What is a Multi-Member LLC (MMLLC)? [Forming an LLC with 2+ owners]

Last updated October 12, 2020

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What is a Multi-Member LLC (MMLLC)?

A Multi-Member LLC is abbreviated MMLLC and is the term used for an LLC that has 2 or more Members (owners). There are no limits* to the number of Members a Multi-Member LLC can have and the LLC Members can be individual people, or they can be companies (like another Corporation or LLC).

The purpose of starting a Multi-Member LLC is protect the personal assets of the Members. LLCs – Limited Liability Companies – do just that; they limit the amount of liability the owners would be exposed to in the event of a lawsuit.

The most popular forms of Multi-Member LLC are husband and wife LLCs and friend’s/business partner LLCs. Multi-Member LLCs are allowed in all 50 states.

Multi-Member LLCs can be formed by both US citizens, as well as non-US citizens and non-US residents*. The same goes for Single-Member LLCs.

*If a Multi-Member LLC elects to be taxed as an S-Corp with the IRS, the number of owners (called “shareholders”) cannot be more than 100. Additionally, S-Corp shareholders (LLC Members) cannot be non-resident aliens.

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Taxes & Multi-Member LLCs

For federal tax purposes, the IRS taxes a Multi-Member LLC like a Partnership.

For this type of taxation, the Multi-Member LLC will file Form 1065 (“Partnership Return”) with the IRS. This is an informational return. Also, whoever prepares the taxes for the Multi-Member LLC will also issue K-1s to the LLC Members. The K-1 then become a part of each Member’s personal 1040 personal income return. The K-1 reports the income (or loss) that each Member made (or lost) from the LLC.

Please note that we said “taxes a Multi-Member LLC like a Partnership“. This terminology regarding LLCs and taxation can get a little bit confusing as sometimes people think that their LLC is a Partnership.

Legally, your LLC is not a Partnership (it’s just treated this way for tax purposes). You LLC is a legal business entity – (separate from yourself) that is created by state law. The IRS does not have a specific tax classification for LLCs, so instead, the IRS taxes the Multi-Member LLC just like a Partnership (since there are multiple owners).

If instead, you’d like your Multi-Member LLC to be taxed as an S-Corp, you can complete Form 2553 and submit this to the IRS. Alternatively, you can also have your LLC taxed as a C-Corp by completing Form 8832 and submitting it to the IRS. Either way, we strongly recommend that you speak with a few accountants to get a few different perspective on which form of taxation is best for your LLC and your situation. We see far too many people file forms with the IRS without understanding the full ramification, and pros and cons for their business.

How to pay yourself in a Multi-Member LLC?

In a Multi-Member LLC, in order to pay the members, you will simply take what are called “capital distributions”. This is a withdrawal made from the LLC Bank account to each individual Member in proportion to their membership interest (how much they own).

After forming your LLC and opening your LLC’s bank account, each Member will make a “capital contribution” to the LLC, also in proportion to their membership interest.

If your LLC will be taxed as an S-Corp by the IRS, then each Member will need to take a reasonable salary, pay payroll taxes on such salary, and the LLC will need to file a corporate tax return, called 1120S, with the IRS each year.

Can I get an EIN for a Multi-Member LLC?

Yes, of course. A Multi-Member LLC can obtain a Federal Tax ID Number, also known as an EIN (Employer Identification Number) from the IRS after the LLC is approved by the state.

An EIN will be used for opening your business bank account, filing taxes, handling employee payroll (if applicable), and obtaining certain business licenses and permits.

An EIN for your LLC is free and can be obtained from the IRS online in about 10 to 15 minutes.

How to Form a Multi-Member LLC?

In order to form a Multi-Member LLC you must file what are called the “Articles of Organization” (or a similar document, such as a “Certificate of Formation” or “Certificate of Organization”, depending on the state) with the Secretary of State’s Office.

You must file your LLC’s Articles of Organization (or similar forms) with the Secretary of State located in the same state in which you wish to conduct business. For example, if you’re forming an LLC in New Mexico, you must file your LLC’s Articles of Organization with the New Mexico Secretary of State.

You can file your Multi-Member LLC yourself by following our free DIY LLC Guides, which are available in all 50 states. Or if you’d like to get a better understanding on LLCs first, please see the videos and articles located in our LLC Learning Center.

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.

98 comments on “What is a Multi-Member LLC (MMLLC)?”

Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

  1. is it better to make a multi member llc or change of ownership ?
    do i need a new ein or i could use the current? thank for all the info.
    please previde links thanks

    Reply
    • You can either form a new multi-member LLC or amend your existing LLC, amend the Operating Agreement, sign a resolution, and mail a letter to the IRS about the tax classification change. If you’re doing this yourself, it’ll be a little easier to form a new LLC.

      Reply
      • If six people form an LLC are they actually shareholders? Lets say we make 100k in profit. Two of the six want out of the LLC are they owed anything? How does it work in terms of company worth and or return on investment?

        Reply
        • Hi Mike, no the 6 people would not be referred to as shareholders. That terminology is used for Corporations. They would be considered LLC Members. LLC Members are the same thing as LLC owners. With this many members, you’ll want a customized Operating Agreement drafted by a lawyer, this way, if 2 of the 6 members leave, there is an already agreed upon arrangement in place. Typically there is a price involved which is used as legal consideration so the exiting members can transfer their LLC interest to the remaining members. In terms of company worth and return on investment, I’m not sure what you’re asking. Feel free to rephrase that part of your question.

          Reply
  2. Hi Matt,
    I’m part of a 2 member LLC but I will be leaving the LLC to take care of my family, leaving it to become a single member LLC. Do you know if the remaining member will need to get a new EIN in this situation or can he keep the EIN and just let the IRS know it’s now a single member LLC? I’m reading conflicting information online and from the IRS about this. Thanks in advance!

