Understanding the Eight Different Types of LLC Formation

Understanding The Eight Different Types Of LLC Formation

A Limited Liability Company (LLC) is a business structure that protects the owners from being personally responsible for debts and liabilities. They create a legal and financial separation that protects the owners. The advantages of an LLC make this a popular structure for all types of businesses. However, there is more than one type of LLC. Understanding the different types will help you choose the right LLC formation for your business. 

1. Single-Member LLC

Single-member LLCs are a great alternative to sole proprietorships. They are organizations formed with one owner. Benefits of a single-member LLC formation include:

● Simple filing

● Simple tax structure

2. Multi-Member LLC

Multi-member LLCs are ideal for partnerships. They are also known as “member-managed LLC” or “manager-managed LLC.” Multi-member LLCs are set up similarly to single-member LLCs but it divides the executive authority between all partners. Benefits of multi-member LLCs include: 

● Multiple members can join

● Multi-member LLCs protect all members from personal liability

Member Managed vs. Manager Managed LLCs

A member-managed LLC formation is an option where the members choose to operate the business themselves and all handle the daily tasks. A manager-managed LLC is a business where the owners choose a manager or managers to handle the day-to-day business decisions. 

3. Foreign LLC

Most LLCs are considered “domestic.” Meaning they are started by an owner who is a resident of that state. However, there are also foreign LLCs. These are LLCs that operate in more than one state or country. Benefits of foreign LLCs include:

● Ability to operate in multiple locations

● Wider business markets

● Tax advantages 

4. Series LLC

Series LLCs or “SLLCs” are best understood as parent or holding companies. They are businesses that separate membership interests, assets, and operations into different segments. The segments are considered independent series. Series LLCs provide more protection for their business assets from liability. Benefits of Series LLCs include:

● A Series LLC formation is quicker and more affordable than filing separate LLCs

● You only have to file taxes for the parent/holding LLC

● All series assets are insulated and protected from each other

5. L3C Company

Low-profit limited liability companies (L3C) are mainly created for charitable reasons. This is a company that can still make money, but operates mainly as a charity with a possibility for profit. Benefits of L3C Companies include: 

● Allows for more charitable giving

● L3C filing can be used for subsidiaries of LLCs for their charitable donations

6. Anonymous LLC

Anonymous LLCs are formed without providing the identity of the owners, members, or managers of a business. Benefits of Anonymous LLCs include:

● Protect your data and identity

● Allows you to do business in private 

7. Restricted LLC

This LLC is not a corporation but a financial structure to transfer funds to family members. It appeals to those who deal with assets that can’t be liquidated.

8. PLLC

Professional Limited Liability Company (PLLC) are designed for specific industry professionals. These are professionals who required state regulatory board licenses. PLLCs are ideal for accountants, medical providers, and attorneys.

Not every type of LLC formation is available in every state. Before filing, you must understand what LLCs are available in your state. From there, you can decide which type of LLC is best for your business needs.