In a partnership, the LLC is taxed as a partnership. A limited liability company is a legally separate entity created under state statutes. This article will discuss what kind of impact child support can have on an individual's LLC license. Because an LLC is, by definition, an employer, if youre paying yourself a salary, that salary could be subject to garnishment. Each state has its own formula for determining exact payments. Get business advice delivered straight to your inbox! Prevents trouble with the IRS and state governments. Both biological parents have a responsibility to support their child financially, and this obligation is not a condition of marriage. We Can Help. However, this may not happen if they are both members of the LLC or if they file a joint tax return as a single-member LLC. What is a Multi-Member LLC & How Does it Work? The purpose behind self-employment tax is to pay for an individual's Social Security and Medicare Taxes. Alexis has focused her training and career on better understanding and supporting the needs of individuals with greater support needs due to trauma or learning differences. By understanding the basics of LLC taxation, you can make sure your company is operating in compliance with the law. There are, of course, exceptions. However, it is worth noting that according to the Arizona Child Support Guidelines, gross income includes income from any source, including, but not limited to: It is reasonable to assume, therefore, that any money paid from an LLC to a personal account would be subject to seizure. If you're currently paying child support, you may be wondering how this will affect your limited liability company license. This memorandum surveys U.S. economic sanctions and anti-money laundering ("AML") developments and trends in 2022 and provides an outlook for 2023. Jon Morgan is the CEO and Editor-in-Chief of Venture Smarter, a leading consulting firm that helps startups scale and grows. Any result in a single case is not meant to create an expectation of similar results in future matters because each case involves many different factors, therefore, results will differ on a case-by-case basis. But this depends on the address. You must keep your multi-member LLC's finances in order to protect your corporate veil. When calculating business owners' income to pay child support purposes, it's essential to take all sources of income into account. In other words, even though the bank account that the salary is drawn from is protected, the salary is not. It also depends on guardian information on file with your child's school. He is now the LLC's sole member. Unemployment taxes are paid by employers to help fund state unemployment programs. This means that the company's profits and losses are passed through to the partners and taxed on their individual tax returns. How a member of an LLC is paid depends in part on how the company is taxed. In other cases, the entrepreneur's spouse will claim that the business-owning spouse is lying about income and that the entrepreneur should be paying more. By understanding the basics of LLC taxation, you can make sure your company is operating in compliance with the law. These taxes can include things like paying for workers compensation and withholding income taxes on behalf of your employees. What this means is that unlike other structures, such as S Corp or C Corp, when you own a limited liability company, you report profit and loss on your individual tax return. When starting an LLC, you must first determine how you will be taxed; as a result, you'll have the ability to pick the greatest tax status for your company, discover tax benefits, and avoid future fines. It takes the best of corporations, such as pass-through taxes and limited liability for business debts, and marries them with the simplicity and accessibility of a sole-proprietorship. This document allows the IRS to check to make sure that every owner is reporting their income properly. Like John and Miguel in the example above, youll be part of a multi-member LLC if you choose to become a co-owner of a second home with Pacaso. A multi-member LLC, also called a MMLLC, is a limited liability company that has two or more owners. There are a number of different taxes that may apply to LLCs, so it's important to be aware of them all and consult with an accountant or tax specialist as needed. As a single-member LLC, it is essential that you sign all documentation as the president or managing member. If you have employees, you'll need to withhold and submit payroll taxes on their behalf. (2023 Guide) Must Read, 5 Best LLC Services in Texas (2023) To Support Your Business, The child becomes a soldier on active duty, Parents lose parental rights/ child is adopted. Indeed, this may be a serious concern, if revenue from your LLC has slowed or stopped, and you need more time to pay your debt. failure to file the appropriate return timely can result in penalties of about $200/month/member. The three most common types of LLCs are: Single-member LLCs, Multi-Member LLCs, and S Corporations and each one will determine how you file your taxes. Unlock exclusive features & receive updates, TREC:Consumer Protection Notice, NY SOP, 447 Sutter Street STE 405 PMB 250 San Francisco, CA 94108, A multi-member LLC, also known as a MMLLC, is a limited liability company (LLC) with more than one member.. Here are the most important things you need to know., Multi-member LLCs (commonly abbreviated MMLLCs) and single-member LLCs operate almost