    Reply
    • Hi Amelia, do you know who is listed as the Responsible Party? You can find this on your EIN Confirmation Letter. You’ll want to write a letter to the IRS letting them know that the number of members in your LLC has changed from 2 to 1 and your LLC Partnership has terminated, but the LLC will continue to operate as a single-member LLC taxed as a Sole Proprietorship. In the eyes of the IRS, it’s like your Partnership closed and now a Sole Proprietorship opened.

      Reply
      • Hi Matt,

        Sorry for the delayed response – just saw your reply. Thank you for your response.

        I am the Responsible Party listed with the IRS. We’ll issue a letter to the IRS to notify them of the changed and also change the responsible party. One issue is that the other LLC member is a foreigner and doesn’t have a SSN or ITIN. Will he need at least an ITIN to take over the LLC once the partnership is dissolved?

        And just to clarify, he could keep the current EIN as a single member LLC taxed as a sole proprietorship?

        Thank you for help!

        Reply
        • Hi Amelia, in this case, it’s best to cancel the EIN since it’s connected to you. Your partner can obtain a new EIN (without needing an SSN or ITIN) by submitting Form SS-4 by mail or by fax (he won’t be able to do online). On line 7b where it asks for “SSN, ITIN, EIN”, just write “Foreign”. Hope that helps.

          Reply
  3. We have a group of six individuals that will be paying monthly dues to an account. These six people will also have a business that is for profit. Would a multi member LLC be for the entire group including monthly dues or would it be only the for profit aspect?

    Reply
    • Hi Mike, when you say monthly due, what type of monthly dues are you talking about? A monthly number that you came up with? If so, what’s it paying for? And I don’t understand your last question about a MMLLC being for the whole group. Can you please rephrase?

      Reply
  4. Hi Matt, your resources are very helpful – thank you! I’m looking to form an LLC with one other person as an equal partnership, but I don’t see any place on the NYC LLC online form to enter multiple members’ names and addresses – only the person filling it out. Should there be a way to enter both of our names & addresses as owners/members when we file for the LLC, or is it ok if only one person’s name is on it and we then use the Operating Agreement to list out the members and percentages?

    Reply
    • Hi Emily, you’re very welcome! Thanks for the nice comment :) New York (along with most states) actually doesn’t want to (or need to) know who the LLC Members are, since this is an “internal affair”. The person listed at the bottom of the Articles of Organization is simply the LLC Organizer, the person completing and submitting the form. So the person on the form (although it’s probably you) isn’t technically an LLC Member until you sign the LLC Operating Agreement. Having said that, you can also have the LLC Organizer sign a Statement of LLC Organizer, which appoints the LLC Members. The Statement of LLC Organizer along with the LLC Operating Agreement create a very nice and organized paper trail. Hope that helps!

      Reply
  5. It took me a lot of sifting through websites to finally come across yours.

    Multiple articles I found searching for different subjects within LLC creation have been the best.

    Your site is helpful, and you have already won me over as trustworthy in my eyes after tediously looking for answers to these questions.

    If there is some way I can recommend your website or help your SEO so you appear more predominantly in the search results please let me know how. Otherwise thank you very much for your concept of llc university. There is not much definitive information on the topic and I salute you for focusing on bringing this content to entrepreneurs.

    Thank you.

    Ashe

    Reply
    • Hey Ashe, I’m not sure if this is a pitch/promotional comment to offer your services (if it is, it’s the smoothest I’ve ever seen ;)… or it’s just a genuine comment. Either way, I hope our site has been helpful. We’re not worried about SEO. We’re focused on being the most helpful and providing the best information. The “SEO” will take care of itself. As time goes on, less people will have to do the sifting you did to find us. So thanks for your “digging” to land here :)

      Reply
      • Lol,

        Nope, just a big thank you!

        I will continue to recommend your service to any followers.

        We are doing FBA and I’m sure many more will be to follow.

        You may like to write an article specific to FBA and others looking specifically to get into online business who do not understand if they should file in their own state or another.

        I found after my own research, the most direct method for starters is filing in your own state so that you can be your own agent and saves you the step of finding someone else to act as your agent in another state. I found multiple accounts of people saying that most people starting an LLC for online business won’t be doing enough in sales for it to make the difference and that later once business picks up you can decide how, when and if you want to incorporate.

        The next thing I’ll be researching is how we should be filing as a multi member llc and if s-corp or c-corp is right for us.

        Good luck with your endeavors!

        Ashe

        Reply
        • You’re super awesome Ashe! Thank you!! We have FBA on our list… just a handful of things in front of it ;) We’ll soon provide more specific articles for people in FBA as well as other forms of eCommerce. And great points on the best “starter pack” for most people. We couldn’t agree more! Which state are you filing in? In most states, whether Single-member or Multi-member, the Articles of Organization (or similar document) is still the same. Regarding S-Corp taxation (which may make sense after net income is above a certain level), please see: LLC taxed as S-Corporation. For C-Corp taxation, please see: LLC taxed as C-Corp.

          Reply
  6. I have formed a multi member llc. There are 4 household members, 2 households are husband and wife and the other two are individuals. For obtaining EIN on IRS.gov, there is a question that asks how many members are in LLC. Will it be 4 members (4 households) or 6 members.

    Reply
    • Hi Sonia, I’m not really sure what you mean by “households” in this context. However many individual people are members of the LLC is what should be listed in the EIN application though. Hope that helps.

      Reply
      • I have 2 members of my LLC. On the IRS website I was applying for the LLC EIN and then after entering 2 on the members list, the IRS page suggested that I apply for the Partnership EIN. Should I apply for EIN Partnership or EIN LLC?

