A limited liability company (LLC) is a business entity type that can have more than one owner. These owners are referred to as “members” and can include individuals, corporations, other LLCs, and foreign entities.
Most states do not restrict LLC ownership, and there is generally no maximum number of members.
An LLC with one owner is known as a single-member LLC, while an LLC with multiple owners is known as a multi-member LLC.
How does a two-member LLC differ from a partnership?
There are two key differences between an LLC and a partnership: how they are formed and liability.
A partnership is a business where two or more individuals operate the company as co-owners. Share of ownership can be split 50/50 or at any percentage, as long as the total adds up to 100%.
Partnerships are relatively easy to set up. No paperwork needs to be filed with the state, and a partnership can be formed as soon as the co-owners start the business.
Unlike a partnership, forming an LLCrequires several administrative steps, including filing Articles of Organization with the Secretary of State, selecting an available business name, preparing an operating agreement, and choosing a registered agent.
However, the main difference between an LLC and a partnership is that the LLC exists as a separate entity from its owners. This means that members aren’t held personally liable for most debts and liabilities incurred by the business.
For more information, see LLC vs. partnership (GP, LP, and LLP): Which business structure is the best choice for multiple business owners?
Married couples: Single-member LLC or multi-member LLC?
As a rule, when an LLC has co-owners, it is considered a multi-member LLC. But when those members are married, that rule may not have to apply.
If an LLC is co-owned by a married couple who reside in a community property state, and the LLC was formed in that state, it can be a single-member LLCfor federal tax purposes. But this can happen only if it meets the following criteria:
- The LLC is wholly owned equally (50/50) by each spouse as community property in states that have community property laws.
- No other owners are reported on the LLC’s federal tax return.
- The business is not a corporation.
If the LLC doesn’t meet these requirements, the LLC is considered a multi-member LLC and taxed as a partnership.
How do I add or remove an owner (member) from an LLC?
To change any members of an LLC — such as adding or removing an owner — you will need to amend your business’ operating agreement. You must also notify the appropriate government agencies. Check your state’s requirements for changing LLC members. Other changes, such as a transfer of ownership percentage, will also require you to alert your state government.
In addition, be sure to notify the IRS. For example, if the member being removed is the Responsible Party, you’ll need to name a new Party and file Form 8822-B with the IRS within 60 days of the change.
You will also need to consider if the removal of a member changes your LLC from a multi-member LLC to a single-member LLC – a change that will alter your LLC’s tax status.
Finally, if you change members of a foreign LLC, be sure to update the list of LLC members and their contact information on file with the appropriate state agency. Failure to do so may result in the loss of your foreign LLC qualification. Typically, you can update this list in your annual report or sooner by amending your foreign LLC qualification.
You will also want to update your business licenses due to the change in ownership to avoid any penalties and to maintain good standing.
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