Multi-member operating agreements typically pertain to companies with more than one owner. This is essential as it is the only document that specifies who owns what percentage of a company (LLCs are not owned in share form like corporations, but as an ownership percentage). A notary public should witness the form's signing, and copies should be sent to all members while at least one (1) original should remain at the company's principal office address. This document remains in the company's custody and not with any government agency.
Multi-Member LLC - what is it?
As a business entity, LLCs are legally referred to as Limited Liability Companies. Individuals, groups of persons, corporations, or even other LLCs can own LLCs.
A multi-member LLC is a business with more than one owner since members of an LLC are called members. MLLCs do not have a limit to the number of members they can have, so a two-member LLC is as valid as a fifty-member one.
A multi-member LLC may be a better option than a business partnership or a more formal corporation for a number of reasons. LLCs offer greater protection from personal liability and greater legitimacy to customers, competitors, and lenders than joint ventures. The LLC process will also allow you to deal with fewer regulations and pay fewer taxes than a corporation would.
How to Use an LLC Operating Agreement with Multi-Members
State law rarely requires the filing of an operating agreement. It does not have to be filed with all other documents. It's still a crucial part of forming an LLC, nonetheless. An operating agreement lets you define rules for the ownership and operation of the business. Typically, an operating agreement contains the following provisions:
- Management of the LLC
- Provisions for purchase and sale ((in the event that a member wants to sell their part or if they die or become disabled
- Each member's percentage interest in the business
- Members' rights and responsibilities
- The voting power of each member
- Profit and loss allocation
- Meeting procedures, etc.
Multi-member Operating Agreements by State
Here's a list of States where you might be required to have a State-specific operating agreement:
What You Need to Know to Form a Multi-Member LLC
The process of forming and managing an LLC with multiple members is simple. In contrast to setting up a corporation, there aren't many formalities. Just fill out the appropriate forms. Once you have paid your fees and your state approves your Limited Liability Company, you're all set.
Your first step in registering your LLC is to find out whether the business name you want is still available in your state. This is often possible online. Proceed if the business name is still available. A different name will have to be chosen if the first one is already taken. The same business name may not be used more than once in the same state under an LLC.
Once you've determined that the business name is available, you should contact your Department of State's business division. They can guide you through the paperwork process. You might have to go through a different process if you've moved from one state to another, even if you previously formed an LLC.
Once that's done, you'll be required to file your Articles of Organization, sometimes called a Certificate of Organization. To file these documents, you will have to pay a couple of hundred dollars in filing fees. If everything is done correctly, your state will process your application, and you will receive your Certificate of Formation. Now you've formally formed a multi-member LLC.
Unless you already have a separate business bank account, you will need to open a separate one if you don't have one.
It's also necessary for you to obtain a tax identification number for your business. New tax ID numbers from the IRS are free and easy to get and you can do it online.
It might also be necessary for you to obtain additional licenses and permits depending on the situation. Based on where you live and what kind of business you're starting, this may vary.
Finally, an LLC operating agreement, which outlines each member's rights and responsibilities, is the next crucial step in starting an LLC.
Comparison of Multi-Member LLCs and Single-Member LLCs
The difference between an LLC with multiple members and one with only one member is more complicated than it appears. One would think a multi-member LLC would indicate a multi-owner business, while single-member LLCs would suggest a single-owner business, but that is not always the case. Some business owners choose to form a multi-member LLC, while others prefer to form a single-member company.
A one-owner business may choose to form an LLC with multiple members, such as adding their spouse or child as members. It's also possible for business partners or spouses who own several properties as separate LLCs to form a multiple-member LLC which owns those two different LLCs, eliminating the need to file separate tax returns
The tax implications of forming a single-member LLC and a multi-member LLC are similar. Both members must report all profits and losses on their personal income tax returns and pay taxes accordingly. In a multi-member LLC, the taxes that each member of the business pays are based on their ownership interests.