        Reply
        • Hi Britani, by default, an LLC with 2 or more members is taxed like a Partnership (unless you elect to be taxed like an S-Corp or C-Corp). Check out how are LLCs taxed for more info. Hope that helps.

          Reply
  7. Thanks for the guidance and concise info Matt. Two questions:
    1) Is there any additional liability benefit to forming a new multi-member LLC with a single member LLC as one of the members, rather than an individual? I have existing LLC that I use for other services and am forming a new company with other partners.
    2) Can multi-member llc’s be amended in future to include additional members and change % of ownership? I saw your comment about shares and equity and want to know if there is a way to use LLC rather than forming a corporation.

    Thanks for the info!

    Reply
    • Hey Kevin, you’re very welcome. 1) There may be additional liability protection by the LLC member being another LLC, however, this is not something we’ve researched or covered yet, so cannot provide any details. We recommend speaking a business lawyer regarding that. 2) Yes, the LLC Members can be changed and the percentages of ownership can change as well, via an amended Operating Agreement and supporting documentation, such as resolutions and agreements. We also advise getting assistance from a lawyer on this as well as this is not something we recommend DIY’ing. Apologies for the lack of specificity. And thanks for your understanding.

      Reply
    • Hey Shevan, I imagine you’re thinking that after you form your LLC in Florida and then get an EIN from the IRS, that it will then show up on Sunbiz, correct? If so, that’s not how it works. The IRS does not contact the Florida Department of State and provide them with your EIN. You can give the state your EIN when you file your Annual Report. And then it’ll show up on your LLC’s record. Also keep in mind that you’re not required to disclose your EIN to the Florida Department of State, however, something does need to be entered into the field. Filers who’d rather not disclose the EIN on state records enter “Applied for” or “None”. Hope that helps.

      Reply
  8. A 2 member Delaware LLC, with both members being non-us citizens and non-us residents, generates income from outside the US. How will the LLC and the 2 members be taxed?

    Reply
    • Hey Stanley, the LLC will be taxed as a Partnership for US tax purposes. The details of how and where to file should be discussed with an accountant who specializes in US taxes for foreigners. Hope that helps.

      Reply
  9. Hi Matt, I came stumbled across your web site and I’m eating it up! :) Absolutely love it and thank you soooo much for this invaluable information, all in one place.

    Reply
    • Dude, thanks for the rockin’ comment! So glad to hear you’re enjoying the site. It’s taken a long time and a lot of work, so it’s always great to know that we’re helping. Thanks again :)

      Reply
  10. Hi,
    I’m planning to do a LLC with a foreign individual (NO ITIN/SSN).
    What is the best option to be treated as S-Corp. Can we do?
    – 2 LLCs. 1er member-LLC (US citizen) and 2nd memeber-LLC(foreign) (LLC)…or

    -1er member as individual (US citizen) and 2nd member as LLC (foreign individual)

    Do you think that is posible?
    Thanks for your help

    Reply
  11. So, for the past 2 yrs I have owned a business in Florida which I now plan to bring someone else on board. I currently have an LLC for a skincare related business, and now am going mobile and need to add an additional member, who I chose as my business partner, into the LLC. Trouble is, I don’t know how to update my current LLC to add this person, and I also am not comfortable making this person 50% in this business seeing I am the one who created it, has been working it, and who is way more knowledgeable about it. This is a business that I started in NY 4yrs ago and brought to Florida, and have been operating under its name for almost 2yrs. I have no problem bringing this person on board but I refuse to let this business plan and idea somehow slip out of my hands in case this person and I were to ever have a falling out. How do I change my current LLC to a MMLLC with also doing the percentage thing as to not make someone get hard feelings about the situation? For some reason, no one seems to understand what I’m asking, and maybe that’s because I have no idea how this stuff works lol! Any help with this would be greatly appreciated!
    Thank you!!

    Reply
    • Hi CJ, I’d say more importantly, you sound very hesitant about taking on a business partner. It’s a whole different ball game than running things yourself and you’re right, things could go sour. However, if things go sour in a 2-Member LLC, you just can’t kick that person out. You’re stuck with them until you make an agreement. I’d also recommend consider other options of working together, like just paying them as an independent contractor based on a percentage of sales, etc. If you do want to add them as an LLC Member and retain control, you’ll want to have your LLC be Manager-Managed. You’d be the Manager, and both of you would be owners. You’ll then need to amend your Articles of Organization, amend the Operating Agreement, and then update the IRS and let them know the LLC will now be taxed as a Partnership. Hope that helps.

      Reply
  12. Hi Matt,

    Great info for many of us!
    What are the reporting requirements for a Foreign Owned Entity who is a member in a multi-member US LLC?
    Will it be only for the entity K-1 income only or is there additional
    reporting for the individual owners of the foreign owned entity?
    Thanks!

    Reply
    • Thanks Ray! The LLC needs to file Form 1065 and issue K-1s to the Members. If needed, you’ll also apply for an ITIN. We don’t cover taxes for non-US residents yet (plan to in the future), so you’ll need to speak with an accountant. I would ask about the following: US Nonresident Alien Income Tax Return (1040NR/1040NR-EZ), Sales tax and/or excise tax, Conduct of a U.S. trade or business (USTB), Effectively Connected Income (ECI), Fixed, Determinable, Annual, Periodic Income (FDAP), and Federal Withholding Tax for Foreign Nationals. Hope that helps.

