What is a Multi-Member LLC? Should You Have One? Find Out Now

Learn what a Multi-Member LLC is and if it's the right choice for your situation as an international founder. Visit us now to discover your answer.

If you own a business registered as a sole proprietorship or single-member LLC and now it has more than one person with a stake in the business, then it’s time to switch to multi-member LLC. However, before you register it as multi-member LLC, it’s important to know about it what a Multi-Member LLC (MMLLC) is. And, that’s why you need to read this post!

Multi-Member LLC (MMLLC)

An MMLLC is a limited liability company with 2 or more members. A multi-member LLC has multiple members sharing the company's control, making its decisions, and controlling the operations. It stands in comparison with a single-member LLC.

When states enacted LLC statutes, people were only allowed to create multi-member LLCs, and there was no such thing as single-member LLC.

Typically, businesses register as multi-member LLCs when there is more than one owner of the company. When multiple people share the decision-making authority in a business, registering the business as a multi-member LLC works well.

Being an LLC helps you to save your assets if your business declares bankruptcy or gets sued. It works in favor of all company members as LLC works as a shield between the business and personal assets of the members if the business is ever sued or declares bankruptcy.

To form a multi-member LLC, you file with your state and organize under state rules. However, for federal purposes, LLCs are viewed as corporations. You can request to change your tax treatment.

Multi-Member LLC Is Ideal For…

Family-owned businesses, friends starting a business together, or married couples investing in a business often opt for multi-member LLC as it helps all members to protect their assets.

What Are The Benefits Of A Multi-Member LLC?

Creating a multi-member LLC certainly provides some benefits. The foremost benefit is that members have liability protection between their assets and the business.

Some of the other benefits that a multi-member LLC receive include:

·     There can be any number of members in a multi-member LLC.

·     Members of an MMLLC can be individuals, LLCs, or corporations, which means two businesses can create a joint venture under an MMLLC.

·     Non-US citizens can form an MMLLC.

·     An MMLLC isn’t required to pay corporate tax.

·     Businesses are offered to opt for the tax treatment of their choice between S-corp and C-corp.

These are the typical benefits that any MMLLC would receive, so if you think your business qualifies for the definition of an MMLLC, then it’s worth switching or starting a MMLLC!

Drawbacks of an MMLLC

With many benefits, there are certainly some drawbacks of an MMLLC as well. Let’s look at them:

·     One of the biggest drawbacks is that an MMLLC can be held accountable for another member’s actions.

·     Other members may misuse the funds.

·     The other members can deceive you, and they may harm the company knowingly.

·     An MMLLC sometimes fails to create proper records of the company’s activities.

·     Owners can’t be employees of the company without changing their tax status.

·     More paperwork to file business tax.

We hope that you are now aware of a multi-member LLC and ready to make an informed decision around whether or not starting a MMLLC is the right decision for you!

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Doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.

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