Types of LLCs

Written by: Mary Gerardine

Last updated:

A limited liability company (LLC) is a form of business structure that combines elements of the typical corporation and partnership structures. However, there are various different types of LLCs you can form depending on how you want to structure your business.

Understanding these different types is crucial to your business — from single-member LLCs to series LLCs. In this article, we’ll explore the various LLC options as well as the unique benefits and protections each offers to help you make an informed decision.

Recommended: We’ve negotiated a tailored discount for our readers, bringing the total cost of formation to just $29 (excluding state fees).

4.7 out of 5 starsNorthwest Registered Agent ($29 + state fees)

Single Member LLC vs Multi Member LLC

Depending on the number of owners — which are also referred to as “members” — your LLC has, it may be classified and treated differently for taxation purposes.

We’ve broken down the two possible categories your LLC may be classified into in the sections below.

Single Member LLC

As its name suggests, a single-member LLC is an LLC with only one owner. The Internal Revenue Service (IRS) will always treat a single-member LLC as a “pass-through entity” for tax purposes.

This allows the business to avoid paying corporate tax on its profits at an entity level, as it “passes through” to your personal income tax return. Any distributions that you pay yourself from these profits will also be required to pay self employment taxes.

Multi Member LLC

If your LLC has at least two members that aren’t married, then the IRS will consider it a multi-member LLC and treat it similar to a partnership for tax purposes.

Just like with a single-member LLC, your business won’t pay tax at an entity level and each member will claim his or her share of the overall profits on their respective personal tax returns.

Although the IRS does not tax the LLC itself, you might be required to pay an annual tax depending on the state where your LLC is registered.

Additionally, like single-member LLCs, every owner in a multi-member LLC can also receive a distribution from their portion of the LLC’s earnings, which will be subject to self-employment tax.

Member Managed vs Manager Managed LLC

LLCs are also differentiated by which of the two main management styles they adopt. By default, an LLC is classified as member-managed, though they many elect a manager management structure.

We’ve discussed both of these structures in greater detail below.

Member Managed LLC

This management structure is characterized by all of an LLC’s members being involved in the day-to-day operations of the business.

This approach is great for LLCs with a limited number of actively involved owners or investors who prefer direct operational responsibility. It’s favored for its straightforwardness and the significant control it affords LLC members, making it a popular choice among many LLC owners.

Manager Managed LLC

By contrast, in a manager-managed LLC, members delegate operational responsibilities to one or more designated managers. These managers, who may or may not be LLC members, oversee daily operations independently, freeing other members to assume more passive roles.

While non-managing members retain decision-making authority in important areas like business dissolution, managers can autonomously make decisions without unanimous member consent.

Note: You’ll be required to explicitly specify this management structure in your LLC’s formation documents, as by default LLC’s are assumed to be member-managed in most states.

Recommended Course

We’ve negotiated a tailored discount for our readers, bringing the total cost of formation to just $29 (excluding state fees).

4.7 out of 5 starsForm Your LLC ($29 + State Fees)

Series LLC

A Series LLC allows you to create as many “series” or “child” LLCs branching off from a “master” or “parent” LLC as you want.

These series operate directly under the parent LLC, but receive separate treatment for liability purposes. Yet, when it comes to paying taxes, things can get a little tricky with this type of LLC.

While each of these series are treated as separate entities for liability purposes, the parent LLC is responsible for filing taxes on behalf of all its “children”.

Delaware was the first state to offer Series LLC formation. As of 2024, the Series LLC structure is available in far more states, including:

  • Alabama
  • Arkansas
  • Delaware
  • District of Columbia
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • North Dakota
  • Oklahoma
  • Puerto Rico
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Virginia
  • Wyoming

Professional LLC

A professional limited liability company (PLLC) is a business entity designed for licensed professionals, such as lawyers, doctors, architects, engineers, accountants, and chiropractors.

While many businesses choose to form an LLC because of the tax, limited liability, and other benefits, some states don’t allow professionals whose occupation requires a license to own an LLC. In these states, licensed professionals who want the benefits of an LLC must form a PLLC instead.

To form a PLLC, you’ll typically need to have your Articles of Organization (or similar organizational document) approved by the relevant state licensing board for your profession.

Because securing licensing board approval is an extra step in the LLC formation process, it typically takes longer to form a PLLC than an LLC.

Restricted LLC

Restricted LLCs can only be formed in Nevada. This type of LLC is used solely for estate planning purposes, such as to gift property from one family member to another. A restricted LLC can’t make any distributions to members for 10 years after its formation, which can be seen as a drawback of this type of company. Nevada state law also limits the amount a restricted LLC can distribute.

Because the assets of a restricted LLC can’t be liquidated, they can’t be taxed — which is the main benefit of this type of LLC. To become a restricted LLC, the company must make this election in its Articles of Organization.

L3C

A Low-Profit Limited Liability Company (L3C) is a specific type of legal entity designed for socially focused businesses. Unlike traditional LLCs, which prioritize profit maximization, L3Cs are structured to pursue charitable or educational missions while still generating some profit.

