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.
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.