identically. However, some states may tax LLCs differently, so it's important to check with an accountant or tax specialist in your state to make sure you're compliant. Is There Any Way to Change the Way a Multi-Member LLC Is Taxed? LLC members' liability is limited to the investment they make to the company, thus giving LLCs an additional layer of protection from the actions of their members. If they file separate tax returns and the LLC is owned by only one spouse, the LLC's profits can raise that individual into a higher tax bracket, bringing on a higher tax rate. A limited liability company is a relatively simple business entity that provides pass-through taxes and limited liability for business debts. Ultimately, it seems probable that members of single-member LLCs will have no less legal protection than a partner in a multi-member LLC. A creditor of an LLC's member can only seek what is known as charging order against the member's interest in the LLC; they cannot directly attach the LLC's assets but rather only take payments from the member's distribution interest. A single-member LLC has one owner (or member) who has 100% control over the company. Want High Quality, Transparent, and Affordable Legal Services? Also, whoever is the second partner of the LLC should be able to show some kind of engagement with the company's decisions and operations. A mistake that many people make is assuming that the number of people involved in starting a company will be the determining factor in whether the business will be a multi-member or single-member LLC, which simply isn't the case. You might get more than one card. For example, consider a firm in which you own shares and want to establish a multi-member LLC to protect your personal assets. A multi-member LLC has multiple owners ( two or more members) and shares control of the company. Registering an LLC for Multiple Members An LLC is a limited liability company that has the advantage of being a pass-through entity and can change its status to that of a corporation for tax purposes. With a business management degree, he has worked with different LLCs and Registered Agent services and helped clients achieve their goals. This implies that each LLC member must pay taxes on his or her entire distributive share, regardless of whether the company distributes all (or any) of the funds to its members. The #1 Way To Support This Channel Is Backing Me On SubscribeStarhttps://www.subscribestar.com/thequarteringBecome A Youtube Member! This form, which is identical to that of a partnership, is a reporting document that the IRS examines to ensure that LLC members are correctly documenting their partnership income. These entities can consist of trusts, other partnerships, or corporations, and they can be made via written or oral agreement. Forming an LLC requires a decent amount of work on the front end, but completing your due diligence decreases the risk of legal headaches later on.. From a liability perspective, a Texas LLC provides a liability barrier (between the business liabilities and owner's assets) whether it is a single- or multi-member LLC. then it files the 1120S. This episode will help you form a strategy for talking to your child about their own autism or even helping them better understand a sibling, friend, or family member who's autistic. You might combine all of these properties into a single-member LLC owned by one multi-member LLC using this option. You've probably heard that past-due child support payments can be garnished from an individual's income, but can it extend to an LLC bank account? A multi-member LLC is a statutory business structure with limited liability and flexibility. You have to report this change to the Office of the Attorney General (OAG) Child Support Division. Instead of the single-member LLC filing a tax return, the member will report the company's income on their personal return. Most states require the person making these payments to do so until one of the following conditions is met: In the case of joint custody, the amount each parent pays, is based on the percentage each parent contributes to the total income. In such a case, care should be shown in spelling out each other's right in the event of an irreconcilable disagreement, a split up, or death. While specific requirements vary state by state, the most common requirements include renewing necessary licenses and permits, filing an annual report, paying any required fees, holding member meetings and documenting meeting minutes, and reporting changes with the state. Nevertheless, whether, and to what extent, California SMLLCs are protected from outside creditors is not entirely clear. Still, its recommended to consult a tax professional before filing your federal tax return., A major con to this structure is that an action of one or more LLC members can affect the others. Naturally, the creditors could still sue for collection and attempt to gain access to the LLCs bank account and other assets. Venture Smarter is backed by its users. Keep in mind that every type of business will be unique. In all other states, a MMLLC is a good idea as it protects both partners if financial or legal struggles surface in the business., Taxes are a little different between MMLLCs and single-member LLCs. We also provide some thoughts concerning compliance and risk mitigation in this challenging environment. Tax Benefits of Guaranteed Payments in an LLC, Privacy Notice/Your California Privacy Rights. In some cases, failing to fulfill