A single-member LLC is the most basic form of a Limited Liability Company that one can own. In most regions, a single-member LLC will automatically be treated as a pass-through entity, which means any revenue you earn from your single-member LLC can be reported on your personal income tax return at the end of the year. But, what if you want others to be part of your LLC?
It is completely possible to add other members to an LLC, but the structure and management of it gets a bit more complex when you do so.
Before adding members to your LLC, it’s worth looking into an EIN filing service so that you can get a federal recognized tax identification number for your business. Otherwise, one or more of the members would have to expose their personal SSN for business tax purposes, and that can also lead to confusion about who is reporting what. An EIN will house all of the business’ income and expenses under one number that you can pass around more publicly without worry of your own personal finances being compromised.
Filling out an LLC application is the first step to take regardless of how many members will be in your LLC. Your state will charge a filing fee, somewhere in the range of $100, and they may also charge other fees on an annual basis so it’s worth knowing what your state will expect of you. You also need to familiarize yourself with the tax and business reports you will have to file for your LLC.
A tax ID form needs to be filled out using the LLC owner’s personal information. With this application, you’ll be able to apply for your LLC and get an EIN for it. You can then add members on to your LLC, and that’s when you should begin looking into things like articles of organization and other essential components that need to be planned out so that you can ensure your LLC will be operating legally and in compliance with all state and federal regulations regarding your multi-member LLC.
Finally, with an EIN number, you may elect to have your multi-member LLC taxed as a corporation, which can bring certain tax benefits to your business.
For instance, having your LLC taxed as an S-Corp will mean that you can award each member a reasonable salary, which will be taxed federally and at the state level. Any leftover profit for the year will be split as dividends to the LLC members, and taxed at a different (and potentially lower) rate than if everyone were to simply split all the revenue as earned income. Many people use this tax strategy to save their LLC significant amounts of money since a pass-through LLC will lead to income being taxed at the federal rate and the state income rate in addition to members having to pay the 15.7% self-employment tax on this earned income, which can quickly eat away at profits.
Alternatively, if you want to keep money in your business, electing your LLC to be treated as a C-Corp for tax purposes will allow your business to hold up to so much money in its own bank accounts for any period of time. However, past a certain amount, your business will be required to distribute salaries and dividends to its members. This also can provide tax savings and some strategic business advantages, but it can get very confusing if you are not a tax expert. Hence, it is worth reaching out to a business accountant and speaking to them about the potential of electing your LLC to be treated as a corporation or other entity for tax purposes. This requires a simple form submission along with the payment of a filing fee in most instances.
Forming a multi-member LLC is entirely possible and can be a great way forward if you are looking to start a business venture up with other individuals. Be certain that you look through your state’s guidelines and that, when registering, you add the necessary suffix to your business name. You will be required to use the words LLC, L.L.C, or Limited Liability Company after your company name. You’ll also need to ensure your name is available and not being used by another active business in your state.
Finally, after doing your due diligence regarding your state’s regulations, it’s also worthwhile to look into the general federal guidelines regarding business tax reporting and what will be expected of you and your LLC’s members whether you report an income or loss at the end of your first year. Knowing the details about structure, taxes, and filing requirements will be very important to get your LLC off to the right start.