When constructing a building, it’s necessary to put a framework in place before adding everything else.
This skeleton provides support and protection for the building as it endures weather, aging, and general wear and tear. In the same way, a business framework can help ensure your company’s long-term stability and protection.
A multi-member LLC is a business entity type that offers legal protection, tax flexibility, and much more for any business with multiple owners. It’s a great option for anyone looking to legitimize their business and establish more structure within their company.
That said, not everyone needs to form a multi-member LLC. This guide will outline all the pros and cons and set out directions for forming one, giving you a better understanding of how it might work in the context of your current business.
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What Is a Multi-Member LLC?
The basics of a multi-member limited liability company (or MMLLC) are right there in the name. It’s a structure for a business with two or more members/owners. But that’s just the tip of the iceberg.
The MMLLC structure also protects members’ personal assets. Let’s say your business is sued and the court rules against it. If you’ve established an MMLLC, it distinguishes your business as a separate entity from you as an individual, so creditors can’t come after personal assets like your house, car, personal bank accounts, and more. Instead, they can only pursue your business assets.
Some multi-member LLCs start out as partnerships, and this limited liability protection is a major benefit of the LLC because partnerships do not receive this personal asset protection. Each state has its own rules and regulations for MMLLC formation and ongoing compliance, so check your state’s website to familiarize yourself with its procedures. That said, there are some general guidelines that can help you prepare to form your business.
Why Should I Form a Multi-Member LLC?
An MMLLC doesn’t just protect your assets, it protects your reputation too. General partnerships aren’t formal business entities, and they don’t require registration with your state government. But as a state-registered business entity, an MMLLC has much more legitimacy in the eyes of courts, banks, other businesses, and more. If you’re looking to increase your casual partnership’s legitimacy, one way is to form an MMLLC.
Plus, if you’re dissatisfied with how your partnership is taxed, a multi-member LLC will give you options. By default, MMLLCs are taxed like partnerships, but you can choose to have them taxed like an S corporation or C corporation instead. This gives you some authority over how you pay taxes on your business income, so you can find the best option for your growing company.
Most entrepreneurs choose to have their MMLLCs taxed as partnerships though, because this enables you to avoid the double taxation model of most corporations ― when taxed as a partnership, you only pay taxes on company profits on your personal return, whereas with corporation-style taxes, you’re required to pay taxes on those profits both on your personal return and on a separate corporate return.
Another major benefit of the multi-member LLC is the way this business structure protects your business name from being used by other entities. An MMLLC’s name is registered with your state of formation, a general partnership’s name is not. Once a name is on record with the state, it’s off-limits to everyone else, but your partnership’s name could still be registered and used by other businesses.
Lastly, let’s talk money. If you plan on pitching your company to investors, know that as a legal business entity, a multi-member LLC is a more attractive business type. Partnerships are just extensions of their owners, and investors are more wary of handing their money to a group of individuals than an established business. That said, if you’re serious about attracting investors, you might want to form a corporation because of its ability to sell stock.
Why Should I NOT Form a Multi-Member LLC?
After all those advantages, you might be thinking: “That sounds great. Sounds like the MMLLC is the best way to go!” But this isn’t always the case. Yes, it’s a great option, but it isn’t universally ideal for every business.
For starters, the MMLLC formation process can be a bit of a time-consuming hassle, especially when you consider that a general partnership doesn’t require a formation process at all. If you’re short on time to start doing business, running with a partnership is the quickest way to get going. You can always form an MMLLC later on if you’d like, as long as you’re not worried at all about liability in the meantime.
It’s an investment of money too, not just time. Though they’re much cheaper than corporations, multi-member LLCs still have to pay formation fees, which don’t apply to partnerships. Then, there are often ongoing maintenance fees to consider. While these fees vary by state, they definitely make the multi-member LLC a more expensive business structure to form and maintain than a general partnership.
How Do I Form a Multi-Member LLC?
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Even though there are fees involved, the act of forming a multi-member LLC is pretty simple. You’ll just need to get your hands on the documents known as the Articles of Organization. Some states call these the Certificate of Organization or Certificate of Formation, but they serve the same purpose: forming your LLC. In general, your articles will need to include the following information:
- Legal name of your company
- Physical address of your MMLLC
- Name and address of your registered agent
- Name(s) of your MMLLC’s owner/member(s)
- Name of your MMLLC organizer
- Identity of your MMLLC manager (if applicable)
Check your state’s business forms page (often on the Secretary of State page), and you’ll likely find a standard Articles of Organization document. Different states have various filing procedures, although the options generally include some combination of filing by mail, in person, and online.
How Much Does It Cost to Form a Multi-Member LLC?