      Reply
  13. I have formed an IL single member LLC. I have someone who wishes to be a partner/shareholder. I want to make this person a 20% share/ownership in the company. How can this be done if my current LLC is a single member LLC? Thanks

    Reply
    • Hey Chris, you’ll want to review your Operating Agreement to check procedure for adding an LLC Member. Usually it goes as follows: review Operating Agreement, prepare Assignment of Membership Interest Agreement, amend Operating Agreement, amend Articles of Organization (if applicable), notify IRS if change in tax classification (in your case, LLC is going from Sole Proprietorship taxation to Partnership taxation), update state Department of Revenue, and update bank. Hope that helps.

      Reply
  14. Matt,

    Found you on Youtube and love what you’re doing! I had to subscribe! I have a question. I’m trying to form a multi member LLC in the state of Georgia for Real Estate. I want to use another company(a Corp) I’ve created as the other member of a two-member LLC, besides myself. This is more for asset protection reasons. How do I go about doing so on any applicable state paperwork? Do you have any advice for or against doing this? Do I have to alot a percentage of the new LLC to my Corporation and if so what percentage do you recommend? Does it matter if this Corporation is not involved in real estate? Does it matter that this Corporation was formed in another state and that the annual paperwork for it may not be up to date?

    Thank you!

    Reply
    • Hey Mo! Thanks so much! Since the Georgia LLC Articles of Organization doesn’t ask for Member’s info, there is nothing listed with the state that shows ownership. You’re basically just listing the LLC name, the Registered Agent, and the LLC Organizer in the Articles of Organization. The Member’s info will be listed in your LLC’s Operating Agreement (you + the Corporation). We also recommend that you as the Organizer sign a Statement of LLC Organizer appointing both the Members. It “connects the dots” between the Articles of Organization and the Operating Agreement. It’s not required, however, it creates a nice internal paper trail.

      Regarding your other questions, these should really be posed to an attorney. There’s a lot of nuance and details to something like this. However, a common setup is that the Corporation owns 2% of the LLC. No, the Corporation doesn’t have to involved in real estate. It doesn’t matter what state the Corporation was formed in. I’m not sure about the Annual Reports that aren’t filed, however, if the LLC were to be administratively dissolved (for failure to file the Annual Report), and you were to end up in court, that could be an interesting predicament. Don’t know much about it, but it sounds risky.

      Hope that helps! And feel free to follow back up with any details or learnings you come across. Cheers.

      Reply
  15. Great article and the information is priceless. I love websites like this!
    I want to form an LLC for my dropshipping business in Texas. I had 2 people help me, but now that the work is done I dont need to hire them as employees (plus I want them to start their own business to gain experience and be entrepreneurs). I would like to equal distribute the profits 33% each is that even a thing? If so do I file as a mulitmember Llc or a single? And how often can i distribute profits? Who could I go to answer more questions?

    Thank you for your time.

    Reply
    • Hey Allan, thanks so much! Why make them a Member of the LLC just because you want to pay them? Doesn’t sound necessary to me, based on what you’ve shared. An LLC Member, by default, is not just entitled to profits, but also runs the business, binds the LLC into contracts and agreements, and much more. Doesn’t sound like you want to give that type of control. Why not simply have an agreement where “Allan’s Company LLC” agrees to pay 33% of revenue/profits (research pros and cons of paying out based on top line revenue vs. bottom line profit) to John Doe. Hope that helps.

      Reply
  16. I belong to a LLC for rental property. It’s my father in law who owns 60% and than my I husband and I own 20% each. My father in law put up the money and my husband and I rehab them that was the deal. When property is sold father in law gets the money he paid plus 60% of profits. He also lives off the income from the rentals. My husband and I received no income
    The question is I am divorcing my husband and not sure what happens to my 20%.
    Ant info would be great. Thanks

    Reply
    • Hi Patricia, since it’s likely that a provision for this isn’t in your Operating Agreement, it would depend on the agreements you reach in your divorce settlement. Are you working with an attorney and have they recommended anything?

      Reply
  17. i formed an llc with both my husband and i as members. in getting an ein, i see we will be taxed as a partnership(multi member llc). am wondering if it would be better to be taxed as a single member llc. cos i would basically be the one running the business. he works fulltime at his job.
    and if its better to be taxed as a single member llc, can i make a change in the filing with the state?

    Reply
    • Hey Mitchy, is your husband actually a part of the business and is it really a Multi-Member LLC? If so, then you can’t choose to be taxed as a Sole Proprietorship if there are 2 Members, unless you were in a community property state (see here: husband and wife qualified joint venture LLC). However, if you just want to own the business 100%, and you listed both you and he as Members, then you can file an Amendment (usually referred to as an Amendment to Articles of Organization, however, the form has different names depending on the state). Additionally, rather than sending a letter to the IRS and requesting them to update your EIN, it’s easier to cancel the EIN, then get a new one, listing the appropriate number of Members. Hope that helps.

      Reply
  18. Hey Matt,

    Love what you have going here. Many thanks.

    I have recently sent in my Articles of Amendments to change my business name and to remove a member (my mother) at her choice. The company was a partnership LLC that was managed by 2 Managers (Me and my mom). I am bringing in a new recruit to join my new business but would like to remain some kind of control.

    Can an LLC be managed by ONE manager but has an additional member and still be considered as a multi-member LLC? Or is this a single-member LLC? I need to know if I would still be considered multi-member LLC because otherwise, I would need to apply for a new EIN.

    Pretty much to sum, can I be the sole manager, and have the other guy as a member, and the company still be considered as a multi-member LLC? Since a manager can also be a member? Also, do managers have more control over the company than members?

    Thanks Matt, and sorry for not being able to keep my questions concise.