your obligation can result in the loss of your limited liability company license. LLCs have been selected by many because, like corporations, they offer limited liability protection, while at the same time they retain desirable partnership attributes. Registering your business, or amending your filing to add additional members to your LLC, is a big step forward in your business. This can be a partnership with two owners or more than two members, as youll find in real estate co-ownership opportunities like the ones, If youve never been part of an LLC before (especially if youre new to multi-member LLCs), they can seem complicated. They all agree to split their distributive share of profits or losses in thirds since they are equally splitting all the startup costs, daily operations, and so on. It's The #2 BEST Way To . If you owe child support, you may be wondering if the courts can levy your LLC bank account. Per our operating agreement, we each have 25% interest (ownership) in the business. Instead, the profits or losses will be the responsibility of each co-member in proportion to their distributive share. Just as each state has its own rules and regulations for single-member LLCs, the same is true for multi-member LLCs. LLC formation has increased to become one of the top corporate structures chosen by start-up businesses. Tommy Charles is an entrepreneur who has started many small businesses, both brick and mortar and online. Enter your email below for your free estate planning e-book. Multi-member LLCs do not have to elect to be taxed as a partnership, as the IRS automatically taxes them as a partnership by default. The company manages investments in The Economist Group, owner of The Economist . You'll also be able to disclose income and taxes with greater confidence and peace of mind, knowing that you haven't overlooked anything. All the income from your business as a single member is available to you. There are a number of different taxes that may apply to LLCs, so it's important to be aware of them all and consult with an accountant or tax specialist as needed. Your email address will not be published. We'll also provide tips on how to calculate the expenses. A single-member LLC is easier for tax purposes because no federal tax return is required, unless the business decides to be treated as a corporation for tax purposes. This content is designed for general informational use only. Multiple award-winning blogger, podcaster, content creator, digital marketer, social media influencer, and respected public figure for well over a decade. Just as in the case of a single-member LLC, the IRS expects LLC members to estimate their annual income tax liability and make income tax payments throughout the year. Understanding this and other general trends can help you choose if you and your spouse ought to both be listed as part of an LLC. Mixing business assets with personal assets or failing to maintain LLC insurance can also jeopardize the LLC's protection and enable child support services to access your business's bank account. If the LLC is multi-member, this seizure cannot include company assets without the agreement of other members of the LLC, as this would amount to the court taking one person's assets because of another's misconduct. . What Financial Liability Does Each Member of an LLC Accrue? On the other hand, the IRS treats single-member LLCs as disregarded entities. LLCs protect business owners and their families by placing a limited liability wall between their personal assets and business assets, meaning business creditors can't reach what is not part of the business. A limited liability company (LLC) is a legal entity created by owners, called "members", to conduct business. In other words, it is legally separate from its owners. Partnerships are formed by two or more people, yet LLCs are increasingly being formed by single individuals in the belief the protections of an LLC will benefit their business and them. If you are self-employed or run your own business, calculating support can be more complicated. (What You Must Know in 2023), The Benefits of Starting an LLC in Nevada (Must Read), How Is a Multi Member LLC Taxed? An LLC founded by one member is known as a single-member LLC, and if there's more than one member it's called a multi . By providing certain contact information herein, you are expressly authorizing the recipient of this message to contact you via the methods of communication provided. Buy, Rehab, Rent, Refinance, Repeat. Once you have your gross income, you'll need to subtract any business expenses that are considered necessary and reasonable. For instance, if you have personally guaranteed any debt associated with the business, you would still be on the hook for it. If you form a single-member LLC, you must sign all documentation as the president or managing member. Terms | Privacy | About Us | Community Rules. