What Type of LLC Should I Start? 8 Key Structures for Your Business

So, you’re starting a business. Maybe it’s a bakery, a real estate investment, a side hustle—or all three. But here’s a question that stops many new entrepreneurs in their tracks: What type of LLC should I form?

Most people know that an LLC is a business entity that combines features of a corporation and a partnership. An LLC offers limited liability protection and personal asset protection, shielding owners’ personal assets from business debts and obligations. However, far fewer understand that there are different types of LLC structures—and choosing the wrong one could leave you exposed to unnecessary risks or paying more taxes than you need to.

One of the main benefits of an LLC is its tax structure. LLCs are considered pass-through entities by the Internal Revenue Service (IRS), meaning they do not pay federal income taxes or business taxes at the entity level. Instead, profits and losses pass through to the owners’ income tax return, helping them avoid double taxation. LLC owners must pay taxes on their share of business income, which is reported on their personal income tax return. This pass-through taxation simplifies the process and is a key advantage over other business structures.

The LLC business structure is also flexible, allowing for single-member or multi-member ownership and various management options. It is important to have an operating agreement to define the management structure, member rights, and responsibilities, which helps prevent disputes and ensures smooth operation.

To form an LLC, you must register your business with your state’s secretary of state, file LLC formation documents with the Secretary of State’s office, apply for an employer identification number (EIN) with the IRS, and open a business bank account or business account to keep business and personal finances separate.

Let’s explore 8 types of LLCs, based on insights from business and tax attorneys Mark Kohler and Matt Sorenson, to help you pick the right one for your situation.

Introduction to Limited Liability Company (LLC)

A Limited Liability Company (LLC) is one of the most popular business structures for entrepreneurs and small business owners today. As a hybrid legal entity, a limited liability company llc combines the flexibility and simplicity of a partnership with the liability protection typically associated with corporations. One of the main reasons business owners choose an LLC is for personal liability protection—meaning your personal assets, such as your home or savings, are generally shielded from business debts and lawsuits. This separation between business assets and personal assets helps reduce the risk of personal financial loss if your business faces legal claims or financial difficulties.

Another major advantage of forming a limited liability company is its status as a pass through entity. This means that business income is not taxed at the company level; instead, profits and losses pass through to the owners’ personal tax returns, helping you avoid double taxation. The LLC business structure is also highly flexible, allowing owners to tailor the management and ownership structure to fit their needs. Whether you’re just starting out or looking to protect your growing business, an LLC offers a strong combination of limited liability, tax benefits, and operational flexibility.

1. Single-Member LLC for Rental Property

This is by far the most common LLC type—and for good reason.

It’s simple: one owner, usually you (or your trust). Income from the property flows directly to your Schedule E on your personal tax return. Single-member LLCs are treated as ‘disregarded entities’ for tax purposes, meaning the IRS ignores the LLC as a separate entity.

There’s no separate tax return required.

But here’s the key advantage: asset protection. If a tenant slips and falls or something goes wrong on the property, they sue the LLC—not you. Your personal assets are shielded. Opening a business account or business bank account is essential to keep your rental income and expenses separate from your personal finances, which helps maintain legal protections and simplifies accounting.

Pro tip: If you own multiple properties with significant equity, consider forming separate LLCs for each to avoid putting too much at risk in one entity.

2. Single-Member LLC for a Small Business (Sole Proprietorship)

If you’re running a side hustle or solo venture—like freelancing, an Etsy shop, or a landscaping gig—this LLC type gives you structure and legitimacy, and it should be paired with careful pre-launch business planning steps so you start on solid footing.

It’s taxed like a sole proprietorship, with income flowing to your Schedule C. However, a sole proprietor does not receive liability protection, so personal assets are exposed to business debts. Forming the LLC doesn’t give you special tax breaks by itself, but it creates a layer of professionalism and legal separation. Opening a business bank account is a best practice for separating business and personal finances.

Clients and vendors are more likely to trust a business that operates under a legal name rather than a personal one.

3. LLC Taxed as an S-Corporation

Making more than $50,000 per year in net income? It may be time to convert your LLC to be taxed as an S-corporation. This is done by making an S corp election with the IRS.

An S-corp structure allows you to reduce your self-employment taxes by dividing your income into two parts:

• A reasonable salary (which is subject to employment taxes)

• Distributions (which are not)

This setup is common among consultants, coaches, and other service professionals. You keep the LLC legal structure, but for tax purposes, you’re treated like an S-corp, and many owners also look for merchant services and business solutions providers that can scale with that growth.

Important note: You must pay yourself a reasonable salary or risk IRS penalties. But done right, this structure can save thousands of dollars annually.

As businesses grow, they can elect S-Corp taxation to potentially reduce self-employment taxes.

4. Multi-Member LLC (Partnership)

If you have a business partner, you need a multi-member LLC.

This structure requires filing a 1065 partnership tax return. Multi-member LLC owners are taxed like partnerships and must report their share of profits and losses on their personal tax returns, typically using Schedule E (Form 1040).

Multi-member LLCs are flexible and can be used for both rental property partnerships and operating businesses. Owners can also hold their interests through their own S-corps for enhanced tax planning. An operating agreement is especially important for multi-member LLCs to define roles, responsibilities, and procedures for handling business taxes and disputes.

5. Series LLC

For real estate investors or businesses managing multiple distinct assets, the Series LLC can be a smart solution.