    Reply
    • Hi Jay, regarding control, it depends on what’s spelled out in the Operating Agreement. The Members (you) appoint the Managers and then the Managers can exercise the rights they have, again, as per the Operating Agreement. You asked, “Can I be the sole Manager, and have the other guy as a Member, and the company still be considered as a Multi-Member LLC?” The answer depends on whether or not you also want to be a Member, which I’m assuming is yes (then it would be a Multi-Member LLC). If you and your new “recruit” are both Members, but you’re the sole Manager, then the company is a Multi-Member LLC. If you want to be the only Member and have this guy as the only Manager (who is a non Member), then it’s Single-Member LLC. It sounds like you don’t want this guy to be either a Member or Manager, so why do it? Meaning, you used the word “new recruit”. That doesn’t sound like someone you’d want to make a business partner (LLC Member) or LLC Manager. Why not just bring this person on as an independent contractor and leave them out of your LLC ownership and management. Something to consider. Hope that helps.

      Reply
  19. Hi there,
    I have a group of 3-4 families and we want to buy a vacation property together. It seems like creating a MMLLC might be the legal structure for such an enterprise. We would like to use the property ourselves, and potentially rent it out as well. We are only in the beginning stages of discussion, and I will talk to a banker soon too about financing. Do you know anything about all this, and would a MMLLC be able to secure a mortgage?
    Thanks,
    Jess

    Reply
    • Hi Jess, it all depends on the bank. Things vary widely. Usually you can get a loan to an LLC, you just have to call around and speak to different banks. Try local, smaller, and community banks. Often, these loans fall under the “commercial lending” division, even though the property is zoned residential. Hope that helps.

      Reply
  20. 2 sons formed an local and have an ein number, everything is split 50/50 profits, expenses etc, how do we file taxes…first year…open only 4 months…THANK-YOU

    Reply
  21. Hi Matt,

    Thanks for providing such comprehensive and well written articles. Very few things make for convoluted reading than taxes and accounting, but somehow you manage to make the information relatively easy to understand for us mere mortals. We really appreciate it.

    My wife and I started an LLC (50/50 ownership) and are debating whether it’d be worth taking on the S-Corp tax classification. I read your article on the perils and opportunities of the S-Corp tax (payroll and administrative cost vs. tax savings) and it seems like the way to go in our case.

    Ours is a budding consulting firm (less than 6 months) that is yet to generate any revenue, but has incurred some tightly managed expenses. My wife continues to work full time while I throw myself into the business and we plan to file taxes jointly. If we optimistically anticipate $100,000 in revenue for the year and most of it is distributed as my salary, would it still make sense to go the S-Corp route? We expect revenue to gradually increase to $500,000 over the next 3-4 years. Also, considering that we’re late in filing Form 2553, in the case of the 2018 tax year where we only have expenses and $0 revenue, would it make sense to attempt to get the S-Corp classification to include 2018 (before the tax filing due date in April)?

    I understand that we should probably talk to an accountant, but would appreciate it if you’d throw us a hint in the meantime.

    Thanks again for the cool site,

    Omar

    Reply
    • Hey Omar, thank you! We work hard to make things easy ;)

      While you may earn $100k in revenue, you want to look at net income (after expenses). It doesn’t seem like electing to be taxed as an S-Corp for 2018 is necessary as there was no net income. While you certainly can, it’ll just increase your administrative costs. However — and here’s our necessary disclaimer — whether one should or shouldn’t pursue the LLC/S-Corp route is a conversation best had with an accountant. While we covered a lot of specifics in the article, there are more details and nuances to dive into that’ll be specific to your situation. Hope that helps!

      Reply
  22. Very helpful article Matt!

    My friend and I have a YouTube channel that we recently monetized. We have decided to start an LLC to protect our personal assets. I’m confused on if I should start a single-member LLC (is that possible with two people?) or a multi-member LLC. We both have full time jobs where we are paid fairly well so we plan on re-investing all of the YouTube money back into the brand and taking none for profit. Thanks!

    Reply
    • Hey Greg, two people can’t form a Single-Member LLC. Well, technically, a husband and wife who file jointly and live in a community property state can form a Single-Member LLC (called a Qualified Joint Venture LLC with the IRS)… but I don’t think you fall into that category ;) So in your case, it’d be a Multi-Member LLC. Hope that helps :)

      Reply
  23. Matt,
    My wife and I are about to open a LLC in Oklahoma. I want to get this business started at a slow rate this year to be sure we have accounted for as many of the variables as possible. Next year I retire from a federal job and will receive a social security supplement to fill the gap until I turn 62. I have learned if I exceed approximately 1400 a month my supplement will start being reduced. My first thought was to have it a SMLLC with me being an employee earning a percentage of the monthly gross of the business. I will need to be able to represent the company for responsibility of items picked up and delivered. This will create a payroll for us both but at different percentages. I have also thought about us being partners and with the operating agreement/investment at say a 90% her and 10% me. It seems to me this would have less administrative costs and still safely stay under my monthly max income. Please advise what you would suggest and why. Thanks

    Reply
    • Hi David, this is really a conversation for an attorney. Details of social security are outside of our wheelhouse. Keep in mind, if the LLC is taxed in its default status with the IRS (a Single-Member LLC taxed as a Sole Proprietorship or a Multi-Member LLC taxed as as Partnership), the Members cannot receive a W-2 salary and cannot be an employee. They are considered self-employed. In a Single-Member LLC, the owner would take “draws”. In a Multi-Member LLC, the owners would take “distributive shares”.

      An actual non-LLC Member could be a W-2 employee of an LLC, as an FYI (but that doesn’t sound like that’s what you need). Also, if the LLC were taxed as an S-Corp, then all LLC Members (aka S-Corp Shareholders) would also be employee-owners and receive a W-2 salary, however, LLC/S-Corp is not the likely not the route new businesses take. Thanks for your understanding and hope that helps.

