When you are starting a business, it’s important to choose the right business structure to meet your goals and run the business smoothly. The Limited Liability Company business structure is one of the most popular, especially among small businesses.
If you are planning to go with an LLC business structure, know that there are Single Member LLCs or Multi-member LLCs, which affect how your business operates and is taxed. So, to decide which one is better, you can understand their differences and other details here.
Single-Member LLC and a Multi-member LLC
The business structure, LLC, protects the owner’s assets from company debtors or losses as it features the characteristics of a partnership and a corporation. You may find different regulations from one US state to another, as they regulate it differently.
Although there is no cap on the number of members, LLCs can be either single-member or multi-member. The US states easily permit the single-member LLCs as they will have only one owner.
- Single-Member LLC: The only member of the LLC is the owner and has full control of the company’s assets, accounts, and others. The personal assets and resources are protected from the business lawsuits and debts.
- Mult-member LLC: LLCs where we have more than two members establish the business and have control over the company’s accounts & assets and share the company’s ownership, profits, and management.
Single-Member LLC vs Multi-Member LLC
If you’re wondering what makes the Single-member LLC and the multi-member LLC different from each other, you can check the comparison table below:
| Factor | Single Member | Multi-member |
| Ownership | Single | Unlimited (unless it is signed for S Corporation tax, hence, 100 or fewer members are allowed) |
| Management | Only controlled by a single member | Majority approval for decisions or entering a contract, it can be member-managed or manager-managed |
| Taxation | treated similarly to a sole proprietorship, i.e., as a disregarded entity; therefore, no separate tax return is required. | By default, the multi-member LLC is treated as a partnership for taxation; hence, it must file for the annual tax return and financial activity report. |
| IRS Form | Form 1040 Schedule C (profit or loss), E (Supplemental Income or Loss), or F (profit from farming | Partnership: Form 1065 for partnership incomeSchedule K-1 for credits and deductionsCorporations: Form 1120 |
| Compliance | US states have different compliance, but single-member compliance may be simpler. | Complex Compliance rules depend on the US state your business is located. |
How to select the right one for you?
If you are confused about what type of LLC will suit your business, you can follow the following points to make your decision:
- Based on your ownership structure
- You might choose a single-member LLC if you desire complete control over your firm and easy tax filing.
- Now, if you want to share your load and plan to raise the capital with new members and an expert, you can go for the multi-member LLC.
- The single-member LLC, though, has a disadvantage in that if you do not protect your assets, you can make it expose yourself to business lawsuits, whereas a multi-member LLC separates your business entity from personal assets more effectively.
- The multi-member LLC will have different members, hence you will need every member’s opinion before making any decision, which is a boon as well as sometimes slows your process.
Will you need an EIN for a single-member LLC?
IRS treats the single-member LLC as a disregarded entity, meaning the owner reports the LLC income and expenses in their tax return rather than a separate business tax via their own ITIN/ SSN. Hence, you may not require the EIN for tax purposes for your single-member LLC.
However, you should know that the EIN usage is not limited to the tax purpose only; it will help in running your business smoothly, as you can easily validate your business for licenses or permits and other operations.
So, if you fall into the following situations, you will need the EIN for your single-member LLC business structure:
- Hire employees
- When your LLC is taxed as a corporation
- The state requires the LLC to have an EIN
- You need to file excise duties or other taxes like alcohol, tobacco, etc.
- Establishing a bank account or business credit, etc.
- Managing the employees’ retirement plans, withholding taxes from wages, etc.
When you are sure of which LLC you have to form, you must register it with the US State authority and move to form it legally. The whole process will involve obtaining a Federal EIN, a registered agent, filing an article of organization with the state, and others.
