Understanding Your LLC Options
If you are in the process of determining how to structure your new business legally, you may feel overwhelmed. The following is a listing of your options if you are considering establishing a Limited Liability Company (LLC).
Single Member vs. Multiple Member LLC
The obvious distinction between a single member vs. multiple-member LLC is how many owners the LLC has, the company business structure has other characteristics, as well. A single-member LLC only has one owner with full control over the company, and the LLC is its own legal entity that is independent legally of its owner. A multi-member LLC that has two or more owners is also separate legally from its owners, however, with multiple owners, they will all have legal authority and control over the company.
There are two ways you can establish an LLC: member-managed, and manager-managed. If you create a single-member LLC, then the LLC will be managed by one person, who is also the only member of management, the owner. However, if you have a multiple-member LLC, you must decide if you want the business to be managed by the members (owners) of the company, or if those owners can agree upon the selection of a manager to whom authority will be granted to manage daily operations or business decisions. All of these legal decisions must be made clear in the Operating Agreement of the newly established LLC.
Personal Asset Protection
In most cases, making the decision to establish an LLC will protect the owners’ personal assets. However, if there is a multiple-member LLC, and one owner has committed fraud or done anything to pierce the corporate veil and commingle personal and business assets, it is possible that the owners may lose some personal asset protection.
For both single-member and multi-member LLCs, the profits and losses will pass through to the owners according to the Operating Agreement. However, a single-member LLC will be treated as a sole proprietor and a multi-member LLC will be treated legally as a partnership for tax reasons. It is important to understand that how you establish your LLC at the beginning will have far-reaching consequences regarding how you operate your business, your legal liabilities, and your responsibilities regarding taxes.
Both single-member and multi-member LLCs have requirements legally regarding their business entity. Typically, single-member LLCs have less complicated requirements regarding compliance than multi-member LLCs. However, the failure to comply with any legal requirement regarding paying taxes, submitting annual reports, holding annual meetings, renewing permits and licenses, and maintaining company records could be met with severe fines and penalties.
Contact an Experienced Business Attorney Today
As you begin to consider your options regarding how to legally establish your business, consider visiting with an experienced business attorney. The lawyers at the Law Office of Kris Mukherji at (858) 442-5747 can help you determine which type of LLC would be most advantageous for your new business, and ensure that your legal rights are protected.