      Reply
  24. Matt,
    I want to form a multi member LLC with my wife, son and daughter in law. On the IRS website, it says that they will have to initially classify it as a partnership but if I do not accept the default classification I can file File:
    Form 8832 (Entity Classification Election) to elect corporate status or
    File Form 2553 (Election by a Small Business Corporation) to elect S corporation status.
    I’m not sure what these options are for. Thanks for the help

    Reply
    • Hi Jay, a Multi-Member LLC being taxed as a Partnership is the default tax election. Form 8832 would be used if you want your LLC taxed as a C-Corporation (not very common). And Form 2553 would be used if you want your LLC taxed as an S-Corporation. S-Corp taxation is something you may want to look at down the road, once you have a decent amount of net income in proportion to the number of LLC Members (in order to make the administrative costs of an S-Corp election worth the potential tax savings). Hope that helps!

      Reply
    • Thanks for the quick response, so do now it sounds like I should continue on with letting it default to a partnership. Will I be able to make changes with the IRS at a later date? If i let it default to a partnership, will we have the same protection as an LLC?

      Reply
      • Hi Jay, correct. Simply be applying for an EIN for your LLC (and not filing Form 8832 or Form 2553), your LLC will be taxed like a Partnership. I placed emphasis on “like a” because your LLC will still protect your personal assets from events that occur within the business. The LLC is a separate legal entity created by state law. The IRS just taxes your Multi-Member LLC like a Partnership because their is no “LLC tax classification” with the IRS.

        If you’re curious, when LLCs first came into existence (late 1970s), the IRS didn’t know how to tax them and they decided to tax all LLCs like C-Corporations. Then some years later (late 1980s), the IRS said all LLCs would be taxed like Partnerships. But things got much better in 1997 when via Title 26 of the Code of Federal Regulations, Sections 301.7701-1 through 301.7701-3, the IRS created what is known as “Check the Box” regulations. They basically said, “Fine, you pick how you want your LLC to be taxed“.

        So an LLC can actually be taxed in 7 different ways!

        The first tax classifications are “default” (meaning they occur naturally by obtaining an EIN and telling the IRS how many Members the LLC has… and by not making special elections; see Qualified Joint Venture below).

        By default, a Single-Member LLC is taxed as Disregarded Entity LLC. There are a few subtypes to this:
        • If the LLC is owned by one person, the LLC is taxed like a Sole Proprietorship.
        • If the LLC is owned by a non-resident alien, the LLC is taxed like the non-resident alien is taxed.
        • If the LLC is owned by another company, the LLC is taxed like a branch/division of the parent company.

        By default, a Multi-Member LLC is taxed like a Partnership. There is one exception to this rule: Multi-Member LLCs owned by a husband and wife in a community property state can be taxed as a Qualified Joint Venture.

        Now, instead of those default elections, both a Single-Member LLC and a Multi-Member LLC (minus a few exceptions) can tell the IRS, “Hey, we don’t want the default tax classification… we want our LLC to be taxed like a Corporation”. And the IRS has 2 subtypes:
        • An LLC can elect to be taxed as a C-Corporation (by filing Form 8832)
        • An LLC can elect to be taxed as a S-Corporation (by filing Form 2553)

        Regardless of the 7 types of tax classification the IRS uses, the LLC is still a separate legal entity and it offers liability protection to the owners from events that occur within the business. Initially, it can all seem confusing because of how the IRS “looks at” LLCs and how confusing the terminology can be!

        And yes, you can change your LLC’s tax classification at any time… a few months from now or 12 years from now.

        That’s probably way more than you needed to know lol! But hopefully this reply was helpful… and I think it’ll also help future readers :-)

        Reply
        • Matt, thanks again for the quick responses. That was a lot of great information and has helped me out. Thanks again for your time, it is greatly appreciated.

          Reply
  25. I have an LLC. My brother and I are members of the LLC. We want to add 2 people as members of the LLC. They want to become business partners and invest with us as we gather the pieces needed to open a used car dealership here in PA. I looked at the certificate of amendment form and there was a line that reads, ”
    The amendment adopted by the limited partnership/limited liability company, set forth in full, is as follows: “. Do I just put “add John Doe and Jane Doe as owners/organizers” for them to be added to the LLC? I want them to be owners in the company along with my brother and I.

    Now say I didn’t add them to the LLC at this moment and moved forward with applying to be a used car dealer. If they buy and sell vehicles as representatives of the dealership would I run into issues with payroll since technically they are “employees”. They would be putting their own money up to purchase vehicles and keeping the profit after the sale. That would be in our operating agreement also. They would put the tax money into a business account. Do you think that’s a smart route to go? Eventually I would add them to the LLC but right now we are trying to get the license as fast as possible and they are not currently on the LLC.

    Reply
    • Hi Anthony, no, you wouldn’t amend the Certificate of Organization since Members are not listed there in Pennsylvania. To add a Member, you and/or your brother would need to assign/transfer some of your LLC membership interest to the new parties. This can be done via an Assignment of Membership Interest form. We don’t have this form available yet on our site, but will in the near future. Additionally, you’ll want to amend the Operating Agreement and update the Pennsylvania Department of Revenue.

      “Would I run into issues with payroll since they are employees”. Employee implies a W-2 employee in which your company is running payroll and withholding taxes. Think of this as the W-2 salary. These people could receive a salary as well as “bonuses” that can be structured any way you’d like. Or they can lend money to your LLC (without receiving ownership) and then receive a return on that money via a loan agreement. There are a lot of ways to structure things. In general, we like to say this: if you’re not sure of the path you and your business are taking, we don’t recommend adding outside partners yet. Maybe later. But as you are figuring out your business model, we usually see it cause more issues and the original owners loose full control. Hope that helps.