You form one master LLC with the state, and then create internal “series” or sub-LLCs—each with its own bank account, records, and liability protection. This avoids the cost and complexity of setting up multiple individual LLCs.

Available in over 20 states including Texas, Illinois, Nevada, and Utah, this structure offers a cost-effective way to segment risk across assets. States tax each series separately according to state-specific laws. Series LLCs are especially popular among real estate investors for their ability to separate assets and liabilities.

6. COPE LLC (Charging Order Protection Entity)

While most LLCs protect your personal assets from business lawsuits, the COPE LLC flips the protection.

A COPE LLC is designed to protect your business assets from your personal liabilities. For example, if you’re personally sued due to an accident or personal debt, your creditor may not be able to force the liquidation of your business assets if they’re in a COPE LLC.

Wyoming is particularly known for strong COPE laws—even for single-member LLCs. This setup is recommended for individuals with substantial net worth or asset protection concerns.

7. IRA LLC (Checkbook Control LLC)

This structure is for investors using a self-directed IRA to purchase real estate, crypto, or other alternative assets.

Instead of waiting on your IRA custodian to approve each transaction, you create an LLC owned by your IRA that you control. You write the checks, you manage the investments.

This structure allows speed and flexibility, but must be managed carefully to avoid prohibited transactions. For the right investor, an IRA LLC is a powerful tool.

8. PLLC (Professional Limited Liability Company)

Many licensed professionals are required by law to form a PLLC instead of a regular LLC. A professional LLC (PLLC) is required for licensed professionals such as lawyers and accountants.

Doctors, lawyers, dentists, therapists, architects, and other regulated professionals must often comply with their state licensing board’s entity requirements. A PLLC allows professionals to form an entity together while protecting each from each other’s malpractice liability. A professional LLC provides liability protection and flexibility in management.

The PLLC is not about tax savings—it’s about compliance and risk management. Be sure to check with your state’s licensing board before forming your entity. The Internal Revenue Service does not recognize PLLCs as separate taxable entities, so tax treatment is similar to other LLCs. Always seek professional advice when forming a PLLC to ensure compliance with state and federal regulations.

LLC Management Structures

When forming a limited liability company, choosing the right management structure is a key decision that affects how your business operates day to day. There are two primary management structures for LLCs: member-managed and manager-managed.

In a member managed llc, all LLC members (owners) are actively involved in running the business. This structure is ideal for small businesses or startups where each owner wants a hands-on role in daily operations and decision-making. It’s a straightforward approach that keeps management simple and direct.

Alternatively, a manager managed llc appoints one or more managers—who may or may not be LLC members—to handle the business’s daily affairs. This setup is often preferred by larger companies or those with multiple owners who want to take a more passive role, focusing on big-picture strategy while leaving the operational details to designated managers and relying on transparent, small-business-friendly merchant services to handle day-to-day payments.

LLCs can also vary by ownership structure. A single member llc has just one owner and is typically treated as a disregarded entity for federal tax purposes, meaning the IRS ignores the LLC as a separate entity and taxes the owner directly. In contrast, a multi member llc has two or more owners and is taxed as a partnership, with income and losses reported on each member’s personal tax returns. There are also foreign llcs, which are LLCs formed in one state but registered to do business in another, each with its own compliance requirements, including setting up payment processing for small businesses that can operate across locations.

Understanding these management and ownership options helps business owners select the LLC structure that best aligns with their goals, involvement level, and tax planning needs.

Choosing the Right LLC Type

Each LLC type has a distinct purpose, and choosing the wrong one could cost you in taxes, liability exposure, or credibility.

• Starting a new business or side hustle? Begin with a single-member LLC for simplicity and legitimacy.

• Earning over $50,000 per year? Talk to a tax advisor about switching to an S-corp structure and, as you grow, compare VMS vs. Square for payment processing to keep your fees in check.

• Investing in real estate? Consider using multiple LLCs or a Series LLC to segment risk, and think about cloud-based tools like modern POS and management systems if you run on-site operations.

• Have significant assets? Look into COPE strategies for extra protection and be wary of offers like so‑called “free” POS systems and their hidden costs.

• Working in a licensed profession? Make sure your state allows you to form a PLLC.

LLC owners choose the state of formation and capital structure based on legal and financial advantages, such as favorable laws or tax benefits. Choosing an LLC structure depends on the number of owners, your industry, and long-term goals. You can choose to create an LLC in any state, even if the LLC won’t be doing any business there, and then select the best POS devices for small businesses to match how and where you actually operate.

Final Thoughts

LLCs are flexible, powerful tools—but only if you understand how to use them. With the right strategy, you can reduce risk, protect your wealth, and potentially save thousands in taxes, especially when paired with dependable 24/7 POS and payments support.

Mark Kohler and Matt Sorenson’s insights highlight a key point: structure your business wisely from the beginning. When making decisions about LLC formation, it’s important to seek professional advice to ensure your choices fit your unique situation. Don’t settle for a generic setup just because it’s easy or cheap. Choose the structure that matches your goals, risk level, income, and industry. LLCs also face fewer compliance requirements than corporations, making them easier to maintain, while smart tactics like receipt marketing as a $0 ad channel can stretch your new LLC’s budget even further.

For more insights like this, keep up with the VMS blog—where small business meets big tech without the fluff.