Did you know that there are 8 types of LLC? As if choosing a business structure wasn't complicated enough!
The reality is that as the popularity of LLCs in the United States grew, states understood the need to create different LLC structures to respond to the different needs of businesses.
Today, each state governs LLCs differently. Some states even recognize all 8 types, while others only 5 or 6, and each you have your own rules and regulations to handle them.
But here's the thing: if you've already made the decision to register an LLC, you've already done the hard work. You already know all its advantages, and you already know in which state to create it. Now, all that remains is to choose the type of LLC that suits the needs of your business. Let's get started!
1. Unipersonal LLC
Entrepreneurs without partners can opt for the legal structure of a unipersonal LLC. As their name indicates, single-member LLCs have a single member, contrary to the multi-member LLC that we will see later.
Advantages of a Single-member LLC include the ability to approve and add new members, a simpler tax system (they are taxed as "Sole Proprietorships" instead of "Partnerships"), and the ability to transfer ownership to others. However, there are disadvantages such as an increase in documentation and obligations compared to a "Sole Proprietorship", which is usually the other option chosen by this type of business owner.
2. Multi-member LLC
A Multi-member LLC has several partners, who will agree on how the business will operate by drafting an operating agreement. Multi-member LLCs can be managed by the members themselves or by managers. If this option is chosen, it must also be specified in the operating agreement.
Among the main advantages of multi-member LLCs, we can mention the possibility of having unlimited members (companies or individuals from the US) and that tax as "Partnerships" by default, but you can also choose to pay as S Corpsor C corps.
Multi-member LLCs can be formed in any of the 50 states of the USA.
3. Domestic LLC and Foreign LLC
A domestic LLC is an LLC that has been formed and operates within the same state. A Foreign LLC is an LLC that has been registered in a state other than where the company is located or does business.
Foreign LLCs are chosen because some states offer more business-friendly laws, cheaper registrations, or certain more attractive tax advantages. When operating in multiple states, local rules and regulations must be complied with, which can be costly and requires professional advice. Additionally, a business address in the foreign state may be required and state tax returns must be filed in both states.
All US states allow domestic and foreign LLCs.
4. Series LLC
A Series LLC represents a set of LLCs, in which one main LLC controls other smaller LLCs called series or cells.
Each series has its own identity and responsibilities, making it popular for business owners with multiple interests. There are advantages, such as cost and time savings, and disadvantages, such as high administrative costs.
The tax and legal treatment of series LLCs varies by state. There are 20 American states that allow the formation of series LLCs.
5. L3C Company (Low-profit LLC)
An "L3C Company" is a type of LLC created specifically to conduct low-profit charitable or charitable activities. Its main objective is social good and not profit.
This type of LLC offers the same tax benefits of a multi-member LLC, but they also provide prestige and the image of a non-profit institution.
As disadvantages we could mention that investors can lose their money without obtaining tax benefits and have limited knowledge about how the funds invested in this type of LLC are used. This makes some donors or investors hesitant about investing or donating in L3C.
L3Cs are allowed in 15 US states.
6. Anonymous LLC
An "Anonymous LLC" or "anonymous LLC" are single member or multi-member LLCs created without publicly revealing the identity of the owners, managers or members. Anonymous LLCs are often valued by business owners looking to protect their privacy and not be personally connected to their business.
However, thethe data of the members of anonymous LLCs may be known to the IRS or banking structures.
States that allow anonymous LLCs are:
- Delaware
- New Mexico
- Wyoming
- Snowfall
7. Restricted LLC
A Restricted LLC is a type of LLC that has only been available in the state of Nevada since 2009. This type of LLC is primarily used to transfer assets, avoiding taxation and liquidation by passing them between family members.
However, the distribution of profits from this type of LLC to its owners cannot be carried out for at least ten years, unless otherwise specified in the articles of organization. During these ten years, profits are not subject to taxes in the United States.
When creating a Restricted LLC, you can choose the best distribution restriction and configure it according to your needs. When registering an LLC in Nevada, you will need to check the "Restricted LLC" box to create it.
8. PLLC and LLC
In certain states,licensed professionals, such as attorneys, accountants, and health care providers, may be required to form a PLLC to conduct operations and reduce their personal liability.
PLLCs offer flexibility in management structure and pass-through taxation to the owners, and have fewer requirements and obligations than a corporation.
However, it is important to note that it is not possible to register more than one PLLC per professional. Also, banks may require personal guarantees for loans. The IRS does not recognize PLLCs and only 29 states allow their formation.
Conclusion
Now that you know the 8 different types of LLC, you can choose the right one for your business.
But remember, it's not just government and state requirements that are important. Your own requirements, motivated by your dreams and the vision you have for your business in the future, are also important to consider when choosing between the 8 types of LLC.
Finally, we recommend that you consult with a professional who can advise you on which type of LLC is best for you.
Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, graduated in 2020 from the National University of Tucumán. Founder of Start Companies since 2023, he advises clients worldwide on forming LLCs in the United States and on proper tax filing. His expertise combines legal, tax, and practical knowledge, offering a comprehensive service that spans from company formation to bank account setup and sales platform integration.