      Reply
      • Thanks for the swift response. Basically in a nutshell I would like to add them to the LLC asap. I could not find the document that you described on the PA Dept of State site. Now I did come across something called the “Statement of Interest Exchange” . I’m assuming this is what you were referring to. Is it? I appreciate your input on the angle of adding people to the LLC. These are people I trust they just weren’t financially ready to invest when the LLC was created. Let me break down how the business would go. Basically we would all become licensed used car salesmen here in PA. Everybody would basically put up there own money to purchase the cars and resell them for profit. The sales tax is to be isolated and collected every 4 months by the state. It would be really cut and dry. No man would depend on the other. We are just trying to get the business structure legally sound so we can move forward with the state applications and avoid any tax issues. What would you suggest as a business structure? Like I said we are trying to get the license so we can just buy and sell cars as soon as possible. It sounds easier for tax issues if they are members of the LLC than if they were repreentatives. I’m assuming being a member of the LLC would make it easier for them to buy and sell their own cars for tax and money reporting reasons. Like I said the sales tax would be isolated and placed into a business account that I have set up.

        Reply
        • Hi Anthony, the Assignment of LLC Membership Interest isn’t provided by the state. It may be a good idea to hire an attorney to prepare this form as well as help you amend your Operating Agreement. You may also want buy-sell agreements in place ahead of time too. And you’ll want to update the Pennsylvania Department of Revenue. The Statement of Interest Exchange shouldn’t be used. You also mentioned a Certificate of Authority in another comment. That shouldn’t be used. Hope that helps.

          Reply
  26. OK cool. I was thinking that also. If I skip that step for now and just have them represent the business what possible issues can I run into with them buying and selling cars since they are not on the LLC? I might just create a new one since I haven’t registered for an EIN yet. Thanks Matt. Very informative.

    Reply
    • Hi Anthony, while we’re not automotive sales experts, it shouldn’t pose any issues. It’s similar to an independent contractor or employee selling cars for your business. Either way, you’ll want a contract in place with them (a contract between them and your LLC). Or, yes, you could form a new LLC if that’s the route you decide to take.

      Reply
  27. Hi, I recently formed LLC, when go to applying for EIN number from IRS online, its is saying we will consider your LLC as MMLLC (Multi Member LLC), Is it Ok to proceed or I need to add any other partner in this LLC before applying for EIN?

    Reply
    • Hi Aslam, does your LLC have 1 Member or 2 (or more Members)? And did you enter 1 Member in the “Tell us more about the members of the Limited Liability Company (LLC)” section? If there is 1 Member, you shouldn’t be seeing any notice that the LLC is a Multi-Member LLC. Also, you may just be reading a general instructions page during the EIN online application. Hope that helps.

      Reply
  28. I have created my LLC. Then applied for an EIN and was approved. For the amount of “members”, I put 2. For multi member/partnership deal. It asked for my social security number and info. But it didn’t ask for the info of the “second member”. How and when can I provide the info of my 2nd member? Thank you!

    Reply
      • Thank you for the reply! How can I include the second members name/info so that person can be an owner/tax paying business partner? Thank you again!

        Reply
        • Hi Jeremme, you are very welcome. There is only ever one EIN Responsible Party on file with the IRS. The other person is made an LLC Member by the signing of the LLC Operating Agreement. And they are already a tax paying business partner because of IRS tax laws.

          Reply
  29. Hey Matt, thank you for an amazing source and quick response. I’m a member of two owner llc, and my partner he’s the legal contact with Ein responsibly with the IRS. Do I need to obtain new Ein number if he decide to leave?

    Reply
    • Hi Sam, you’re very welcome. If Member #2 left the LLC, no, you don’t need a new EIN. You would just change the EIN Responsible Party. Please see here: Change EIN Responsible Party for LLC.

      Also keep in mind that you’ll want Member 2 to assign or sell their LLC membership interest to you (assuming it’s you taking it over and not a new LLC member). An assignment or sale of LLC membership interest form will accomplish the transfer. You’ll also want to amend the LLC’s Operating Agreement to reflect the change. You’ll also need to file Form 8832 with the IRS to change the tax classification of the LLC to a disregarded entity. You’ll want to remove their name from the LLC bank account. And you’ll want to update the state Department of Revenue (or equivalent agency). Hope that helps.

      Reply
  30. En el caso de una LLC Multimember (no ETBUS) ¿porque hay que tramitar un ITIN para cada miembro?¿es necesario el ITIN para el k-1 form 1065?

    Reply
    • Hola Alejo, sí, se requiere un ITIN para cada miembro porque es un socio extranjero. Un socio extranjero debe presentar una declaración de impuestos sobre la renta de los EE. UU., incluso si no se adeuda ningún impuesto estadounidense. Y por esta razón, se requiere un ITIN.

      Reply
  31. Hi Matt,

    Great article. I am trying to understand the effect of an NRA or two as members of a multi-member LLC where there are other members with social security numbers and entities with ein’s. In other words, how can the presence of an NRA in a multi-member LLC mess things up for the ones who are not NRAs? I was told that when an NRA is in an entity, no matter how it is formed, then it must handle its finances so it is a c Corp and end up with everyone paying double tax. I do not believe that this is the only answer. If one of the members of a multi-member LLC is an NRA who already has an itin, understands withholding, gets 1042 S’s and files 1040 NR, can the multi-member LLC still produce 1065s and k1s so that things flow through to each member’s schedule e? There will be some members with social security numbers, some with ein’s, and some NRA’s with itins. For purposes of distributions, I understand the multi-member LLC will become the withholding agent for that NRA, and produce a 1042s, etc etc.

