What is an LLC Member?
If you’re looking into forming a limited liability company, you may be wondering what an LLC member is.
A member of an LLC is also an owner of that business, but there’s a variety of other tasks they may be expected to handle. In addition, there are also single-member LLCs and multi-member LLCs, so it’s important to know the differences between these business types as well.
In this article, we’ll take a look at all the ins and outs of LLC membership. What are the roles of LLC members? What’s the difference between LLCs with individual owners, and those with an ownership group? Let’s find out the answers to these questions and more!
What Is a Member of an LLC?
When you hear the term “limited liability company member,” this refers to an owner of the company. There might be one member running the business as an individual, or there may be several members making up an ownership group. The only major rule regarding who can be a member of an LLC is that members must be at least 18 years old, but that’s about it as far as restrictions go.
Members can be from anywhere ― they don’t have to be citizens or residents of the United States. Additionally, members don’t even have to be people, as many LLC members are corporations, trusts, holding companies, or pension plans. Sometimes, you’ll even see an LLC acting as a member of another LLC!
No matter who your LLC members are, you’ll want to outline their responsibilities and rights in your company’s operating agreement. It’s also important to be aware of your state’s unique rules and regulations for LLC membership, as some states have different guidelines than others regarding LLC member/owners.
What’s the Difference Between Single-Member and Multi-Member LLCs?
If your limited liability company only has one member, it’s known as a single-member LLC, or SMLLC for short. Alternately, an LLC with more than one member is a multi-member limited liability company (MMLLC).
The single-member LLC is most commonly used as a way to transition a business from being a sole proprietorship into the world of limited liability, which offers the member personal asset protection that they weren’t receiving as a sole proprietor.
As for a multi-member LLC, these businesses often begin as general partnerships. They form limited liability companies for much the same reason a sole proprietor moves into the SMLLC business structure, as the partnership does not provide personal asset protection.
What Does an LLC Member Do?
The role of an LLC member doesn’t vary too much between single-member and multi-member limited liability companies, except for the fact that a single member obviously doesn’t have anyone to split responsibilities with, whereas multi-member LLCs can share managerial duties or even hire an outside manager to handle them.
As a member, if you’re an active participant in your LLC’s daily managerial tasks, 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?
There are several important aspects to the taxation of LLC member/owners. First off, limited liability company members can choose how they want to be taxed. Most commonly, LLCs are taxed much the same way as general partnerships are, which means that profits are passed through the business structure itself. In this form of taxation, there is no need to file a business tax return, as the LLC’s profits and losses are claimed on each member’s personal tax returns.
One thing all LLC members need to be aware of is the fact that they will be required to pay self-employment taxes on their business income. Because LLC members are not considered to be employees, but rather to be self-employed individuals, they’ll need to pay both the employer and employee portions of Medicare and social security, which comes to a total of 15.3%.
Are LLC Members Responsible for Forming the Company?
An aspect of limited liability company membership that we often hear some confusion about is whether LLC members need to form the business itself. The person or entity that forms the LLC is known as the LLC organizer, which is a role that is often (but certainly not always) filled by a member.
If you and your co-members aren’t interested in forming your own LLC, you can hire someone from outside the company. Some entrepreneurs choose to hire a lawyer or accountant to serve as an LLC organizer, but this can be a prohibitively high expense for many small businesses.
Another option that falls in between the DIY option and paying an attorney or accountant’s fees is to hire an online service. If you want the peace of mind that comes from having your LLC professionally formed, but also need to be financially responsible, the following companies can help you out:
- IncFile – $49: With one of the lowest price points in the industry, and the inclusion of a full year of registered agent service with any LLC formation purchase, IncFile is always one of our top picks. They also receive fantastic reviews from their customers, so it’s easy to see why they’re so popular.
- Northwest Registered Agent – $79: Their pricing isn’t as low as IncFile’s, but Northwest has outstanding one-on-one personalized customer support that’s a big advantage in this industry. Like IncFile, Northwest also includes a year of registered agent, 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.
- LegalZoom – $149: LegalZoom has some sky-high prices, but they have a massive volume of customers and unrivaled brand power. They also have a 100% satisfaction guarantee and extended customer support hours, so depending on your priorities they may be worth the expense.
While the simple answer to the question “What is a member of an LLC” is rather simple ― a member is an owner of a limited liability company ― there’s more to it than that. Your role as an LLC member might change depending on the number of members your LLC has, the responsibilities of your co-members, the way you pay taxes, and whether you want to form your own LLC or not.
We hope this article cleared up any misconceptions you might have had regarding LLC membership, and we wish you the best of luck in your business future!