There are six main types of LLCs under U.S. law: single-member, multi-member, professional, series, restricted, and low-profit. Each one answers a different question about ownership, industry, and purpose, but every version delivers the same core benefit — separating your personal assets from the business’s debts. On top of that structural choice, any LLC can also elect how it wants to be taxed federally, and that second decision often matters as much as the first.
Single-Member LLC
A single-member LLC has one owner, which can be a person or another business. The IRS treats it as a “disregarded entity” for income tax, so the LLC files no return of its own.1Internal Revenue Service. Single Member Limited Liability Companies You report the income and expenses on your personal return — Schedule C for an active trade or business, Schedule E for rental income.
Even though the IRS looks past the entity, your state does not. The LLC is still a separate legal person, and that separation is what protects your home and personal accounts if the business is sued. Keeping the protection intact means a dedicated business bank account, no personal spending from company funds, and basic records showing the LLC operates on its own.
One cost catches many solo owners off guard: self-employment tax. Because a disregarded LLC is taxed like a sole proprietorship, you owe both halves of Social Security and Medicare on your net earnings, for a combined 15.3 percent.2Internal Revenue Service. Topic No. 554, Self-Employment Tax You can deduct half of it when figuring adjusted gross income, but it’s a real bill that W-2 employees never see directly.
Multi-Member LLC
Add a second owner and the IRS automatically classifies the LLC as a partnership. The company files an informational return on Form 1065 but pays no income tax itself. It issues a Schedule K-1 to each owner showing that person’s share of profits, losses, deductions, and credits, and each owner reports those amounts personally.3Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income
Member-Managed or Manager-Managed
A multi-member LLC picks one of two management models. In a member-managed LLC, every owner can make day-to-day decisions and sign contracts for the company. In a manager-managed LLC, one or more designated managers run operations while the other members act as passive investors; the managers may or may not be owners themselves. Most state statutes assume member-managed unless the operating agreement says otherwise.
Why the Operating Agreement Matters
The operating agreement is the single most important document a multi-member LLC produces. It sets how profits and losses are divided, how decisions get made, what happens when someone wants out, and how disputes are handled. Without one, the LLC falls under the default rules of its formation state. In many states, those defaults split profits equally among members regardless of what each person put in. A member who contributed 80 percent of the startup capital could end up with the same share as someone who contributed 10 percent.
A well-drafted agreement also protects minority owners. Common provisions require unanimous or supermajority consent before the company can be sold, merged, or dissolved; give every member the right to inspect financial records; and establish a buyout process with a clear method for valuing a departing member’s interest. Skipping the agreement or using a generic template often produces expensive disputes later.
Professional LLC
A professional LLC, usually written PLLC, is for people in licensed occupations: medicine, law, accounting, architecture, engineering, and similar fields. Many states require professionals in these fields to use a PLLC or a professional corporation rather than a standard LLC. Every owner must hold an active license in the same profession, and the company’s purpose is limited to practicing it.
The liability shield works differently here. A PLLC protects you from the company’s general business debts — unpaid rent, vendor bills, a slip-and-fall in the lobby. It does not protect you from your own professional malpractice. If a client sues over your personal work, your personal assets are exposed for that claim. What the PLLC does prevent is cross-liability: you are shielded when a co-owner commits malpractice, which is not true in a traditional general partnership.
Formation takes an extra step. The relevant state licensing board typically reviews and approves the formation documents before or alongside the Secretary of State filing. Not every state recognizes the PLLC designation; some route licensed professionals to a professional corporation or a registered limited liability partnership instead. If any member’s license lapses or is revoked, the consequences vary by state and can include mandatory restructuring.
Series LLC
A series LLC is a single parent entity that holds multiple internal divisions, often called “series” or “cells,” each with its own assets, liabilities, and members. The point is legal segregation. If one series is sued or defaults on debt, only that series’ assets are at risk; the other series and the parent stay protected. Real estate investors use the structure to isolate the risk of individual properties without forming a separate LLC for each.
Not every state allows them. Roughly 20 jurisdictions authorize formation, including Delaware (which created the structure in 1996), Illinois, Texas, Nevada, and Utah. Some states that don’t permit domestic series LLCs will still register a foreign series LLC to do business there, but the walls between series may not hold up in a state that doesn’t recognize the structure. A court in such a state could treat all the series as a single entity.
The cost advantage over multiple standalone LLCs has shrunk. Some states still let you create a new series by amending the operating agreement, but a growing number require a separate filing and fee for each series. Every series must keep its own books; commingled accounting invites a court to disregard the separation.
