Types of LLCs
The type of LLC you form will affect your business structure, liability protection, tax responsibilities and more. Below we go over the most common types of LLC.
What Are the Types of LLC?
All LLCs are categorized as either single- or multi-member and member- or manager-managed. Additionally, some LLCs have unique requirements, including professional LLCs, series LLCs, low-profit LLCs, and close LLCs. The best type for you will depend on your industry, state, and business goals.
Common Types Of LLCs
Your LLC can have one or more members (owners) and be managed by its members or by outside managers. Here’s what you need to know:
Single-Member LLC
As the name suggests, single-member LLCs have one member (aka owner). While generally pretty similar to multi-member LLCs, single-member LLCs can face additional challenges, especially regarding liability protection. For instance, when one member owns an LLC, it can be harder to separate personal and business matters, which could compromise their liability protection.
Multi-Member LLC
Multi-member LLCs have—you guessed it—two or more members. Multi-member LLCs are popular among small and family-owned businesses. Each member owns a percentage of the company and receives a proportionate chunk of the profit. So, if you own 70% of the business, you’ll likely be entitled to 70% of the profits, unless you specify otherwise in the operating agreement.
Member-Managed LLC
“Member-managed” and “manager-managed” are terms used to describe your LLC’s organizational style. In a member-managed LLC, members run the business themselves. All members share in decision-making, much like in a partnership. LLCs are typically member-managed by default but can elect to be manager-managed in their articles or operating agreement.
Manager-Managed LLC
In a manager-managed LLC, members choose to appoint or hire managers to handle the LLC’s day-to-day operations. In addition, a manager-managed LLC can also offer more robust privacy protection for members. For example, Rhode Island and Nevada only require manager names and addresses (not members) to be listed on the Articles of Organization for manager-managed LLCs.
Check out our LLC Members vs Managers page to see whether a manager-managed or member-managed LLC is right for you.
LLCs For Specific Purposes
Some types of LLCs are designed for specific business purposes and goals. For example, a Professional LLC (PLLC) is for companies that offer professional services such as acupuncture or psychiatry. A Low-Profit LLC (L3C) is designed for entrepreneurs looking to earn a small income while focusing on charitable causes.
Here’s a quick breakdown of different types of LLCs and their specific purposes.
Professional LLC (PLLC)
A professional LLC (PLLC) is a type of LLC designed explicitly for licensed professionals such as attorneys, doctors, chiropractors, and engineers. Your PLLC will protect your personal assets if another member faces legal action. However, if someone sues you, your personal assets could be at risk. In addition, you could be held liable if an individual under your direct supervision is accused of misconduct.
Only 32 states and the District of Columbia recognize PLLCs. However, in some states, forming a PLLC may be your only option. For example, licensed professionals in Connecticut and Illinois who want to create an LLC must form a PLLC.
Most states require all members of a PLLC to be licensed under the same profession. So, your PLLC probably can’t be owned by a dentist and two therapists. In addition, you’ll likely be limited on the number of services your PLLC can render. However, there are a few exceptions. For example, in Kansas, landscaping companies may also provide architectural design.
Series LLC
A series LLC is a single LLC that has one or more divisions (or “series”) within it, each with separate liability. A series LLC allows business owners to form several entities without paying additional expenses and filing multiple formation documents.
When a series LLC is properly maintained, each series can function as a separate entity with a unique company name, bank account, and operating agreement. A series LLC may also have different members. In addition, each series can enter into contracts, sue or be sued, and own separate assets.
Only some US states and jurisdictions recognize the series LLC business structure, including Alabama, Arkansas, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming.
Low-Profit LLC (L3C)
A Low-Profit LLC (L3C) is a type of entity that combines the benefits of a for-profit business with the social-driven interest of a non-profit. An L3C allows business owners to earn a small profit while channeling most of their energy towards making the world a better place. For example, your L3C might work towards preventing animal cruelty or developing youth programs within your community.
Your LLC must meet the requirements outlined below to qualify as an L3C:
- It must focus primarily on philanthropy rather than earning a profit. See Section 170(c)(2)(b) of the IRS code.
- It can’t benefit any government-related goals.
- It must contribute money, time, or products towards one or more charitable causes without expecting to get something in return.
Currently, there are only eight states (Illinois, Louisiana, Maine, Michigan, Rhode Island, Utah, Vermont, and Wyoming) with statutes supporting the creation of low-profit L3Cs.
Non-Profit LLC
A non-profit LLC (much like an L3C) focuses on supporting humanitarian causes. However, non-profit LLCs are 100% dedicated to furthering a specific social goal rather than profit.
A few states (including Minnesota, Kentucky, North Dakota, and Tennessee) offer specific statutes supporting the creation of non-profit LLCs. However, most states will allow you to provide a more specific business purpose. For example, Texas and Montana don’t recognize non-profit LLCs. However, both states allow LLCs to have a non-profit purpose, such as supporting wildlife conservation or creating education scholarships for low-income students.
Your LLC must meet several IRS requirements to qualify for federal tax-exempt status. For example, all members of your LLC must be a tax-exempt entity. In addition, you need to submit your approved Articles of Organization and operating agreement to the IRS when filing your tax-exempt forms.
Close LLC
A close LLC (also called a closely held LLC) is a type of LLC typically designated for small businesses with few owners. For example, Texas and Maine require close LLCs to have 35 or fewer members. However, larger companies could also elect to be a close LLC if permitted by your state.
Close LLCs can allow members to have more control over company distributions. For example, most states require all members to agree before any company interest can be transferred—even if a member passes away or wishes to sell their interest.
Much like other types of LLCs, not all states provide specific statutes supporting the formation of close LLCs. However, most states allow you to include similar provisions in your operating agreement.
Close LLCs are especially common in Wyoming, where close LLC statutes have been on the books for decades. To learn more, check out our Wyoming Close LLC page.
Restricted LLC
A Restricted LLC can only be formed in Nevada and isn’t intended for conducting business. Instead, this type of LLC functions as a vehicle for transferring assets (such as property or land) between family members. In addition, Restricted LLCs typically can’t distribute assets until ten years after the formation date. However, you may include provisions in your Articles of Organization to distribute assets sooner.
Restricted LLCs are great for estate planning purposes. You can retain control over your assets and future distributions, which isn’t always obtainable through a will or trust.
LLC S Corp
An S Corp (Subchapter S Corporation) is a tax status your LLC can elect from the IRS. S Corp is technically not a business entity. Still, it’s a popular tax classification that can help some LLCs save on self-employment taxes.
Typically, all LLC income is subject to steep self-employment taxes (roughly 15.3%). However, the S Corp tax status allows your LLC to categorize LLC income as either salary or distributions. So while you have to first pay reasonable compensation to those who work for the LLC, any additional income can be categorized as distributions—which aren’t subject to self-employment taxes.
To elect an S Corp tax status, you’ll need to file Form 2553 (Election by a Small Business Corporation) with the IRS. Your LLC must also meet several IRS requirements that include the following:
- Your LLC must be a domestic entity.
- Your LLC must have 100 or fewer members
- Each member must be a US citizen.
Is an LLC S-Corp right for you? Check out our S-Corp vs. LLC page for all the details and further IRS requirements.
Ready to Start Your LLC?
The Northwest LLC includes a free year of registered agent service and a complete online identity. All for just $39 + state fees.