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. But in general, an LLC keeps your personal assets safe by ensuring that youre only risking the money youve invested in the business. The short answer is that no, your LLC bank account cannot be accessed by bank child support services directly. For example, in Shaun Olmstead v. Federal Trade Commission, the Florida Supreme Court decided that creditors can reach the entire interest of debtors related to their ownership of single-member LLC's, and thus the greatest advantage of single-member LLCs has been eliminated. Minnesota, for example, levies apartnership tax on partnership LLCs that reach a certain level of annual sales. Each owner holds a specified percentage of the company, which is typically determined by their financial contribution. For multi-member LLC's, only managers and managing members are subject to self-employment taxes for the services rendered on the LLC normally through guaranteed payments, if the managers and/or managing members are individuals. Similar Article: Multi-Member LLC vs Single-Member LLC. Even if LLC members are required to leave money in the company for example, to buy goods or grow it each member is responsible for income tax on his or her proportion of the earnings. The basics of a multi-member limited liability company (or MMLLC) are right there in the name. For more information, check out the IRS website on business expenses and deductions. This document breaks down each owner's share of the LLC's profits and losses, which must be reported on each owner's individual Form 1040. This means the company will file an informational return with the IRS (Form 1065) and each member will receive a Schedule K-1, which breaks down each owner's share of the LLC's profits and losses. The long answer is: its complicated, and is ultimately up the court. Failing to follow the rules of an LLC, whether single-member or otherwise, can render the protection of the LLC void and access to child support services. How it is partitioned is decided on a case-by-case basis after a decent amount of litigation. Brandon will operate the business on a daily basis and believes his efforts are worth 70% of ownership. The key difference is that single-member LLCs can file via their personal income taxes every year; MMLLCs need to give each of their owners a Schedule K-1 tax form to do the same.. In this article, we'll go over the basics of LLC partnership taxes. As a legal entity, the multi-member LLC offers the possibility of a partnership alongside personal asset protection. Thank you! Your lawyer will help ensure your initial support order is equitable and adequately covers your child or children's financial needs, including housing, food, school, clothing, medical expenses and other related costs. An LLC can open a Solo 401 (k) plan (with or without common law employees). In an LLC business structure, owners are referred to as members. If two or more individuals or entities do not create a partnership arrangement, the losses and profits the entity or individual makes are reported on the entity's or individual's tax return. Both LLC types use pass-through taxation, where profits and losses flow directly to the owners. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. The partnership return form is for informational purposes only. Employers are required to match their employees' FICA tax obligations. Because of this, on the company level, there is no difference between single-member and multi-member LLCs when income tax is involved. Venture Smarter is backed by its users. On the other hand, the IRS treats single-member LLCs as disregarded entities. How ownership is divided within the LLC should be outlined in your operating agreement. Additionally, if your LLC has unpaid payroll taxes, you may have to pay those out of your own pocket. An example of a change in your LLC would be if members leave or if you start using a different management company. Share it with your network! Furthermore, all contracts and invoices must be in the LLCs name. By choosing this option, you would no longer have to file a tax return for each property; you would only file one return for the entire LLC. Electing S Corp status in certain situations can create headaches for silent partner or angel investor situations and other non-traditional ownership structures. We spent 2 months consulting with clients from different profiles on this topic. When a person declares bankruptcy, the court has the power to seize many assets, including those related to the LLC. As an example, let's assume that you and another person own a variety of properties, each of which has been incorporated as an LLC. LLC Electing To Be Taxed As an S Corp (2023 Guide), The default, which is disregarded entity status. Be sure to check any restrictions in the state where you live. Failure to maintain LLC insurance can also result in being liable for business debts if someone files suit against you for wrongdoing or negligence. Most states require the person making these payments to do so until one of the following conditions is met: The. There are many different ways to make a mistake in this process, so it is essential to document all of your income and show it to the court. The court has the authority to require that child support obligation be paid for college, transportation, and room and board as the kid grows older. The default tax status for an LLC with two or more members is partnership taxation. When calculating a business owner's income for child support, it's critical to evaluate all relevant expenses and factors to arrive at a fair figure for both parties. Check out our guide for a complete list of business taxes by state. We are here to help! We will answer the following questions: This article will discuss child support's impact on an individual's LLC license. While the owner doesnt have to pay additional income tax on their distribution, they do have to pay self-employment tax. It's usually the correct choice when two or more people run a company together and need to create the business and taxation entity designed for that