Single-Member vs Multi-Member LLC: What’s the Difference?

In 2025, selecting the optimal limited liability company (LLC) type seems more important than ever before. You might be weighing the merits of a partnership vs. LLC or a single-member LLC vs. multi-member LLC. Choosing between a single-member LLC, or SMLLC, and a multi-member LLC, or MMLLC, affects everything from the IRS forms you file to how investors view your business. With over 21 million active LLCs now accounting for roughly 42 percent of U.S. small businesses, owners and aspiring entrepreneurs need clear guidance to help select their best business structure for 2025 and beyond.

Key Highlights

• Ownership: SMLLCs have one owner while MMLLCs have two or more, which reshapes governance, funding options, and fiduciary duties.

• Tax Defaults: A SMLLC is a “disregarded entity” that files Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), with the owner’s IRS Form 1040, U.S. Individual Income Tax Return, whereas an MMLLC files IRS Form 1065, U.S. Return of Partnership Income, and issues Schedule K-1s to each member.

• Self-Employment Tax: Profits from either LLC type are usually subject to self-employment tax unless owners elect S corp treatment.

• Liability Shield: Both structures provide personal asset protection, but courts pierce the veil more readily when SMLLC owners commingle funds.

• Compliance Costs: Average ongoing state fees run about $91 annually, plus registered agent, bookkeeping, and reporting costs.

• Audit Outlook: The IRS plans to raise the audit rate on complex partnerships—MMLLCs with assets over $10 million—from 0.1 percent in 2019 to 1 percent by 2026.

What Is a Single-Member LLC?

A SMLLC is a limited liability company with a single owner, called a “member." When it comes to single-member LLC taxes, the IRS treats the entity as a pass-through by default, so business income and expenses flow onto the owner’s personal return via Schedule C.

Why SMLLCs Appeal to Solopreneurs

• Simplicity: No partnership agreement or Schedule K-1s are required. 

• Control: The sole member makes all decisions without needing unanimous votes or external approval.

• Fast formation: Many states let you officially form your business online.  1-800Accountant’s LLC formation service, starting at $0 + state fees, handles the paperwork for you. ensuring a smooth process.

• Drawbacks: 100% of net profit is subject to the 15.3% self-employment tax, although half that amount can be deducted; raising outside capital can be harder without additional members, which this structure does not support. 

What Is a Multi-Member LLC?

A MMLLC has at least two owners and is taxed as a partnership by default. When it comes to multi-member LLC taxes, like a SMLLC, MMLLCs feature pass-through taxation. Although in this scenario, profits and losses pass through to members via Schedule K-1, and the entity files Form 1065 each year. 

Key Features

• Creating a multi-member LLC operating agreement and obtaining an employer identification number (EIN) are practically mandatory.

• MMLLC's flexible capital structure allows members to admit new investors in exchange for units or percentages.

• Fiduciary duties exist between MMLLC members, mirroring partnership law.

• The administrative footprint of a MMLLC is larger than a SMLLC due to bookkeeping obligations for multiple capital accounts and quarterly estimated tax preparation for each member.

Key Differences at a Glance

Tax Implications & Filing Requirements

While both structures can take advantage of some of the same features and deductions, SMLLCs and MMLLCs can also have differing tax implications and filing requirements. 

• SMLLC owners report business income on Schedule C and pay both income and self-employment tax. 

• MMLLCs file IRS Form 1065 and issue a Schedule K-1 to each member, shifting tax payments to individual members. 

The Qualified Business Income (QBI) deduction, recently made permanent by Congress, applies to both structures, potentially trimming taxable income by up to 20% if thresholds are met.

S Corp Election Considerations

Either LLC type can file IRS Form 2553, Election by a Small Business Corporation to be taxed as an S corporation. Many business owners cite the reduction in self-employment tax as a reason for making this election. Eligible S corp owners who take a "reasonable salary" are subject to payroll taxes for that income, while the remaining profits distributed as dividends are not. The key is to make sure an S corp election aligns with your: 

• Income level

• State tax rules

• Bookkeeping capacity

Understanding the implications of forming as an S corp while implementing a balanced "reasonable salary" strategy can be difficult without 1-800Accountant's year-round tax advisors on your side.  

