You have probably reached this page because you are interested in starting an LLC.
You may well be aware that there are a number of LLC formations services available online, however, before you can even begin checking out which is best for your needs, you are trying to get your head around the various LLC types and what they mean to you.
In this guide, we are going to take an in-depth look into the various LLC types so that you can decide which is the best fit for the enterprise you are planning to launch.
However, before you do that, we should define exactly what an LLC is.
Table of Contents
What is an LLC?
In simple terms, an LLC is a business created by a statute that is formed within a particular state and governed by the laws of that state.
The LLC business structure is commonly formed through a sole proprietorship or a partnership arrangement, that can be combined with the limited liability of a corporation.
The end result is an efficient method of legal structuring for most small to medium-sized business owners.
The owner of an LLC is a member, and LLCs can have one member or multiple members.
Who are LLCs best suited for?
The different types of LLCs available means that some are specifically tailored towards professional services, (doctors, lawyers, psychologists, etc) while others are created in a way that takes advantage of interstate commerce laws for the sale of goods.
Small to medium-sized business owners normally opt for LLCs over corporations as they are simpler to set up and do not have as much paperwork, or formalities attached.
Forming an LLC
Forming an LLC has been made very simple in recent years, with online services more or less taking care of the entire process for you.
The legalities involved with running an LLC in line with state regulations are also quite simple. An LLC gives the owner the ability to keep your personal and business assets separate. With the different types available, the business owner is able to tailor the formation to the needs of the enterprise.
What are the different types of LLC?
With those rudimentary points out of the way, it’s now time to look at the various LLC types that are available.
1. Single-Member LLC/Sole Proprietorship
The Single-Member LLC/Sole Proprietorship is the most common LLC that suits the majority of circumstances for small business owners and entrepreneurs.
It is the most affordable method of formation and has the least paperwork attached for its completion. Each is governed by the laws associated with the state that the business was formed in.
A single-member LLC has a single owner who takes the responsibility for company legal requirements, transactions, taxes, and debts.
In situations where the single-member LLC chooses not to become a corporation (which is generally the case), it is called a “disregarded entity” and will be taxed as a sole proprietorship.
(It is important to remember that LLCs can also be taxed as a corporation, depending on the intricacies of the formation. The LLC formation service you use will walk you through this, however).
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2. General Partnership
If a business has multiple owners (members) the structure used for the formation will be a general partnership.
This type of legal entity allows for all owners to take legal responsibility for transactions, debts, and taxes associated with the business.
Income and taxes are based on the ownership ratio that is created during the formation process.
Essentially, general partnerships mean that multiple people share responsibilities within the business in terms of ownership.
3. L3C Company
L3C companies are for-profit institutions that are created for social and philanthropic reasons.
A structure of this type is able to provide similar tax benefits to a limited liability company, however, at the same time, owner/s can enjoy the prestige of a not-for-profit business enterprise.
4. Restricted LLCs
A restricted LLC is only available in Nevada currently, so is applicable to businesses formed in that state.
They were first launched in 2009 and can be formed in line with the structure of a limited liability company.
In a restricted LLC the Articles of Organization are restricted. In reality, this means that there is a 10-year waiting period after the formation date before the business owners (i.e the LLC members) can receive business distributions.
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5. Family Limited Partnerships
As the name suggests, the Family Limited Partnership structure is one where the members are all related.
The arrangement is very similar to those governing a limited or general partnership. A common approach is that family assets and property are put into the company upon formation.
6. Member-Managed LLC or Manager-Managed LLC
A manager-managed LLC is commonly used in scenarios where some of the members may be acting in a passive capacity, (silent investors for instance).
A member-managed LLC is actually run by the members of the company, where each owner has the authority to act on behalf of the business.
In this type of LLC, the designation between a member-managed or manager-managed structure has to be made clear during the formation.
7. Series LLC
The Series LLC is a business that designates debts, obligations, and rights to smaller cells (known as series). These can fall under the mode of members, managers, interests, and assets.
Currently very few states off this type of LLC structure. Delaware was the first, and now Nevada, Texas, Oklahoma, Illinois, Utah, Iowa, and Tennessee, offer them.
In practice, this means that the taxes, debts, and liabilities are associated with each unit independently.
As a result, they can only be enforced against that unit, with the other units within the LLC structure, remaining unaffected.
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8. Anonymous LLC
Finally, there is Anonymous LLC. These are companies where the ownership details can be held privately are not made known to the wider public.
Only New Mexico provides the choice of Anonymous LLC formation at this stage.