What is a Multi-Member LLC?
Do you run a business with two or more members, and you’re looking to form an entity that gives you legal protections in case of a lawsuit? Are you uninterested in jumping through the legal hoops and paying the necessary fees to form a corporation?
If so, a multi-member limited liability company might be the right choice for your company, but you should probably make sure this structure is the right fit before you form one.
This article breaks down the major pros and cons of the multi-member LLC, in an effort to help you decide if you want to create one of your own. When you’ve finished reading this article, we think you’ll have a better understanding of the multi-member LLC and how it applies to your business.
What Is a Multi-Member LLC?
A multi-member limited liability company (or MMLLC for short) is a business structure that protects the personal assets of a company’s multiple owner/members. If there is a lawsuit against your business at any time, the MMLLC will provide protection for your personal assets, like your house, car, personal bank accounts, etc. In short, if your company is sued, creditors will only be able to pursue your business assets.
Seeing as many multi-member LLCs start out as partnerships, this limited liability protection is a major benefit, because partnerships do not receive this personal asset protection. It should be noted that each state has its own rules and regulations for MMLLC formations and ongoing compliance, so you should check with your state of formation to see what exactly is required. For the most part, there are some common steps which we’ll address in this article.
Why Should I Form a Multi-Member LLC?
In addition to the limited liability protections, the increased legitimacy of an MMLLC is rather significant when compared to a partnership. General partnerships aren’t formal business entities, and they don’t require registration with your state government. In part due to this casual treatment of general partnerships, the multi-member LLC is typically seen as a far more legitimate business than a partnership is.
A multi-member limited liability company is a legal business entity, and it is separate from you or any other owners as individuals. For federal taxation purposes, by default the MMLLC is nearly identical to a partnership, but you can also choose to have it taxed like an S corporation or C corporation.
This is one advantage of the LLC as a business structure, as it can be highly beneficial to be able to choose your own taxation model.
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, unlike those of general partnerships. Finally, the multi-member LLC is much more attractive to potential investors because it’s a legal business entity, whereas a partnership is just an extension of its owners as individuals.
Why Should I NOT Form a Multi-Member LLC?
There’s quite a few good reasons why the multi-member LLC is so popular, but there’s a handful of reasons why it might not be the ideal structure for your business as well.
First off, 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.
In addition, even though they’re much cheaper than corporations, multi-member LLCs have to pay formation fees, which don’t apply to partnerships. Your MMLLC will also likely be subject to some ongoing maintenance fees, and while all of these fees do vary considerably by state, they definitely make the multi-member LLC a more expensive business structure to form and maintain compared to a general partnership.
How Do I Form a Multi-Member LLC?
To officially form your multi-member LLC with your state of formation, you’ll need to draft and file documents known as the articles of organization. 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)
Many states provide some sort of template for the articles of organization which can make the process rather painless, but in other states you’ll need to draft your own articles from scratch.
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. There are a few states like Arkansas and Kentucky that allow you to file your articles of organization for under $50, but there are also some states like Tennessee and Massachusetts that 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 the formation and ongoing compliance fees in all 50 states!
Can I Hire Someone to Form My Multi-Member LLC?
You always have the option to handle your MMLLC formation yourself using the DIY method, but there are also options available that can dramatically decrease the amount of time and hassle you’ll need to invest in this process.
One popular route is to hire a business lawyer to draft and file your articles of organization, which gives you the peace of mind that the process was completed by a true expert. However, attorneys’ fees are so high that this option can simply cost too much for many business owners.
Instead of the hassles of the DIY option or the high expense of the attorney option, you can hire an online incorporation service to create your new multi-member LLC. A reputable formation service provider can professionally form your new company at a fraction of the cost of a lawyer’s fees. There are quite a few of these companies out there, so if you’re interested in this route, you might want to try one of our favorite service providers:
- IncFile – $49: With one of the lowest price points in the industry, IncFile is always a strong contender for multi-member LLC formation service. Their inclusion of a year of registered agent service is a great feature, and they also receive very solid customer feedback.
- Northwest Registered Agent – $79: Northwest also bundles a year of registered agent into their LLC formation packages, and they’re the only mainstream service provider that locally scans every document they receive as your agent ― their competitors only scan government-issued docs. Northwest also has highly personalized customer support that makes their prices well worth it in our opinion.
- LegalZoom – $149: Their prices are pretty high, but LegalZoom has a ton of brand power and a super-high customer volume. Throw in their 100% satisfaction guarantee and their extended customer support hours, and you can see why they’re such a popular option.
The multi-member limited liability company has many more pros than cons for most entrepreneurs, which explains why it’s such a popular business structure. Compared to a general partnership, the MMLLC is more expensive to form and operate, and it’s certainly more of a hassle as well, but the benefits usually outweigh the drawbacks.
Whether you decide to form a multi-member LLC or not, and whether you choose to do so with the DIY option or if you hire a professional, we wish you nothing but the best with your new business!