The difference between a Single Member LLC and a Multi-Member LLC
One of the most important choices you make when starting a business is the type of legal structure you’ll select for the business. Your decision not only affects the amount of paperwork you are required to do but also your liability and ability to raise capital for the business.
So whether you are growing a business or just starting out it is important for you to understand the different types of business structures and how they function.
In today’s post, we will look at two common types of business structures; single-member LLCs and Multi-member LLCs. In this post, you’ll learn what single-member and multi-member LLCs are, their differences, and which one you should select when venturing out as a small business owner.
So without much further ado, let’s get right in!
Single Member LLC and Multi-Member LLC: what are they?
Before we get to single-member LLCs and Multi-member LLCs is important we first discuss what an LLC is.
What is an LLC?
Short for limited liability company, an LLC is a business structure that provides its owners with legal and financial liability. LLCs are made up of single business owners or multiple owners.
The main benefit of setting up an LLC is that it protects you against legal liability in case anything happens in business. Owners of LLCs are not held liable personally for legal obligations, business debts, or liabilities in an LLC. For example, if a customer filed a legal or financial claim against your LLC your assets will not be at risk since you have legal protection.
LLCs come in two main different varieties. These include:
A single-member LLC is a limited liability company owned and operated by one person. The owner of the single-member LLC is referred to as a “member” of the LLC. For tax purposes, the owner is responsible for filing and reporting activities of the single-member LLC.
A multi-member LLC is a limited liability company with two or more members. Similar to single-member LLCs, multi-member LLCs offer liability protection to their members. Liability protection is usually extended to the business debts, meaning that members do not have to worry about their personal assets being at risk due to business debts.
What’s the difference between a single-member LLC and a multi-member LLC?
There is not much of a difference between a single-member LLC and a multi-member LLC. Both are formed the same way, have the same liability protection, and are taxed the same way.
The main difference is the number of owners of each type of LLC. Single-member LLCs are owned by one person while multi-member LLCs have unlimited members. This means single-member LLC owners can run as they please without having to consult anyone. In multi-member LLCs, the owners have to agree with each other when making business decisions based on the share of ownership. For instance, if a multi-member LLC has four owners who own 50%, 20%, 20%, and 10% of the company respectively, the decisions they make will be equal to those proportions.
Which type of LLC should you choose?
Single-member LLCs are a great option for solo entrepreneurs who are seeking liability protection due to the nature of the business they operate. Multi-member LLCs, on the other hand, are ideal where multiple members want to be involved equally with running the business. With a multi-member LLC, every member has a chance to make decisions in the business based on their share ownership.
If you need help or have a question on this topic or any other topic, feel free to reach out to us at Millar IP Law. We will be happy to talk and strategize about your business. Otherwise good luck with your business!
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