A multi-member limited liability company consists of more than one owner, or members. Unless the member elects otherwise, a multi-member limited liability company is taxed as a partnership. An Operating Agreement is an important legal document for a multi-member limited liability company, as it set forth the specific division of ownership and responsibilities between the various members.

There are two types of multi-member limited liability companies: a member-managed and a manager-managed.

All members share responsibilities for the operations of the company in a member-managed limited liability company. This is ideal for small businesses with limited resources where its operations does not require a separate management level.

In a manager-managed limited liability company, members elect an individual, a group of individuals or an entity to serve as the manager who generally makes the day-to-day management decisions with regard to the operations of the company. Commonly, a manager-managed limited liability company has an operating agreement, which details when the members must approve an action outside of the ordinary course of the company’s operations. A manager-managed limited liability company is ideal for when some members are only interested in being investors or when some members are not particularly skilled at management.

Pros:

  • No personal liability for the company’s members. Commonly referred to as a “limited liability entity”
  • The entity is known as a “pass through entity” as the income passes directly to the members, avoiding the double taxation pitfall associated with “C” Corporations
  • Ability to elect federal taxation as either subchapter “S” corporation or default automatically to be taxed as partnership
  • Flexible governance and organizational requirements:
    • No restriction on types of owners or creating varying member classes
    • Able to utilize multiple ownership classes with varying voting and income rights

Cons:

  • All earnings subject to self-employment tax
    • No taxable difference between member “wage” payments and company distributions to members
    • Impact dependent on projected revenues
  • Less formalities, which may cause difficulties with transferability of ownership

We believe that you need a great team, starting with a great account. Forming a company involves tax matters that our law firm does not handle. You should confirm with your account or tax professional on an entity choice before forming an entity.

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$600 Plus Filing Fee

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  • Standard Package
  • Plus
    • Organizational Resolutions
    • ½ Hour Consultation with an Attorney
    • Member Certificates
    • Transfer Ledger
    • Memorandum identifying issues and recommendations to be addressed in Members Agreement
  • Review State Required Filing Fees Here
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