    Reply
    • Hi James, I don’t believe the information you received about double tax is correct. The LLC will be able to file the 1065 Partnership Return and issues K-1s as long as each LLC member has a Taxpayer ID Number (SSN, ITIN, or EIN), which you mentioned that is already the case. And NRA withholding will also be properly filed. It doesn’t sound like there will be any issues for any of the LLC Members. Hope that helps.

      Reply
  32. Hello Matt,

    Thank you for this excellent resource. You must have the patience of a saint to answer all these questions. Thank you for making yourself available. I don’t know what you get out of it but you are definitely helping a lot of people.

    We are a forming a Multi Member LLC in CA. There are 4 of us, all family (in the Brady Bunch sort of way). I have a few questions but I don’t expect you to answer all of them. Whatever you can answer would be appreciated and I am sure, very helpful.

    1. Are there state laws that the LLC and its members must conform to or can we structure things anyway we want to?

    2. Once you are a member, can you get voted out by the other members?

    3. Do members have certain rights that cannot be taken away by other members?

    4. Do the percentages of the profit distribution have to equal the percentage of ownership? Or are these two separate issues?

    5. How does a member protect their interest without having access to all the bank accounts?

    6. Can the LLC borrow money without all members’ consent?

    Thank you again and I hope to hear from you.

    Reply
    • Hi Sigi, you’re very welcome :) And thank you!

      1. There are always state laws ;) I’m not sure what you mean by “can we structure things anyway we want to“, so it’s hard to answer. If you mean does the LLC membership interest have to be split 25/25/25/25, the answer is no. You can structure it any way you want. If you want some people to have more power than others, you’ll likely want your LLC to be Manager-managed (as opposed to Member-managed). Please see Member-managed LLC vs Manager-managed LLC.

      2. Not unless the Operating Agreement has specific language that said such. Most Operating Agreements will call for all members to agree or a majority (3 out of 4 in your case).

      3. I don’t fully understand the question, but I think the answer is yes. Typically a Member can’t just “take” some right from another Member.

      4. No, they can be different… unless the LLC elects to be taxed as a S-Corporation; then they must be proportionate. And for an LLC taxed as a C-Corporation, it depends on how many classes of stock there are. However, for an LLC taxed in its default status (in your case, an LLC taxed as a Partnership), the LLC distributions can be disproportionate and don’t have to mirror ownership percentages.

      5. The membership interest is protected via the LLC Operating Agreement.

      6. This depends on the language in the Operating Agreement and whether the LLC is Member-managed or Manager-managed.

      In conclusion, we recommend working with an attorney to custom draft an LLC Operating Agreement for you guys. We also recommend getting buy-sell agreements in place as well (much better to do that earlier than later). In short, while there are state laws, there is a ton of flexibility in how an LLC can be managed and that sounds like it’s what you’re looking for. Hope that helps :)

      Reply
      • Matt, you are a superstar.

        Thank you so much for your answers. I will definitely refer to your resources.

        HUGE help.

        Wishing you a very Happy New Year!

        Reply
        • Hey Sigi, you’re very welcome :) So glad it was helpful. Thank you and Happy New Year!

          Reply
  33. Hi Matt,

    I am forming a business with 3 individuals and would like to form a MMLLC. I live in Michigan and the other 2 live in Florida. The business that we will be forming will be providing services virtually (therapy and mental health services). How do we file the MMLLC with the members living in two separate states?
    Therefore, we are potentially going to provide services to clients in other states as well. However, initially, we will be providing those services to people in our respective states.
    What are our options? Do we have to file the MMLLC in both states? Is there a specific form that requires the LLC to have multiple members in separate states so that we can tax in our respective states?

    Thanks for your help.

    Reply
    • Hi India, no, there isn’t a separate form in order to pay taxes in your respective states. You simply do just that. The LLC profits will be split among the Members. The Members pay their state income taxes in the state where they reside. Are any of the members licensed mental health practitioners? “Telehealth” services are regulated differently state-by-state.

      Reply
      • Thank you for your response. You have been very helpful. I am a licensed therapist in Michigan and another member is a licensed therapist in Florida.

        Thanks

        Reply
        • Hi India, there is a lot of regulation here you’ll need to look into. If you moved forward as-is, you could be breaking a few laws. First, you’ll need to check on the licensing requirements and restrictions for what’s usually called “telehealth” services in both Florida and Michigan (and any state where services will be rendered).

          If you pass those requirements, you most likely will need to form a Professional LLC (PLLC) and not a regular LLC. Those have their own set of rules. Typically, all Members (owners) of a PLLC must carry a state license that is the same as the professional services being rendered.

          To start, we recommend reaching out to the Michigan Department of Licensing and Regulatory Affairs (LARA) and the Florida Board of Clinical Social Work, Marriage & Family Therapy and Mental Health Counseling. Speaking to a few attorneys may also be very helpful.

          Reply
  34. I have a sole proprietor company which I am looking into turning into a multi member LLC with my wife, we want to be taxed as a s-Corp. I am a us citizen but my wife is not she’s a dreamer. Would this still be possible or would we have to stick to a partnership pass through taxation ?

    Reply
    • Hi Ivan, you can’t turn a Sole Proprietorship into a Multi-Member LLC. Instead, you would stop operating as a Sole Proprietorship and form an LLC that is owned by you and your wife. Your wife can only be an S-Corporation owner if she maintains a US resident alien status. Please see here: Can a foreigner own an S-Corporation?

      Reply
  35. My husband and I have had a LLC partnership for the last eight years. This year we expanded ownership to include our two adult children.
    In the past we’ve filed a schedule C. This year, I’m not sure whether I can continue as in previous years or if I need to file using different forms. Thanks in advance for your help.

    Reply

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