Multi-Member LLC vs. Single-Member LLC
A multi-member LLC is a type of business structure where there are two or more owners, known as members. This structure provides several benefits, including limited liability protection and pass-through taxation. In a multi-member LLC, the members share the profits and losses of the business according to the terms outlined in the operating agreement.
Ownership and Taxation Differences
- A multi-member LLC offers personal liability protection to all members because the LLC is a separate entity from its members and has its own debts and obligations.
- A multi-member LLC must file form 1065 with the IRS, the Return of Partnership Income. Attached to this will be K-1 forms for each member showing their share of business income.
Making the Right Choice
Before you spend money on legal fees and complete legal documents, find out whether single-member LLCs or an LLC business structure with more than one member is the better choice for you. To help you decide between a single and multi-member LLC, here’s a look at the differences between these two business structures.
Ownership and Taxation Differences
- One of the main differences between these two structures is that two or more people cannot own a single-member LLC, unless you’re married in a community property state, and a single person cannot own a multi-member LLC.
- Single-member LLCs are considered a disregarded entity and automatically taxed like sole proprietorships unless they request otherwise.
- Multi-member LLCs are automatically taxed like general partnerships unless they change their tax treatment.
Benefits of a Multi-Member LLC
- A multi-member LLC provides limited liability protection and pass-through taxation. The members share profits and losses. Multi-member LLCs must file tax returns.
- Multi-member LLC members share responsibility. This lightens workload and brings more expertise. Limited liability protection safeguards personal assets. Profits and losses pass through to members’ tax returns.