What Are the Different LLC types?
A business will form an LLC when it wants to grow from being a sole proprietorship to a more substantial business with taxation and the limited liabilities of larger companies. First, acquire an LLC formation package, a checklist of all the required information. This provides your business with the tools and statutes to separate its business and personal assets.
With the many needs facing American businesses today, there are many types of LLCs, each with its own rules and advantages, where each partner can be a member. The most significant advantage of forming an LLC is that it makes the business structure easier to manage without all the regulations, taxation, and legal provisions required for corporations. Learn about the different types here.
When and How to Form LLC?
Forming an LLC takes some thought and consideration, as there are many different types. It is suitable for a business to create one when it is ready to move from its sole proprietorship status and grow. Higher profits are a goal and a key advantage of changing the structure of your business.
Recognizing as a limited liability company gives you more perceived credibility and backing to take on more risk. That is because this structure provides protection that guards against many pitfalls as a sole proprietor.
With more risk comes more profit and growth in your business. You won’t be held personally liable if your business suffers a loss. Your personal assets, such as your home and financial accounts, are protected. You should start forming one when your business is making a profit or if there is any liability risk.
You begin forming an LLC by naming your company and choosing a registered agent. This agent will appear on the paperwork for your articles of organization and operating agreement. When that paperwork is filed, you can get an Employer Identification Number or transfer an existing EIN.
The EIN is the Social Security Number for your business and identifies you with the United States Internal Revenue Service (IRS). You’ll get that for free from the IRS when you are in the process of forming.
Different Types of LLC
These are the most common types in the United States. There are many others, each with unique advantages and benefits for the company. Every LLC formation package considers the size of the company, the needs of the members, and the liabilities the company is seeking to protect.
- Single member LLCs
- Multiple member LLCs
- Member-managed LLCs
- Manager-managed LLCs
- Professional licensure LLCs
- Restricted LLCs
- Series LLCs
- Foreign and domestic LLCs
- Anonymous LLCs
A single-member type is a sole proprietorship with a single member as the owner. In this type, the owner is responsible for everything as they would be in a sole proprietorship, including the business transactions, the taxes, and the debts the business assumes. At the same time, the single member of the single-member business has fewer risks because they are protected under the statutes of business regulations.
Here, a corporation is not formed but disregarded and taxed like a sole proprietorship is taxed. This is the most common type in the United States and the most affordable package.
The multi-member type is a business with multiple partners with at least two members and no fewer than two. Each member holds a particular share of the company, a percentage determined by the investments that they put into it. When the operating agreement is formed, that determination is stipulated as the amount of the individual assets would be stipulated. A multi-member type can also become a managed-member business where one individual is the manager, and some more passive members are quiet investors.
This type is a business that will divide its business into categories for the various members to hold their roles. That would include members, assets, interests, and managers. Not all states offer this. The LLC is recognized in Delaware, Texas, Nevada, Utah, Iowa, Oklahoma, Illinois, and Tennessee. Each category or unit has its assets, debts, and liabilities, and each unit is solely responsible.
Domestic LLC and Foreign LLC
The difference between a domestic and a foreign type is that a domestic type will be held within the state in which it is formed. The foreign LLC has a home state under which it is taxed, and its main liabilities are enforceable. The advantages of a foreign model are that it provides for lower taxes in certain states and more affordable registration. Additionally, some states have regulations appreciated by more businesses than others, which motivates many businesses to branch into a foreign LLC designation.
L3C Company (Low-profit LLC)
An L3C LLC is a low-profit limited liability company wherein the company does not work toward a profit. Here you will see non-profit organizations, educational corporations, and charitable organizations as the most common types. The primary goal is not to make money but to educate, inform, or help. These organizations are typically not politically motivated either.
An anonymous type is anonymous, where the owner’s privacy is paramount and protected by LLC regulations. This is not common and is only available in New Mexico, Delaware, Wyoming, and Nevada. This type of business can be formed without identifying the identities of any members or managers, and its purpose is to minimize legal liability. The owner does not have to be on public record, and investment amounts or involvement will also be anonymous in this formation. You might also hear these being called confidential LLCs.
The restricted type is unique to the state of Nevada and Nevada alone. The legal regulations around this business include a tax-free status for ten years from the date of its formation. In this type, family members related to the owner will not be held liable for taxes ten years into the business. Asset passing is common for restricted kinds, where the owner can distribute assets to a family member, where they will not be held liable for them, and can even avoid taxation. That is the primary benefit of a restricted type.
PLLC and LLC
A PLLC is a type of business held by a medical or legal professional or an accountant, to name a few. Risks are reduced for these professionals who already assume significant risks in their professions, but these liability protections cover operational risks. Here the members will find liability protection through various pass-through tax laws and more flexibility in management and membership structure.
PLLCs are not permitted in California, and professionals must create an LLC. An advantage here and a vital function of this type is for a professional to be protected from the risks of malpractice liabilities that may be the responsibility of another member. This is also relatively affordable, with laws and options varying by state.
Which One Is Right For You?
Determining which business is right for you is a personal and business choice that is typically made after researching the types of companies and the advantages and benefits of each. You want to limit your liabilities when you assume risks in your business. There is a type for every sole proprietor or corporation that wants to take their business and profit margin to the next phase of their company’s growth.
The size of your business and the size of the risks you want to assume will play a key role in your decisions when developing your package. Consult with experts in your state to get your questions answered when building the structure of your business.
Start the Journey of LLC Formation Today
When making all of the necessary decisions to form your business, schedule a consultation with an expert familiar with the tax law and regulatory structure in your state. Creating this is a business decision made by millions of Americans every day. It contributes to the growth of your business, the local and state economy, and the national economy.
This nation provides liability protection for the assumption of risks so that businesses can grow and thrive in America. Consult with an expert familiar with the needs of today’s LLCs, and get help making the best decisions for your business. Contact Windsor Corporate Services today to schedule a consultation and start the journey of growing your business as an LLC.