Limited liability business structures offer a big benefit to business owners: Greater protection by separating your personal assets from your business assets.

Starting a limited liability company (LLC) isn’t as simple as filling out a quick form. There are some decisions you’ll need to make upfront to distinguish your limited liability business, which may affect the type of entity you can set up.

The laws governing LLCs are set up at the state level, so we’ll get familiar with the regulations and types of structures in North Carolina.

3 Ways To Distinguish Your LLC or Limited Liability Business

There are a few traits of limited liability businesses that can affect how you’re taxed, how you’re managed, how you’re regulated and how you can set up your business structure.

1. Single-Member versus Multi-Member

This should be an easy one to identify. Are you the only person who owns your business? Then you’re a single-member LLC! If there are two or more owners of your business, then you’re a multi-member LLC.

This distinction is particularly important when it comes to taxes. The IRS treats a single-member LLC as a disregarded entity, which means your business income will be part of your personal tax return.

If you’ve got at least one other member, your LLC files taxes as a partnership with Form 1065, the Return of Partnership Income. North Carolina isn’t a community property state, so if spouses own an LLC together, they can’t be treated as a disregarded entity.

Whether you’re a single-member or general partnership LLC, you can choose to be taxed as a corporation instead by filling out Form 8832.

2. Member-Managed versus Manager-Managed

If you’re an owner and you’re running the show at your business, then your LLC is member-managed. In your operating agreement, state law also allows you to designate someone else to run your business operations. If that’s your setup, that person is your LLC’s manager, which makes you manager-managed. So far, so good, yeah?

3. Domestic versus Foreign

This one can be confusing! Remember that LLCs are set up at the state level. That means in the Tarheel State, a domestic LLC is one that’s organized under North Carolina state law and operates in the state. A business with a similar structure set up in any other state, the District of Columbia or another country is therefore a foreign LLC.

There are different business registration processes for domestic LLCs and foreign LLCs in North Carolina. Be sure you set up the correct type, and register your business as a foreign LLC in any other states where you transact business.

At the federal level, agencies may refer to companies operating under international law as “foreign-owned LLCs” to avoid confusion with the state-level definition.

5 Types of Limited Liability Business Structures

In North Carolina, you’re not just an LLC or bust. There are five types of business structures that provide limits to liability for members or partners. These business types are outlined in the North Carolina Limited Liability Company Act, Uniform Partnership Act and other general statutes. They’ve got unique traits that differentiate each of them.

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1. Limited Liability Company

A limited liability company is owned by its members and run by managers, who can also be the members. It can have as few as one owner (a single-member LLC), or be a multi-owner LLC. That distinction affects how taxes flow through to you, unless the LLC elects to be taxed as a corporation instead.

The member or members’ liability is limited to capital contributions, or the investments they make in the business.

2. Limited Partnership

There are two types of owners in a limited partnership: limited partners and general partners. There must be at least one limited partner and general partner, and the general partners are the ones running the day-to-day business. Taxes flow through to the partners.

Your liability depends on what type of partner you are. If you’re a limited partner, your liability is limited to your capital contributions, the same as an LLC member. If you’re a general partner, you have unlimited liability.

3. Limited Liability Limited Partnership

There are two types of owners in a limited liability limited partnership: limited partners and general partners. There must be at least one limited partner and general partner, and the general partners are the ones running the day-to-day business. Taxes flow through to the partners.

In this case, the liability of both limited partners and general partners is limited to their capital contributions.

4. Limited Liability Partnership

A limited liability partnership (LLP), or registered limited liability partnership (RLLP), is formed with only general partners, who both own and run the business. Taxes flow through to the partners.

The general partners do get some relief in an LLP. Their liability is limited to capital contributions for their partner’s or partners’ professional services. However, all partners still have unlimited liability for general obligations.

5. Professional Limited Liability Company

A professional limited liability company (PLLC) applies only when the professional services you offer are licensed by a licensing board for you to operate. Licensed professionals include folks such as attorneys, architects, public accountants, doctors and dentists, therapists, and veterinarians. Be sure you provide your certification to the Secretary of State.

Licensee members are the owners of PLLCs, and designated managers run the day-to-day business. Taxes flow through to the members.

In a PLLC, you have unlimited liability for the professional service you’re providing. For example, you can be sued for malpractice if you’re a doctor.

Other Types of LLCs in the US

North Carolina doesn’t have some types of limited liability business structures that are offered in other states. Some of these are new, or available, in very few states, but it’s worth knowing they exist if you do business outside North Carolina:

Family limited partnership
Series LLC
Restricted LLC
L3C, or low-profit limited liability company
Anonymous LLC

Determining Your Limited Liability Structure

Even if you already have an LLC established, it can be confusing to identify all the properties of your business, or whether you’re using the best type of structure for your business. If you want a hand, the team at Certum Solutions would love to help you.

Sources + More Links:

https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc

https://www.l4sb.com/blog/what-is-domestic-limited-liability-company/

https://dos.ny.gov/articles-organization-domestic-limited-liability-company-0

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What You Need To Know About LLCs - in North Carolina and Beyond