Being an LLC member isn’t exactly like being a member of a social club, fitness center, or library.
Sure, they all involve registration and periodic maintenance, but LLC membership carries a bit more responsibility. After all, you’re starting and running a business, which is like a machine with many moving parts.
But don’t worry, it’s not quite as complicated as it sounds. This guide will unravel the particulars of LLC membership, including roles and responsibilities, and answer some of your most pressing questions.
Recommended ✔If you want to make sure your LLC is formed correctly, hire an LLC service. Below are the top two that will take care of all the legal paperwork:
If getting the most value out of an LLC service is your priority, choose ZenBusiness. They charge one of the lowest rates online and include all the most important features when starting a business. Read Review. If you're on a strict budget and prefer using the cheapest LLC service, choose IncFile. They will form an LLC for free (plus state filing fee) and give you great features along the way. Read Review.
If getting the most value out of an LLC service is your priority, choose ZenBusiness. They charge one of the lowest rates online and include all the most important features when starting a business. Read Review.
If you're on a strict budget and prefer using the cheapest LLC service, choose IncFile. They will form an LLC for free (plus state filing fee) and give you great features along the way. Read Review.
What Is a Member of an LLC?
Put simply, a “limited liability company member” is an owner of the company. There might be only one, or there could be several that comprise an ownership group. The restrictions on who can be an LLC member are fairly loose. Each member must be at least 18 years old, and that’s it.
Members can live anywhere ― they don’t have to be residents of the LLC’s state or even of the U.S. Believe it or not, members don’t even need to be people. They can also be corporations, trusts, holding companies, or pension plans. Sometimes, you might even see an LLC acting as a member of another LLC!
No matter who they are, your LLC members need to know their roles and responsibilities, so make sure to include this information in your company’s operating agreement. But before you do, familiarize yourself with your state’s LLC membership rules and regulations, as they vary between states.
What’s the Difference Between Single-Member and Multi-Member LLCs?
If your limited liability company only has one member, it’s called a single-member LLC, or SMLLC. Alternately, an LLC with more than one member is a multi-member limited liability company (MMLLC). It’s a simple distinction, but there are a couple of distinctions within each type.
Most often, a single-member LLC is a sole proprietor who wanted a little more protection for their personal assets. In a sole proprietorship, the individual and business are one and the same – they share assets, operations and, sometimes, a name. But an LLC is independent of the individual, so it shields the owner’s personal assets and improves the business’ credibility.
Multi-member LLCs, however, often begin as general partnerships. And while they have more members than a sole proprietorship, their motivations for forming an LLC are the same: asset protection in case the company is sued.
These two types of LLC may be different in their managerial and ownership structures, but their formation and maintenance procedures are most often the same.
What Does an LLC Member Do?
LLC member responsibilities don’t vary much between single-member and multi-member limited liability companies. The only difference is that a single member bears these responsibilities alone, while multiple members can split them up amongst themselves, or hire outside managers to help.
Members are the decision-makers for an LLC. In a single-member LLC, the process is easy – one person makes a decision and rolls with it. But multi-member LLCs will likely need to outline voting procedures (who gets to vote, how votes are placed, if votes are weighted, etc.) in their operating agreements, so everyone is on the same page about decision-making processes.
When forming your LLC, you’ll designate whether it will be managed by its members or outside managers.
If you and your fellow members decided to take on the managerial tasks yourselves, you’ll be involved in things like signing off on purchases, overseeing contracts, managing employees, and generally being in charge of the company’s sale of goods and services. Beyond that, the specifics of this role vary greatly depending on the nature of your LLC’s business and the size of your company.
How Are LLC Members Taxed?
One of the best things about the LLC business structure is its tax flexibility. Essentially, members can choose how they want to be taxed. LLCs are typically taxed much the same way as general partnerships, which means that profits and losses pass through the business itself and members will claim them on their personal tax returns. There’s no need to file a separate return for the LLC.
Be aware that LLC members are required to pay self-employment taxes on their business income. Members are not considered employees, but rather to be self-employed individuals, so they’ll need to pay both the employer and employee portions of Medicare and social security, a total of 15.3%.
Some states may require franchise taxes for the privilege of doing business in the state or, depending on its activities, your LLC may owe sales, use, withholding, or other taxes. But these are paid by the LLC itself and don’t come out of the members’ pockets.
Are LLC Members Responsible for Forming the Company?
Okay, so members have a variety of responsibilities within an LLC, but do they need to actually form it? Not necessarily. The person or entity that forms an LLC is known as the “organizer.” Most times, the organizer will be one of the LLC’s members, but it can also be a third party or outside business entity.
Some entrepreneurs choose to hire a lawyer or accountant to serve as the organizer, but this expense can be prohibitively high for many small businesses.
If you don’t want to go the DIY route but an attorney isn’t in your budget, you might look into an online LLC formation service instead. This way, you’ll gain the peace of mind that your LLC is being professionally formed without emptying your wallet.
There are plenty of formation services out there, each with its own set of advantages and drawbacks. After a whole lot of meticulous research, we’ve named the three best LLC services:
This is the best value you’ll find for LLC formation services. While they don’t have the extensive track record as the two options below, they’ve formed thousands of businesses so far and very positive online reviews. They also have the most complete base package available.
Want to learn more? Read our ZenBusiness review.
They boast the best customer feedback in the industry and they’ll throw in a full year of registered agent service with any LLC formation purchase. For these reasons alone, IncFile is always among our top picks. They go above and beyond, though, and their customer reviews reveal a track record of satisfaction, success, and excellent service.
Want to learn more? Read our IncFile review.
Their pricing isn’t as low as IncFile’s, but Northwest has outstanding one-on-one personalized customer support, which is a big advantage in this industry. Like IncFile, Northwest includes a year of registered agent service, but they have an advantage here too as they’re the only major service provider that locally scans every document they receive, whereas most competitors only scan government docs.
Want to learn more? Read our Northwest review.
LLC membership encompasses a lot more than just sole or part ownership. Most times, it’s not a role that allows you to kick back and sip iced tea, watching your company thrive.
Instead, as an LLC member, you often take an active role in your company’s formation, maintenance, decision-making, and daily activities. This depends, of course, on the number of members in your particular LLC, but generally, member responsibilities are pretty consistent.
Your membership might include important responsibilities, but we know you’re determined and well-equipped enough to handle them! And if at any point it feels overwhelming remember, you can always reach out to an LLC formation service for help. Now that you’re fully prepared for life as an LLC member, it’s time to go full steam ahead into your future business success.