As potential entrepreneurs setting up a Limited Liability Company (LLC) in the United States will most likely ask the question which is “How many members can go in an LLC?”
This is important because the members also determine ownership and the management structure, and also directly influences the taxation and future approach to the business growth.
This applies to individuals, family owned businesses, or any group to foreign entrepreneurs setting up business in the United States. Knowing the LLC rules will enable any foreign businesses to better serve their LLC members.
In this guide, we’ll go deeper into:
- What an LLC member is
- The minimum and maximum number of members allowed
- The difference between single-member and multi-member LLCs
- Ownership rules for non-U.S. residents
- How membership affects taxation, liability, and management
- Common misconceptions about LLC membership
What Is an LLC Member?
To start with, an LLC member is a business owner, and in this scenario, an LLC member is. Unlike a corporation that subdivides their business and issues shares to their stockholders, the LLC assigns a membership interests to their members.
Each member that is a business owner, usually more than one, will own a percentage of the LLC which is determined and agreed upon in the company’s Operating Agreement. Also ownership can in some instances depend on the amount of capital a member contributed.
Members can be:
- Individuals – with residents such as citizens, green card holders, and foreign nationals.
- Other business entities – with corporations, other LLCs, or partnerships.
- Foreign companies – as a non-U.S. business can own part or all of a U.S. LLC.
This flexibility in membership (license) is the reason LLCs are widely used, particularly by international business owners who may be unable to own other entities, such as S-Corporations.
How many members is an LLC allowed to have?
Minimum: An LLC is required to have at least one member. Otherwise, the company will be unable to exist legally.
Maximum: An LLC has no restriction as to the number of members it can have.
The lack of restriction makes LLCs one of the most flexible business entities in the US. Start as a one-person business and add many partners, investors, or even family members as co-owners.
For example:
- S-Corporations are restricted to 100 shareholders, all of whom must be citizens or residents of the US.
- Partnerships default (do not) offer limited liability, and require at least two partners.
- C-Corporations have no restriction on the number of shareholders, but the business has stricter compliance and double taxation.
No need to worry about the LLC as you have both the facets of a company (greater than 1 member) and ease of compliance and flexible taxation.
Single-Member LLC (SMLLC) vs. Multi-Member LLC (MMLLC)
1. Single-Member LLC (SMLLC)
Freelancers, consultants, and small business owners looking for liability protection and easy taxation usually opt for a single-member LLC, which is the most common type of LLC.
Key Features:
- Tax Treatment: Single-member LLCs are disregarded entities for the IRS and the owner’s income has to be reported in a Schedule C. However, owners can elect for s corporation and c corporation taxes if it is beneficial.
- Control: Owners are free to make any business decisions since they have full ownership.
- Simplicity: Owners can skip the headaches of complicated agreements with co-owners.
- Liability Protection: Owners are still protected from personal liability alongside business liability.
Best For: Solo entrepreneurs, small e-commerce business, consultants, and international entrepreneurs without partners looking to penetrate the US market.
2. Multi-Member LLC (MMLLC)
Families, partnerships, and start ups with multiple co-founders usually opt for a Multi-Member LLC, which is a type of business entity with two or more owners. Group of investors can also pool resources to set up a Multi-Member LLC.
Key Features:
- Tax Treatment: LLC’s are taxed as partnerships by default. Profits and losses are divided and taxed as per the ownership percentage. The LLC doesn’t pay federal income taxes, unless it elects to pay as a C corporation.
- Flexibility in Ownership: Profits can be split in any way the members agree to (not necessarily equal).
- Management: Requires an Operating Agreement to define roles, voting rights, and decision-making processes.
- Growth Potential: Easier to bring in new members or investors.
Most suitable for: international teams, family businesses, startups with co-founders, and companies that intend to expand with multiple investors.
Can Non-U.S. Residents Be LLC Members?
