Single-Member vs. Multi-Member LLC - How to Start my LLC

Single-Member vs. Multi-Member LLC

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Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.

Reviewed by: Sarah Ruddle

For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.

Single-Member vs. Multi-Member LLC

Single-Member vs. Multi-Member LLC

If you’re starting a new business, one of your first big decisions is choosing which type of business entity to form. Many entrepreneurs choose a limited liability company (LLC) because of its many benefits. An LLC provides personal liability protection, for example, so that your assets are not at risk if your business is sued or cannot pay its debts.  

Also, an LLC is a “pass-through entity” in taxes, meaning that the LLC itself is not taxed. Instead, income passes through the company to the LLC owners or members, who report it on their tax returns. 

LLCs also offer flexibility in management, as there are few requirements regarding organizational structure. 

LLC owners are called members. An LLC can have a single member or multiple members. This handy guide will highlight the key differences between a single-member LLC and a multi-member LLC.


Whether single-member or multi-member, an LLC is a separate financial entity from its owners, which provides personal liability protection for its owners. 

Ownership percentages are expressed in the operating agreement, which defines how profits and losses are distributed and contain other provisions. In the case of a single-member LLC, the sole member owns 100% of the LLC. If the LLC has more than one member, ownership can be distributed in any way the members choose. 

No rules dictate how ownership must be distributed. It’s simply something all members agree on. Usually, ownership shares are based on contributions to the business. However, sometimes it’s determined by how much a role members play in day-to-day operations. 

An LLC can have unlimited members unless members elect S-Corp status. In that case, the member limit is 100. 


LLCs are pass-through entities, which means income passes through to the member or members. If the LLC has only one member, it’s taxed as a sole proprietorship. If the LLC has more than one member, it’s taxed as a partnership. 

How income is distributed to members for tax purposes should be specified in the operating agreement. It’s usually based on the percentage of ownership.

But LLCs are unique because they can elect to be taxed as a corporation if the members decide it makes financial sense. This is done by filing an election form with the IRS. You can choose to be taxed as a C-Corp or an S-Corp.

C-Corp status means income is taxed at the current rate for corporations (21% as of late 2022), which is lower than the usual individual taxpayer rate. But keep in mind that C-Corp shareholders – who are members in the case of an LLC – must also pay taxes on their distributions. This is called double taxation. 

However, members are subject to self-employment tax in an LLC taxed by default as a sole proprietorship or partnership. Once such LLC switches to being taxed as a corporation, self-employment taxes no longer apply. 

Similarly, self-employment taxes do not apply to members with S-Corp status, which is the main advantage of electing S-Corp status. 

With S-Corp status, members are generally paid as company employees, which means more accounting and payroll expenses. Therefore, S-Corp status is only beneficial when the self-employment tax savings exceed those additional expenses. 


A single-member LLC is generally managed by that sole member unless the member hires a manager. Members or managers can control multi-member LLCs. These are the two main management structures of an LLC. 

In a member-managed LLC, members handle all management duties, while in a manager-managed LLC, non-member employees oversee operations and management. Note that with a manager-managed LLC, a member can be a manager, but only in cooperation with another manager who is an employee, not a member. 

Member-managed LLCs generally work best for LLCs with few members, all of whom can take an active role in day-to-day operations. Conversely, manager-managed LLCs are best for LLCs with multiple members, some of whom want to be “silent” or passive members and not involved in daily operations.

Most LLCs are member-managed, as they are small businesses that cannot afford a management team.

Some states require that when you register your LLC with the state, you declare whether your LLC will be member- or manager-managed, so be aware that you may need to make this decision before you file. 

Personal Liability Protection

In single-member and multi-member LLCs, members have personal liability protection. There are, however, certain instances when liability protection does not apply. If one of the members personally guarantees a business loan, for example, that member is liable for the debt. 

If a member commits fraud or does something illegal on behalf of the LLC, they may be held personally liable for damages. In addition, a member violating the operating agreement could also be held personally responsible. 


In the case of a multi-member LLC, a few more administrative tasks are necessary. Records of all LLC votes must be kept, and post-vote resolutions should be drafted and signed as official documents. It’s extremely important to put things in writing in the event of future disputes. 

The operating agreement drafted when the LLC is formed should be much more detailed for a multi-member LLC. For example, it needs to contain language that defines how disputes and disagreements are resolved.

For this reason, it’s highly recommended that you employ the services of an attorney to draw up your operating agreement to ensure all bases are covered and all members’ rights are protected. 

In Closing

The choice between a single-member and multi-member LLC is yours and will depend on your situation. If you choose a multi-member LLC, it’s important to take extreme care with your operating agreement, which could determine the future success of your business. 

In most states, an operating agreement is not required, but in many cases, it’s a document of the utmost importance. As a result, the cost of professional legal guidance is well worth it to avoid disputes and ensure the continued smooth operations of your business.