This hybrid structure allows L3Cs to attract investments from foundations and philanthropists interested in supporting socially beneficial ventures without jeopardizing their tax-exempt status. This designation helps distinguish L3Cs from regular for-profit entities while offering flexibility in funding and operational strategy.

A low-profit limited liability company (L3C) is formed by filing Articles of Organization (or whatever the formation document is called in your state) and demonstrating that their primary purpose is to achieve a social mission, with any profits considered secondary to this goal.

Vermont was the first state to provide for L3Cs in 2008, however this structure is still only recognized in a handful of states, including:

  • Illinois
  • Louisiana
  • Maine
  • Michigan
  • Rhode Island
  • Utah
  • Wyoming

An L3C is subject to the same provisions of a state’s LLC laws as any other LLC. This means it must appoint and maintain a registered agent and create an Operating Agreement. In addition, if a state requires its LLCs to file an annual report and pay an annual fee, an L3C must do so as well.

Anonymous LLC

Anonymous LLCs are those that don’t require the owners/members or managers to provide their identities for business formation. In this way, this entity type — which is also referred to as a “masked” or a “confidential” LLC — adds an additional layer of privacy.

This type of LLC typically requires the use of a nominee service or a third-party representative to act as the public face of the company, masking the true ownership details. Anonymous LLCs are often utilized for privacy reasons, providing confidentiality to business owners who wish to maintain anonymity in their business dealings while still enjoying the legal protections and tax benefits of an LLC structure.

With that said, it’s important to note that this structure doesn’t guarantee complete anonymity from your bank or the IRS, and of course will not exclude the business from needing to pay taxes.

Note: As an anonymous LLC, the business is still subject to lawsuits and, through a subpoena filed by an attorney, can be required to identify its owners.

LLC Tax Classification

If you decide to form an LLC to own and operate your small business, you have a couple of choices for how you want your LLC to be taxed, which we’ve discussed in greater detail below.

Disregarded Entity

When an LLC is taxed as a disregarded entity (e.g., a sole proprietorship or a partnership), it means that the IRS does not consider the LLC itself as a separate entity for tax purposes.

For a single-member LLC, this typically means that the owner reports the LLC’s income and expenses directly on their personal tax return, using Schedule C of Form 1040.

The business income is subject to self-employment taxes, and the owner pays taxes on the net income at their individual income tax rate.

While this classification simplifies the tax filing process, it’s important to note that it doesn’t provide any separation between personal and business finances.

C Corporation

If an LLC elects to be taxed as a C Corporation, it becomes a separate tax entity from its owners. This means the LLC must file its own corporate tax return using Form 1120 and begin to pay corporate income taxes on its profits.

Additionally, any dividends distributed to the owners (shareholders) are taxed again at the individual level, leading to what is often referred to as “double taxation.” While this classification can result in higher overall tax liability, it may offer advantages such as the ability to retain earnings within the company and access to certain business tax deductions and credits.

S Corporation

Alternatively, LLCs can also elect to be taxed as an S Corporation. Under this tax election, the LLC remains a separate legal entity, but its tax treatment changes to allow for pass-through taxation without the double taxation faced by C Corporations.

This is because the business’s profits and losses pass through to the owners’ personal tax returns, but with a key distinction: owners can split their income into a reasonable salary (subject to payroll taxes) and distributions (not subject to payroll taxes).

In certain specific situations, this can result in significant tax savings on self-employment taxes. However, to be able to qualify for S Corporation status, your LLC must meet specific IRS requirements, including having no more than 100 shareholders and only issuing one class of stock.

Recommended: We’ve negotiated a tailored discount for our readers, bringing the total cost of formation to just $29 (excluding state fees).

4.7 out of 5 starsForm Your LLC ($29 + State Fees)

Types of LLC FAQ

How many different types of LLCs are there?

There are several types of LLCs, each designed to suit different business needs and structures. The most common types include single-member LLCs, multi-member LLCs, member-managed LLCs, manager-managed LLCs, and series LLCs.

Note that while all these Types of LLCs will separate your personal assets from your business assets and protect you from personal liability, there are some key differences.

What is the best type of LLC to get?

The best type of LLC to get depends on your specific business goals and needs. A single-member LLC is ideal for solo entrepreneurs, while a multi-member LLC suits businesses with multiple owners.

If you want to be actively involved in managing your LLC, a member-managed LLC might be best, while a manager-managed LLC is preferable if you want a more passive role.

How do I know what type of LLC I have?

You can determine the type of LLC you have by reviewing your Articles of Organization and Operating Agreement. These should specify whether your LLC is a single-member or multi-member, and whether it is member-managed or manager-managed.

When forming an LLC, you’ll know what type of LLC you have — you can find out more about this in our How to Start an LLC article.

Which type of LLC pays the least taxes?

The type of LLC that pays the least taxes often depends on the specific circumstances of the business and its owners, and not just its classification according to the Internal Revenue Code.

However, the overall tax burden can vary based on factors like income levels, deductions, and state tax laws, but should not differ depending on whether you have a domestic llc or a foreign llc.

Ready for more?

Form Your LLC

Learn More