Yes. An LLC can have members that aren’t United States citizens, as there are no ownership restrictions based on citizenship or residency. This makes the LLC the most foreign-friendly entity type in the United States.
- A foreign national can own a whole or partial stake in an LLC.
- A foreign entity is able to serve as a member of an LLC.
- Having an ITIN instead of a Social Security Number is acceptable for tax purposes.
This is especially useful for global entrepreneurs wishing to sell on Amazon, Shopify, or Etsy, or for those wanting access to U.S. payment processors and bank accounts.
Why Does It Matter How Many Members a Business Has?
The number of members in an LLC has a strong impact on various facets of the business:
1. Taxation
- A Single Member LLC (SMLLC) is automatically taxed as a sole proprietorship and is far easier to deal with at the expense of being less tax-planner friendly.
- A Multi Member LLC (MMLLC) is taxed as a partnership by default and has an enormous amount of freedom to structure the split of profits and losses.
Both single and multi-member LLCs have the option of being taxed as an S-Corp or a C-Corp if it proves to be more beneficial from a tax standpoint.
2. Management and Decision-Making
- One member LLCs have an easier time with decisions.
- Multi-member LLCs have to have an Operating Agreements which help structure the business in a way to avoid conflicts and fulfill the obligations more clearly.
3. Liability Protection
Both SMLLCs and MMLLCs have limited liability. Courts have a tendency of giving more consideration to the protection of a multi-member LLC if it has relevant agreements and proper business practices.
4. Growth and Investment
- Single Member LLCs are easy to run but often struggle to acquire unsought investments.
- Multi-member LLCs simplify the business as more partners and investors can be invited easily due to the flexible division of ownership control.
Advantages of No Member Limit in LLCs
- Scalability: Start small as a single-member LLC and expand as new members join.
- Attracting Investment: Capital investment by different members can be done without limits and restrictions.
- Flexible Ownership Structure: Ownership can be split in any ratio as per the agreement by members.
- International Market Potential: Foreign individuals and entities can own LLCs unlike S corporations.
- Ease of Transition: A business can begin with a single member and subsequently transform into a multi-member LLC without the need to create a new entity.
LLC Membership – Misconceptions and Misunderstandings
An LLC can have an unlimited number of members.
– Members of an LLC can be an unlimited number of individuals.
Members of an LLC have to be US Citizens.
– Foreign individuals and foreign businesses can also be members of an LLC.
Members of an LLC are required to have equal ownership.
– Members can have ownership percentages of their choosing (e.g., 70/20/10).
It is overly complicated to add new members.
– Adding new members is straightforward although it does involve changes to the Operating Agreement and informing the state in certain instances.
Single-(1) member LLC does not have any protection
– A single-member LLC is managed improperly if it does not protect the member’s personal assets and business finances. Otherwise, full liability protection is afforded.
Conclusion
An LLC can have an unlimited number of members, and for an owner willing to either work alone, or have multiple partners, bringing in several investors, plenty of flexibility is also provided.
We help international and local business people to open bank accounts and are compliant with US laws. They help in the formation of single-member and multi-member LLCs.
Frequently Asked Questions (FAQs)
1. Is It Possible To Have One Member In An LLC?
Most people have single-member LLCs, and it is legal.
2. How many members are allowed to join an LLC?
There is no limit to how many members can join an LLC.
3. Can a foreign citizen become a member of an LLC in the United States?
Yes. members of an LLC do not have to be citizens or residents.
4. Do all members have the same amount of voting rights?
Not in all situations. Voting rights are defined in the Operating Agreement.
5. How are profits shared among the members of an LLC?
Profits can be shared in equal or agreed upon unequal ratios.
6. Can a corporation or other LLCs become members of an LLC?
Yes. other functionalities can also be members of the LLC.
7. Do single-member and multi-member LLCs attract different taxation?
Yes. By default, single-member LLCs are taxed as sole proprietorships and multi-member LLCs are taxed as partnerships. But, both can decide to choose a different tax classification.
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