On this page · 6 sections
| Single-member | Multi-member | |
|---|---|---|
| Federal tax | Disregarded: the owner is taxed directly | A partnership: it files a return and allocates profit to the members |
| Yearly federal filing | Form 5472 with a pro forma Form 1120 | Form 1065, with a Schedule K-1 for each member |
| Due, for a calendar year | 15 April | 15 March |
| If it's late | A $25,000 penalty for a missing Form 5472 | $255 a month for each member, for up to 12 months |
| Form 5472 | Yes, every year | No, a partnership doesn't file it |
| Withholding | None on income from work done abroad | On foreign members' shares, but only of income connected with a US business |
| Tax form for US clients | The owner's W-8BEN | The company's W-9 |
| Operating agreement | Short, but banks still ask for it | Settles ownership, management, payouts and exits |
| Adding an owner | It becomes a partnership from that date | Amend the agreement and add a K-1 for the new member |
| State filings in Wyoming and Delaware | The same | The same |
A partnership files Form 1065 each year by the 15th day of the third month after its year ends, which is 15 March for a calendar year, or later with an extension on Form 7004. It gives every member a Schedule K-1 showing their share of the profit. Each member then reports that share where they're taxed, usually at home for founders abroad. Multi-member LLC taxes walks through the forms.
Withholding on foreign members applies only if the partnership earns income connected with a US business, which a partnership whose work happens abroad usually doesn't. The multi-member guide covers the forms if it does.
With one owner, the agreement records that there's a single owner, that the company is separate from them, and how it would be closed. With two or more, it has to settle the things co-owners otherwise argue about: the ownership split, who manages and signs, which decisions need a majority and which need everyone, how and when profit is paid out, whether a member can sell their share and to whom, and what happens if a member leaves, dies or stops contributing. Make sure yours covers each of these.
Every owner of 25% or more is identified with a passport and proof of address. Banks and payment processors ask which members can sign, and the operating agreement answers that. The tax form US clients and marketplaces ask for follows the table above: a W-9 from a partnership, a W-8BEN from a single owner abroad.
When a single-member LLC takes on a second member, it becomes a partnership for federal tax from that date. The operating agreement is amended, the new member is identified to the bank, and the tax year is split: Form 5472 with a pro forma Form 1120 for the part before the change, and a partnership return for the part after. In Wyoming and Delaware nothing is filed with the state, since members aren't on the articles. Tell your accountant the date when it happens, because a split year is routine if they know in advance and awkward if they find out in April.
Founders sometimes add a co-owner for a reason other than ownership: a spouse for inheritance, a friend to reassure a bank, an investor on a promise. Each one turns the company into a partnership, with everything above, and a co-owner is a co-owner whatever the reason. If the point is inheritance, the operating agreement can say what happens when you die without adding anyone now. If the point is investment, an investor in an LLC is a member with the rights the agreement gives them, and that's a conversation for a lawyer.
Sources
Checked by Saais Patel against these official pages.
Next in Starting out:Member-managed or manager-managed: who runs the LLC, and why a bank cares