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Understanding multi-member LLCs
Limited liability companies are one of the most popular business structures in the United States. They’re used frequently because of their simplicity and because they capture the best characteristics of both partnerships and larger corporations.Multi-member LLCs and single-member LLCs operate almost identically. Like single-member LLCs, MMLLCs grant limited personal liability to their members. This concept was borrowed from corporate business structures and ensures that members’ personal assets are protected if the LLC is threatened with a lawsuit. MMLLCs and single-member LLCs have some differences when it comes to taxes. They share pass-through taxation as a feature, meaning that profits and losses flow directly to the owners. That said, MMLLCs have to do some extra math to report earnings to their individual owners via an IRS Schedule K-1 form. The purpose of the Schedule K-1 is to report each partner's share of the partnership's earnings, losses, deductions and credits. By contrast, single-member LLCs just have one member to attend to each tax season. Multi-member LLCs are a common choice for shared business ventures. Family businesses, co-owned companies, married couples and individuals sharing property gravitate to this structure because it protects all related parties from business expenses or debts. Example: Mark and Leah are a married couple. Leah decided to open a salon about five years ago, and Mark’s name is also on the lease. Leah suggested they form a multi-member LLC to shield their personal assets from the salon’s debts. When Covid-19 hit, Leah struggled to pay rent and eventually shuttered the business with some outstanding bills. Mark and Leah’s personal finances and assets, like their house and cars, were safe despite the salon’s debts.Takeaways
In short, a multi-member LLC has:- No limit on how many members can join
- Multiple owners that contribute to how the business runs
- Personal liability protections, just like single-member LLCs
- A different tax reporting form
In more detail:
Who can form a multi-member LLC?The LLC business structure can be formed by almost anyone. Each state sets mandates for LLC eligibility, but most agree that as long as you’re 18 years of age or older, you’re free to join or form an LLC. Citizens and non-U.S. citizens are both welcome, as are entities like corporations or other LLCs. How do you form a multi-member LLC?Because LLCs are regulated at the state level, you’ll first file articles of organization of your MMLLC with your secretary of state. Be prepared to make some decisions ahead of time and share some info when you register:- Your MMLLC’s name
- Your name and address
- Management structure for the MMLLC
- Names of other MMLLC owners