Single-Member LLC vs Multi-Member LLC in North Carolina

Written by Wesley Henderson

November 15, 2022

image of single-multi-member-llc-north-carolina

For aspiring entrepreneurs in North Carolina, starting a limited liability company (LLC) can be a confusing process. LLC requirements and fees are specific to each state, so you must make sure to learn the relevant North Carolina business laws. In this article, we’ll explain the basics of creating your own LLC as well as the different types of LLCs.

Basics of LLCs in North Carolina

As they protect personal assets in the case of lawsuits or business failure, North Carolina LLCs can be beneficial. This feature is not present in general partnerships or sole proprietorships, where liability for business debts falls on company owners.

There are three core steps to setting up LLCs in North Carolina. First, you must choose a name for your company. This name has to be appropriate and available according to the business registry. Next, you need to select a registered agent. The function of a registered agent is to accept official documents, such as subpoenas, and forward them to business owners. Lastly, you need to file your Articles of Organization or Form L-01 with the Secretary of State.

Single vs Multi member LLC in NC Video

Differences Between Single and Multi-Member LLC

Deciding between a single-member LLC in North Carolina versus a multi-member LLC involves reflection on critical aspects of your business. To choose between these two business structures, you must decide what business goals you have in mind as well as the best ways to achieve these. These are factors you can consider when looking at the pros and cons of each type of LLC.

Ownership

Essentially, single-member LLCs have a sole owner who takes full responsibility for the company. In contrast, multi-member LLCs have two or more owners. In both scenarios, the LLC is an independent legal entity.

Each choice offers benefits and downsides, which depend on your situation. For example, if you have a one-person business, you may want to start a multi-member LLC with a parent or spouse to achieve asset protection. On the other hand, if you possess multiple properties, it may be advantageous to have more than one single-member LLC in North Carolina to avoid individual tax returns.

Management

Multi-member LLCs can be categorized as either member-managed or manager-managed. According to Forbes, member-managed LLCs allow members to participate in company operations. This structure is best for companies with a limited number of investors, as it can streamline work processes in a simple, adjustable way.

On the other hand, manager-managed LLCs assign business operations to designated managers. Although other members can still vote on important business concerns, they cannot act as agents on behalf of the company. This structure is suitable for businesses with more passive investors — manager-managed LLCs can still accommodate those who are unfamiliar with the industry or with business management.

Taxes

With regard to federal income tax, single-member LLCs in North Carolina are generally treated as sole proprietors. On the other hand, multi-member LLCs are considered partnerships. In both cases, the profits and losses pass through the company owners on to their personal tax returns.

If you want to streamline tax processes, you may want to consider single-member LLCs in North Carolina. No federal tax return is needed for this business structure unless the LLC is treated as a corporation. Multi-member LLCs have to file tax returns and give each member individual K-1 forms.

Wesley Henderson

Hi, I'm Wesley! A business attorney turned entrepreneur devoted to simplifying how you protect your business and your assets. Like you, I'm an business owner so I get it and I started Drafted Legal to help you put in place simple and sound legal strategies so you can focus on your business and not worry about getting lost in legal nuances.

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