Liability & Asset Protection

Both LLC types shield personal assets from business debts, which is a popular feature. Both types should also consider addressing business formalities, including: 

• Separating business and personal bank accounts

• Documenting capitalization

• Establishing an operating agreement

Courts have shown more willingness to pierce a SMLLC if the owner mingles personal and company funds or undercapitalizes the entity.Drafting a robust agreement—even for a solo venture—tightens that shield.

Formation, Ongoing Costs & Compliance

State formation filing fees range from $35 to $500, with a national average of $132. Annual report or franchise fees cost about $91 on average.Add $149 for a registered agent in many states as well 

Keep compliance simple and centralized with 1-800Accountant's suite of affordable, tax-deductible services for your LLC. 

Funding & Ownership Dynamics

SMLLCs and MMLLCs feature distinct funding and ownership dynamics to familiarize yourself with before making an entity selection. 

• SMLLC: Personal savings, business loans, or crowdfunding are funding sources. Converting to MMLLC later is possible with updated operating agreement requirements and, in some states, an amended filing.

• MMLLC: Ability to issue equity to new members or investors without dissolving. The operating agreement should address capital calls, profit splits, buy-sell provisions, and voting thresholds.

Investors often prefer multi-member structures because they receive formal membership units and Schedule K-1s instead of promissory notes.

Audit Risk & Legislative Outlook for 2025

In 2024, the IRS announced a Strategic Operating Plan targeting complex partnerships—including larger MMLLCs—for a ten-fold audit increase by 2026, while audits for solo filers and small businesses under $400k remain a low priority.

While there's a risk the IRS will audit your business even if you're doing everything right, there are ways to remain prepared in the event you do receive a notice. 

Your SMLLC or MMLLC can stay audit-ready year-round by:

1. Reconciling your books monthly.

2. Retaining receipts for at least three years.

3. Documenting member meetings and major decisions impacting your business.

How to Choose the Right Structure

When selecting the optimal structure for your business, ask yourself the following questions to help guide your decision. Browse single- vs. multi-member LLC pros and cons below. 

Remember, you can convert later. Many owners start as SMLLCs and add members once revenue justifies outside investment. If you're struggling to choose the right structure for your business, 1-800Accountant's entity formation experts are ready to assist. 

How 1-800Accountant Helps

1-800Accountant, America's leading virtual accounting firm, offers affordable, tax-deductible formation packages that secure your LLC name, obtain your EIN, and file initial state paperwork on your behalf, so you can stay focused on last-minute launch details while we handle the rest. 

Support you can expect as a 1-800Accountant business client includes: 

• Operating agreement templates tailored to single- or multi-member needs.

• ClientBooks software with automation features for real-time bookkeeping.

• Dedicated CPA access for year-round tax planning and S corp election guidance.

• Audit protection and notice response support.

Our solutions scale with your business, providing the support and expertise you need at every stage.

Schedule a free, 30-minute consultation with one of our small business experts to map the smartest route for your business.

LLC FAQs

Can my spouse and I treat our LLC as a single-member?

Yes, you and your spouse can treat your LLC as a single-member. If you live in a community-property state and both spouses elect to file as a qualified joint venture, the IRS will accept Schedule C filings for each spouse.

Do both LLC types qualify for the §199A deduction?

Yes, assuming taxable income and wages qualify under current thresholds, you can take the QBI deduction, which is now permanent. 

How do I switch from single- to multi-member status?

Switching from one entity structure to another requires several steps. First, update your operating agreement, then admit the new member and issue units of stock. You must also notify the IRS by filing an initial Form 1065 the following tax year.

What happens if a member wants out?

If a member wants out, the process should be detailed in your MMLLC operating agreement. Follow the buy-sell terms in your agreement, which involve reallocating percentages and filing an updated Schedule K-1.

Are MMLLCs harder to dissolve?

A MMLLC is harder to dissolve than a SMLLC because it requires unanimous or super-majority consent and final Schedule K-1s. The process of dissolving a MMLLC is much more straightforward than winding down a corporation.

Conclusion & Call-to-Action

With shifting federal tax rules and other potential updates on the horizon, selecting the best entity structure for your operations has never been more critical. With guidance from 1-800Accountant's entity formation experts and year-round tax advisors, getting your business up and running the right way from the start has been easier. 

All it takes is scheduling a free consultation to get started.