When it comes to the registration of a business, there is a slight difference between creating an LLC which is single-member versus that of a multi-member LLC, beyond the obvious difference in numbers of members. These differences are more like nuances, but they are still worth considering when it comes to working out, which will be best for the business on the whole. We should just preface this by saying that if you are entering into a business with a family member then it would make sense to seek some legal advice on the subject. When it comes to has many who specialise in family and business law, you should always consider legal advice before making a decision a like this.
The question really comes down to which of these models is best for business, which is what we will get into now, and we will start by breaking down the definition of each option.
Multi-Member LLC definition
An MMLLC can be defined as a limited liability company with two members of more. There are no limits placed on how many members a business of this type can have, and members can be an individual, a corporation or even another LLC. These are popular choices amongst husband and wife business teams, friends who wish to go into business with one another, and we also often see business partners looking to branch out and work with one another on a new venture. The main motivation behind such a business is that the multi-member option helps the members to limit their exposure, thus protecting their personal assets.
In contrast, a single-member LLC is exactly what it says on the tin, one owner who accepts all of the liability of the business.
So which is best for business?
We have already touched on which of these business options are best for the individuals involved, now let us take a look and see which one is really better for business. In terms a single-member LLC this is much easier for tax purposes because there is no requirement for a federal return, unless of course if the business decides to change in order to become a corporation. The income is reported on the single member’s tax return.
Putting tax aside for a second, the real question for multiple-member LLCs is whether more heads encourage ideas to build a better business, or indeed whether too many opinions hinder a business. In reality much of this will come down to the agreements which have been made upon entry to the business, as to whether any of the partners wish to become silent members. Very often we may see a single member who includes their spouse or child to become a multi-member LLC for tax benefits, yet they alone run the business, this seems to be the most successful way of approaching this particular business.
Another relatively large risk which a multiple-member LLC throws up, is that if one member does wrong, the rest of the members are guilty by association, which of course nobody wants to endure.
Ultimately, the best case scenario from a business point of view is a single member LLC, this way the business can run in accordance with the person at the top, and no conflict takes place. From an individual member’s standpoint however, a multiple-member LLC is able to offer far more protection and whilst that may hamper the business on the whole, it is a far smarter individual decision to make.