Wondering how many owners an LLC can have? We have a complete guide just for you.
Can An LLC Have More Than One Owner?
When forming an LLC, it becomes important to understand how the ownership of a business works. One of the most common questions asked is “How many owners can an LLC have?”. In this guide, we will provide answers to this question and an overview of how LLC membership works.
What Are LLCs?
LLC is short for Limited Liability Company. It is a legal entity type often formed to operate and own a business. LLCs are popular since they offer limited liability like a corporation, yet they are cheaper and easier to establish and run.
Who Can Benefit From Forming An LLC?
Any person that plans to start a business, or they are currently running their business as a Sole Proprietor, can benefit from forming an LLC. This is even more important when you want to limit your legal liability personally.
LLCs are often used to run and own all types of businesses. However, in certain states, certain professionals are required to form a special professional LLC. LLCs work for businesses of all sizes, from a single-owner operation to companies that have many co-owners. LLCs are also legal entities that are the most common to own commercial and rental property.
The Benefits Of An LLC
– Personal Asset Protection
LLCs provide the owners or the owner of a business with limited liability. This will mean that when you become an LLC owner, you are typically not held personally liable for debts that the LLC business incurs or many of the business-related lawsuits. When you are no longer personally liable, any person that wants to file a lawsuit against your LLC, or creditors cannot collect against personal assets such as your personal car, personal bank account, or your home. They will be limited by only allowing them to collect from the LLC’s assets, such as your LLC’s bank account.
– Pass-Through Taxation
LLCs typically provide the owners of the business with pass-through taxation. The losses or profits the company incurs will pass through the company to the personal tax return of the owner. This means that profits of the business will be taxed at the personal tax rates of the owner.
SMLLCs, which stands for Single-member LLCs are typically taxed in the same way as a sole proprietorship. This means that the owner will report the LLC’s losses, deductions, and profits on IRS Schedule C and then file it with her/his personal return. LLCs that have 2 or more members are typically treated as partnerships for the purposes of tax. Once again, losses or profits will be reported on the personal returns of the owners at then taxed at the personal rates of the owner.
Since LLCs are typically pass-through entities, the owners may qualify for what is known as a “special pass-through tax deduction” created by the Tax Cuts and Job Act. This particular deduction came into effect in 2018 and will continue through 2025. This income-tax deduction is up to a maximum of 20% for net-business income that is earned by a pass-through business.
LLCs are the easiest business entities to operate and form. Unlike corporations, you won’t need directors and officers, shareholder or board meetings, or any other type of administrative burden that is associated with corporations.
LLCs offer significant flexibility in regard to taxation, management, and ownership. There are no maximum or minimum limits when it comes to how many members or owners the LLC can have. Most of the LLCs have one member only, but any LLC can have as many members as they like.
LLCs are often managed by the members, meaning that every owner will share responsibility when it comes to the daily operations of the company. LLCs also provide the choice of designating a manager or several managers to operate and run the company. These managers could also be designated owners or members, non-members, or combinations of both.
An LLC can also decide on the way it would like to be taxed. In most cases, an LLC is taxed in the same way as partnerships or sole proprietorships, but multi-member LLCs and SMLLCs can also choose to be taxed in the same way as a corporation. This is easy to accomplish when filing documentation known as “an election with the IRS”.
LLCs can also choose the option of being taxed as either an S corporation or a C corporation. In either case, the owners of an LLC usually work as “employees” of the corporation. With the C corporation taxation, companies pay tax on the profits of the business at a corporate tax rate. C corporation tax rates are 21%, which is lower when compared to the majority of individual rates. With the S corporation treatment, LLC can remain as a pass-through entity, where the profits of the business are passed to the owner and then taxed at their personal tax rate. However, these distributions are not subjected to Medicare and Social Security taxes.
What Are LLC Members?
An LLC member is the same as the owner of an LLC. This usually means that every member of the LLC makes some form of capital contribution to secure their stake in the company. This can mean anything from physical assets such as equipment or office space to start-up funds. Every LLC member will have some form of interest in this business regardless of their role. This will also afford these people a right to portions of the profits that the business makes, voting rights, or any other rights that are stated in the operating agreement of the company.
How Many Members Can Be In An LLC?
In standard LLC there are no upper limits in regards to how many members a company can have. There is an exception when it comes to the LLCs that have chosen S corporation taxation. This particular designation has a limit of 100 members.
Is There A Minimum Amount For Members?
The company must have a minimum of one member or owner in order for the business to register as an LLC. These are called single-member LLCs.
Who Cannot And Can Be An LLC Member?
TLLCs are very flexible, with minimal restrictions in regard to membership. Some of the states prohibit minors to organize an LLC, but a minor can be a member in most of the states. Corporations, individuals, and other LLCs are allowed to be LLC members, while there are also no residency or citizenship requirements.
Once again, this is an exception for an LLC that elects S corporation status for filing taxes. If you have chosen this designation, partnerships, corporations, certain financial institutions, and non-resident aliens are not allowed to be a member of your LLC.
How Is An LLC Member Paid?
The owner’s income of an LLC will depend on two different factors:
- Whether your LLC is a multi-member LLC or a single-member LLC.
- Whether your LLC is taxed as an S corporation, C corporation, or a default LLC.
In most cases, an LLC with a default tax designation will pay the owners of the business in distributions. The LLCs with an S Corp or C Corp tax status will pay the owners “reasonable salaries”. The multi-member LLCs are advised to refer to their “operating agreement” for the details that cover each of the partner’s shares.