Types of LLCs
All LLCs offer limited liability protection, management flexibility, and tax options. However, different types of LLCs will vary depending on industry and purpose. Below, we provide an overview of different types of LLCs and links to in-depth articles on these topics.Common Types of LLCs:
Common Types Of LLCs
All LLCs—from close LLCs to professional LLCs—can be divided into single or multi-member and member-managed or manager-managed LLCs.
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 hard to separate personal and business matters, which could compromise your liability protection.
In addition, some states don’t offer the same level of protection from creditors for single-member LLCs as they do for multi-member LLCs. For example, in Utah and New Hampshire, if a creditor obtains a charging order against a single-member LLC, the creditor could force the owner to sell their interest at a foreclosure sale. However, creditors don’t have the same power over multi-member LLCs.
Our Single-Member LLC page goes over taxes, filing requirements, liability challenges, and more.
Multi-member LLCs have—you guessed it—two or more members. Multi-member LLCs can be large or small but generally tend to be popular among small businesses, such as family-owned businesses. Each member in the multi-member LLC owns a percentage of the company and typically 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, barring any adjustments in the operating agreement.
Learn all about Multi Member LLCs and how they differ from partnerships and single-member LLCs.
“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.
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 listed on the Articles of Organization if the LLC is manager-managed.
Check out our LLC Members and Managers page to see whether manager-managed or member-managed 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 actions. 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.
On our Professional LLC page, we discuss unique filing requirements, occupational licenses, and much more.
A series LLC is a type of LLC that consists of a master LLC and one or more divisions (or “series”) within it. A series LLC allows business owners to form several entities without paying additional expenses and filing multiple formation documents.
When a series LLC is property 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 a handful of 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.
See our Series LLC page for details and state-specific guides that break down filing requirements, state fees, and more.
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.
For more information regarding L3Cs, check out our Low-Profit LLC page.
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.
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.
Learn more about non-profit LLCs by reading our Non-Profit LLC page.
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.
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 your 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.
Types of LLCs vary depending on members, management, business purpose and state-specific LLC statutes. Choosing the best type of LLC for your business can go a long way to help maximize your company’s potential.
Also, keep in mind that you can often draft your Articles of Organization and operating agreement with a more specific business goal or other requirements. Meaning, it may be possible to form an LLC that essentially functions as a type of LLC not addressed in current state statutes.
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