Restricted LLC
The restricted LLC is a niche entity type available only under Nevada law. It is defined as an LLC that elects to include certain optional statutory provisions in its articles of organization.4Nevada Legislature. Nevada Revised Statutes 86.1252 – Restricted Limited-Liability Company Defined The defining feature is a prohibition on distributing profits or property to members for a set period, commonly described as ten years from formation.
It exists primarily as an estate planning tool. By locking assets inside the LLC, the structure can reduce the taxable value of membership interests gifted to family members. The IRS allows valuation discounts for interests that carry restrictions on transferability and distributions, and because the restriction appears in the articles of organization rather than only in a private agreement, it carries more weight in a tax dispute.
The restricted LLC is useless for a business owner who needs regular access to profits. It serves a narrow audience — typically high-net-worth individuals transferring wealth across generations with help from an estate planning attorney. Violating the distribution restriction can unravel the strategy, so this one isn’t a DIY choice.
Low-Profit LLC (L3C)
A low-profit LLC, or L3C, is a hybrid built for ventures that put a charitable or educational mission above making money. The entity’s primary purpose must further goals described in Section 170(c)(2)(B) of the Internal Revenue Code, the same purposes that qualify a traditional nonprofit for tax-deductible donations. Profit is permitted but cannot be a significant purpose of operations.
The structure was created to make it easier for private foundations to invest in socially beneficial businesses. Federal tax law penalizes foundations for investments that jeopardize their charitable mission but carves out an exception for “program-related investments.”5Office of the Law Revision Counsel. 26 U.S. Code 4944 – Taxes on Investments Which Jeopardize Charitable Purpose Because an L3C’s organizing documents put charitable purpose first, the form was meant to signal eligibility. L3C status alone does not automatically qualify a company for program-related investment treatment, though; the foundation still has to evaluate each investment under IRS rules.
Only a handful of states authorize L3Cs, including Vermont (the first, in 2008), Illinois, Louisiana, Maine, Michigan, Rhode Island, Utah, and Wyoming, plus a few U.S. territories. Limited geographic availability and the lack of a special federal tax classification have kept adoption low. In a state that doesn’t recognize the form, a standard LLC with a mission-focused operating agreement can accomplish much of the same purpose.
How Your LLC Is Taxed Is a Separate Choice
Whatever type of LLC you form, the IRS lets you choose how it’s taxed. The defaults — sole proprietorship for a single-member LLC, partnership for a multi-member — are automatic unless you file to change them.1Internal Revenue Service. Single Member Limited Liability Companies Either type can elect C-corporation or S-corporation treatment instead, and the election can meaningfully change your tax bill.
C-Corporation Election
Filing Form 8832 has the LLC treated as a C-corporation for tax purposes.6Internal Revenue Service. Form 8832 Entity Classification Election The entity pays corporate income tax on its profits, and owners pay personal income tax again on any dividends — the “double taxation” that makes this unattractive for many small businesses. It can still make sense if you plan to reinvest most profits, bring in institutional investors, or eventually go public.
S-Corporation Election
Filing Form 2553 has the LLC taxed as an S-corporation, which avoids double taxation and reduces self-employment tax for owners who actively work in the business.7Internal Revenue Service. Instructions for Form 2553 Income still passes through to the owners, but only the salary you pay yourself is subject to Social Security and Medicare taxes; distributions of remaining profit are not. The split can save thousands of dollars a year for a profitable business, though the IRS requires the salary to be “reasonable” for the work performed.
S-corporation status has eligibility limits. The LLC must be a domestic entity with no more than 100 shareholders, and every shareholder must be a U.S. citizen or resident individual (or certain trusts and estates). The company can have only one class of stock, meaning all owners share profits and losses in proportion to ownership; preferred or tiered economic interests are not allowed.8Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined Late elections may be accepted when you can show reasonable cause for the delay.
What Every LLC Pays to Exist
Every LLC begins with filing articles of organization (sometimes called a certificate of organization) with the state. The one-time filing fee runs from about $35 to $500 depending on the state, with most falling between $50 and $200. That’s just the government fee; expedited processing, a registered agent, and legal help drafting an operating agreement all cost extra.
Most states then require an annual or biennial report to keep the LLC in good standing. These range from nothing to more than $800 in states that layer a minimum franchise tax on top of the report fee. Missing a deadline brings late fees, loss of good standing, or administrative dissolution — the state cancels your LLC. Reinstatement is usually possible but adds paperwork and penalties, so build the recurring cost into your budget from the start.