governing LLCs may vary slightly from state to state, so forming a domestic LLC may reduce the amount of necessary paperwork if a company's activities are confined to one state. A domestic LLC typically must maintain a registered office within the state and have a registered agent to accept legal documents on your behalf. In some states, LLCs may be required to file periodic reports and document any membership changes.

The Foreign LLC for Cross-Border Activities

Foreign LLCs are U.S. companies that operate in more than one state. The company must register as a foreign LLC in all states in which it will conduct business beyond the state where it is based. Some companies choose to organize the LLC in one state to take advantage of favorable terms for taxes, license fees, set-up costs, and operating fees. Then the company registers as a foreign LLC in the state it intends to do business.

The Series LLC for Maximum Asset Protection

A series LLC has sub-units that typically operate as independent companies and are taxed separately from the other entities within the series LLC. The liabilities and debts of each sub-unit are usually enforceable against another sub-unit that incurred the debt. Each sub-unit may have the same members as the series LLC or each may have different members. A series LLC allows the sub-units to isolate and shield their assets from other sub-units' liabilities.

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