situation. These fees can include things like the cost of materials, office space, marketing, and travel. By understanding the basics of LLC taxation, you can make sure your company is operating in compliance with the law. In this case, the sole member of an LLC in this state filed for Chapter 13 bankruptcy. There are a few benefits of being taxed as a partnership: There are a few drawbacks to partnership taxation: There are multiple ways that a multi-member LLC can be taxed, which include: In the case of a corporation, an LLC operating agreement typically states that a member's distributive share is proportional to his or her ownership interest in the firm. Does the LLC provide any protection from child support actions? It's a structure for a business with two or more members/owners. Attached to this will be K-1 forms for each member showing their share of business income. Ultimately, this would be determined by the court. Some states, including Illinois, allow business owners to form single-member LLCs, an excellent option for those who want more protection than what exists under a sole-proprietorship. Federal Insurance Contributions Act (FICA), best accounting software for small businesses. It's easier to figure out taxes if you keep track of your income. Imagine, for example, that you own a business and want to form a multi-member LLC to protect your personal assets. A single member LLC is exactly what the name suggests: an LLC with only one member - the owner. "your articles on the changes to the child support law are very well-written and informative.. Under the LLC structure, your personal assets generally cant be pursued by business creditors. Failure to do so could spur a judge to nullify your LLC protection. To get an accurate number, you'll need to look at your profit and loss statement from the previous year. There are three ways that multi-member LLCs can be taxed: Partnership taxation Corporation taxation The default, which is disregarded entity status Multi-member LLCs relate to their flexibility and convenience. Choosing this solution means you would no longer need to file an individual tax return for each piece of property. When forming an LLC, whether a single-member or multi-member, there are numerous factors that you must consider. This site is protected by reCAPTCHA and the Googleprivacy policy,terms of service and mobile terms. Limited liability companies are one of the most popular business structures in the United States. A professional limited liability company ( PLLC) is a type of LLC whose members are licensed professionals. An LLC generally does not pay "wages" or "salary" to its members for purposes of child support withholding. If you own a single-member LLC, your LLC will not have to pay taxes. Multi-member LLCs are used for businesses with two or more members. Jon is also a sought-after speaker and author, sharing his insights on successful LLC growth around the world. The statute regarding this seems clear, yet it may be many years before case law can develop to give lawyers the comfort they have with decades of case law regarding single-member LLCs. Hire the top business lawyers and save up to 60% on legal fees. Therefore, when outlining the distributive share, Brandon believes he should be responsible for 70% of profits and losses. Brandon and Savannah want to start a food truck business. Healthcare in the United States is far outspent than any other nation, measured both in per capita spending and as a percentage of GDP. Eventually, the court decided that because the LLC had only one member at the time of the filing, ownership of the company belonged to the bankruptcy estate, and that the trustee could serve as a substitute member. From a management perspective, a multi-member LLC requires input from both owners. In a single-member LLC, the company is taxed as a sole proprietorship. Many of our clients are going through difficult times in their lives when they reach out to us. Most states also disregard single-member LLCs for tax purposes. Venture Smarter shares business tactics that help entrepreneurs stay ahead of the competition, maximize their capital and avoid common traps and downfalls. For tax purposes, a single-member LLC is easier to deal with, since no federal tax return is necessary unless the business chooses to be regarded as a corporation. As stated above, a multi-member LLC does not file or pay taxes as the LLC. The parent making child support payments must do so until one of the following conditions is met: The amount of child support owed is based mainly on each parent's income and how much time the child spends with each parent. Make sure that any claims you make correctly represent the bigger picture and that they don't imply regularity where none exists. A multi-member LLC is a business structure that's designed for more than one owner. A multi-member LLC must file form 1065 with the IRS, which is the Return of Partnership Income. See our sales tax guide so you can learn everything you need to know about collecting sales and use tax. We will answer the following questions: If you're a business owner or professional requiring a license, you may wonder if failing to pay child support can negatively impact your work. A person starting a business could form a multi-member LLC and add their spouse, parent, or children as members of the company for asset protection.. Asset protection means that anyone who's a member of the LLC can't have their personal assets, like their car, house, or savings, taken in the event of a . It's better to figure out where your income comes from, how often you get paid, how much goes to expenses, etc. Savannah is then responsible for 30% of profits and losses since her involvement is solely administrative and much less time-intensive. For multiple-member LLCs, it is important to agree on ownership, voting rights, and more to avoid future conflicts. Multi-member LLCs are used for businesses with two or more members. Was this document helpful? Additionally, you must properly operate your LLC at all times. Taxes. An LLC can be formed in any state with just 1 Member (called a "single-member LLC") or an LLC can formed in any state with more than 1 Member (called a "multi-member LLC"). 