Multi-member LLC
Definition
A Multi-Member LLC is a Limited Liability Company that is owned by two or more people or entities. The owners are legally referred to as "members." The ownership structure and rules for resolving disputes are typically outlined in an internal document called an Operating Agreement.
Why it matters
The number of members fundamentally changes how the IRS taxes the business by default. While a single-member LLC is treated as a disregarded entity (sole proprietorship), the IRS automatically classifies a multi-member LLC as a partnership for tax purposes.
This means the LLC itself must file an informational tax return (Form 1065) every year. The LLC then issues a Schedule K-1 to each member, detailing their specific share of the profits and losses. The members use the K-1 to report the income on their personal tax returns.
Example
Alex and Ben start a software agency called "CodeBros, LLC" and split ownership 50/50. At the end of the year, the LLC makes $100,000 in profit. The LLC files Form 1065 with the IRS, and issues a Schedule K-1 to Alex showing $50,000 in profit, and a K-1 to Ben showing $50,000 in profit. Alex and Ben then pay taxes on that $50,000 on their personal tax returns.