The filing fees for multi-member LLCs vary considerably depending on your formation state. A few states, like Arkansas and Kentucky, allow you to file your Articles of Organization for under $50, but others, like Tennessee and Massachusetts, charge hundreds of dollars to form an MMLLC.
For a comprehensive breakdown of the LLC formation costs by state, take a look at our guide to LLC formation and ongoing compliance fees in all 50 states!
Can I Hire Someone to Form My Multi-Member LLC?
You’re totally capable of forming your multi-member LLC DIY-style. But entrepreneurs are busy people, so you simply might not have the time to take it on. Or maybe you’d just feel more comfortable leaving it in the hands of an expert. There are a couple of reliable sources for LLC formation assistance.
One popular route is to hire a business lawyer who will draft and file your documents. This option certainly offers the peace of mind that the process will be completed by a true expert, but this expertise often comes at a cost. Attorneys’ fees aren’t cheap, so this option might not be financially realistic for all business owners.
If it’s expertise that you want, but you’d rather not break the bank for it, you can hire an online incorporation service. A reputable formation service provider will professionally form your new company at a fraction of the cost of a lawyer’s fees. Knowledge and affordability – these companies offer both.
If you want to use a service to form your LLC, there are dozens of options. We invite you to check out our full list of the best available LLC formation services, but we’ll also share a couple of the most popular options below. ZenBusiness is the best LLC formation service available. That said, ZenBusiness receives outstanding customer feedback, with more than 9,800 reviews available online and very few negative reviews among them. For most people, LegalZoom is the first name that comes to mind for LLC services due to their massive advertising budget. LegalZoom’s pricing and features may not compete on an equal playing field with ZenBusiness, but its brand power is notable and it receives good customer reviews. For a side by side comparison, check out our LegalZoom vs ZenBusiness review.
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If you want to use a service to form your LLC, there are dozens of options. We invite you to check out our full list of the best available LLC formation services, but we’ll also share a couple of the most popular options below.
ZenBusiness is the best LLC formation service available. That said, ZenBusiness receives outstanding customer feedback, with more than 9,800 reviews available online and very few negative reviews among them.
For most people, LegalZoom is the first name that comes to mind for LLC services due to their massive advertising budget. LegalZoom’s pricing and features may not compete on an equal playing field with ZenBusiness, but its brand power is notable and it receives good customer reviews.
For a side by side comparison, check out our LegalZoom vs ZenBusiness review.
Frequently Asked Questions
Should I Use an LLC Service, Hire an Attorney, or Form My Own Multi-Member LLC?
The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.
Using an LLC service means your business will be formed by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.
How Do Online LLC Services Work?
Using an online LLC service removes much of the hassle from the business formation process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your registered agent.
The service then creates your Articles of Organization (or similarly named document) and files them with your state to create your new multi-member LLC.
Are LLC Formation Websites Legit?
Absolutely. There are quite a few reputable companies offering LLC formation service these days, including the three best LLC services we discussed earlier.
In fact, while we certainly have our opinions about which ones offer the best pricing and features, every one of the incorporation services we discuss on this website is entirely legitimate and trustworthy.
Does Using an LLC Service Give Me More Legal Protection or Privacy?
In some ways, using an LLC service does protect your privacy compared to forming your own, especially if you choose to also have that company serve as your registered agent.
This is due to the fact that, if you serve as your own registered agent, your personal address will often become part of the public record. Using a registered agent service not only provides the privacy of using the agent’s business address as your own, but it also significantly cuts down on junk mail.
This is why we’re such big fans of companies like Northwest Registered Agent that include a year of registered agent service with their LLC formation packages.
Should I Form an LLC or Corporation?
This is an impossible question to answer in an across-the-board manner, as each business type has its own advantages and disadvantages. That said, the LLC is typically the more suitable option for small businesses, while the corporation is usually a better fit for large companies. For more info, check out our complete comparison guide between LLCs and corporations.
When Is the Best Time to Start an LLC?
We think you should start an LLC before you begin conducting business. While it is entirely legally acceptable to operate your business as a general partnership before forming a multi-member LLC, doing so subjects you to a number of risks that LLCs don’t have to worry about.
For example, informal business structures don’t have limited liability protection, so any lawsuit filed against the business can include the owners’ personal assets as well as the business assets.
Whether you’re starting a business for the first time or you’ve been running a general partnership for some time, a multi-member LLC’s benefits make it worth considering.
It might be a small investment to form and operate, but in the end, an MMLLC offers some invaluable advantages, like business legitimacy and tax flexibility. We think that these benefits far outweigh the drawbacks.
And remember, the formation process doesn’t have to be intimidating. You can always partner with a professional to take that burden off your shoulders. MMLLC or not, the fact that you’re reading this guide means you’re a thoughtful and dedicated business owner which, we hope, will lead to plenty of success down the road!