Introduction to LLCs
A Limited Liability Company (LLC) offers a flexible structure that can accommodate multiple owners or ‘members,’ making it an attractive choice for a diverse range of business professionals. The multi-member LLC is a separate legal entity from its owners, and not a separate tax entity. Understanding the ownership structure of your business is essential to form a Limited Liability Company correctly.
Operating Agreement and Ownership Split
You will split ownership of the LLC in your LLC Operating Agreement which spells out who owns the LLC and how much they own. Frequently, business owners will add their spouse as a second owner in order to maintain their chosen structure. It is crucial to create an agreement indicating how much of the company each member owns. Most states require ownership agreements detailing permitted owners’ stakes.
Managing Multi-Member LLCs
Adding and Changing Owners
To add or change ownership percentages in an LLC:
- File new ownership percentages with your state by submitting forms from your Secretary of State or state filing office.
- Notify LLC members of the change in LLC ownership.
- Address how LLC profits and losses will be divided – as a corporation, divide ownership of profits and losses according to ownership percentages.
Can Two People Share an LLC?
Yes, a multi-member LLC can have two or more owners, known as members. An LLC offers liability protection for owners, where personal assets are protected if the business goes into debt or gets sued. Profits and losses can be divided based on ownership percentage in an operating agreement.
To add a co-owner to an LLC, file new ownership percentages with your Secretary of State. Then notify LLC members of the changes. Address how profits and losses will be divided.
Operating Multiple Businesses Under One LLC
You can operate multiple businesses under one LLC using DBAs or "Doing Business As" names. Consider the risks before combining endeavors as legal risks increase with this approach, but administration can be simpler with one filing fee.
Flexibility of Ownership in LLCs
An LLC’s flexibility allows for over two owners. With consensus, members decide management, ownership stakes, tax status, and dispute resolution. Document details in an operating agreement.
Liability and Tax Implications
Like a single-member LLC, a multi-member LLC offers liability protection to owners. Creditors can only pursue company assets if sued or in debt, not personal assets. As pass-through entities, LLCs pay taxes through owners’ income tax, not corporate tax.