Types of Businesses That Qualify As an LLC

There are many types of businesses you can start, including corporations, partnerships, and sole proprietorships. However, one of the most favored types of businesses to start is a limited liability company or LLC.

LLCs offer quite a few advantages over other types of businesses, including personal liability protection and tax benefits. If you’re thinking about forming an LLC, it’s important to make sure that your business qualifies. Here are the most common types of businesses that qualify as LLCs.

Single-partner LLCs

These are businesses that are owned and operated by a single individual. For example, if you’re a freelance writer, you could form an LLC to protect yourself from personal liability.

Another benefit of LLCs is that they provide pass-through taxation, which exempts the company from paying taxes in favor of the owners, who report the company’s revenues and losses on their individual tax returns.

Besides liability protection and tax benefits, LLCs also offer flexibility when it comes to management structure. That means that, unlike corporations, LLCs don’t have to have a board of directors or hold regular shareholder meetings. Another advantage of LLCs is that they’re relatively easy and inexpensive to set up because there’s less paperwork involved.

Lastly, LLCs can be used for a variety of businesses, from online stores to brick-and-mortar shops. The biggest downside of LLCs is that they may not be the best choice for businesses looking to raise capital from investors since investors typically prefer to invest in corporations.

Multi-partner LLCs

These are businesses that are owned and operated by two or more individuals. For example, you could form an LLC if you’re starting a business with a friend or family member. One advantage of multi-partner LLCs is that they offer the same liability protection and tax benefits as single-partner LLCs.

Another advantage is that if one partner leaves the business, the other partners can continue to operate the LLC. Multi-partner LLCs also offer flexibility when it comes to management structure and is relatively easy and inexpensive to set up.

However, one downside of multi-partner LLCs is the potential for conflict among the owners. That’s why it’s important to have a well-written operating agreement that outlines each owner’s roles and responsibilities and what happens if one of the owners wants to leave the business.

Family limited partnerships

These are businesses that are owned by two or more family members. For example, if you’re starting a business with your spouse or children, you could form a family limited partnership. Another common feature of FLPs is that they’re used as a way to transfer wealth to the next generation.

One advantage of FLPs is that they offer the same liability protection and tax benefits as other types of LLCs, and the fact that they’re family-owned, there may be potential for discounts on taxes and estate planning. Also, FLPs can be used for various businesses, from online stores to brick-and-mortar shops.

However, one downside of FLPs is that they can be complex to set up, and there’s potential for conflict among the family members. That’s why it’s important to have a well-written operating agreement when you apply for an LLC.

Similar to multi-partner LLCs, the agreement must outline each family member’s roles and responsibilities and what is to be done if one of the members wants to leave the business.

Manager-managed LLCs

A manager-managed LLC is a business owned by two or more individuals but managed by a designated manager. For example, if you’re starting a business with a group of friends that one person will manage, you could form a manager-managed LLC. This type of LLC came about because some states don’t allow multi-partner LLCs.

Besides the tax benefits of LLCs, this business type enjoys the fact that the designated manager has sole authority over the business’s day-to-day operations, which means that the other owners don’t have to be as involved in the business.

However, one downside of manager-managed LLCs is that the designated manager may not always make decisions that are in the owners’ best interest. A fantastic way to safeguard your assets and enjoy the tax benefits of owning a business is by forming an LLC.

Before you start an LLC, there are a few things to consider, such as the type of business you’re starting, the management structure you want, and whether or not you’re looking to raise capital from investors. If you take the time to consider all of these factors, you’ll be well on your way to forming a successful LLC.