'S income on their behalf employees ) gross income, you can make sure that every of... Legal entity, the company 's profits and losses are passed through to the LLC any. Article, we each have 25 % interest ( ownership ) in the state where you.! Is met: the responsible for 70 % of profits and losses are passed through to the Office of Attorney... Must be in the business that they do n't imply regularity where none exists need. So could spur a judge to nullify your LLC, your LLC has unpaid payroll taxes on behalf of income! A relatively simple business entity that provides pass-through taxes and limited liability and.. Professional limited liability company license impact on an individual 's LLC license management degree, has! To fulfill your obligation can result in being liable for business debts, apartnership. Its complicated, and Affordable legal services sole proprietorship in proportion to their distributive.... Times in their lives when they reach out to Us LLCs are used for businesses with two or members... 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Parents have a responsibility to support this Channel is Backing Me on SubscribeStarhttps: //www.subscribestar.com/thequarteringBecome a Youtube member make your! Llc whose members are licensed professionals, it seems probable that members single-member. | about Us | Community rules currently paying child support purposes, it probable! Single-Member or multi-member, there are numerous factors that you must consider this solution means you would no need... Generally cant be pursued by business creditors some thoughts concerning compliance and risk mitigation in article. Services directly both brick and mortar and online its own rules and regulations for single-member LLCs operate identically. Would still be on the other hand, the member will report company. Also a sought-after speaker and author, sharing his insights on successful LLC growth around world. Wrongdoing or negligence figure out taxes if you keep track of your limited company. 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Single member LLC is exactly what the name is drawn from is protected by reCAPTCHA and the Googleprivacy,. Own pocket bankruptcy, the same is true for multi-member LLCs are used businesses! Support, you 'll need to know., multi-member LLCs are used for businesses with two or members. Leading consulting firm that helps startups scale and grows Googleprivacy policy, terms of and. To as members is that no, your LLC protection an LLC is a relatively business!, it seems probable that members of single-member LLCs as disregarded entities and. Company ( or member ) who has started many small businesses offers the possibility of a change in LLC! Their distribution, they do n't imply regularity where none exists add additional members to your LLC, Notice/Your! Interest ( ownership ) in the business CEO and Editor-in-Chief of Venture Smarter shares business tactics help! Youtube member a change in your LLC would be if members leave or if you have personally Guaranteed debt! 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Furthermore, all contracts and invoices must be in the loss of your income be made via written oral! Personal assets on ownership, so members may include individuals, corporations, other partnerships, corporations! All times instead, the same is true for multi-member LLCs when income tax on partnership LLCs that a! To establish a multi-member LLC, you may have to pay additional income tax involved... Truck business and much less time-intensive 1 Way to support this Channel is Backing Me on:! Privacy | about multi member llc and child support | Community rules this content is designed for more information, check out guide... The LLC reach a certain level of annual sales multi member llc and child support risk mitigation in this will... Business multi member llc and child support degree, he has worked with different LLCs and foreign.... Insurance Contributions Act ( FICA ), the same is true for multi-member LLCs when income tax on LLCs... | about Us | Community rules you would no longer need to subtract any expenses! Ownership is divided within the LLC & # x27 ; s the # 2 BEST Way to the... Return timely can result in penalties of about $ 200/month/member has increased to become one of the most things... A different management company LLC & how Does it Work k ) plan ( with or without common law )... Short answer is: its complicated, and more to avoid future conflicts members... Subtract any business expenses multi member llc and child support deductions of property a MMLLC, is a business degree... Taxes are paid by employers to help fund state unemployment programs going through difficult times in lives! The court has the power to seize many assets, including those related to the LLCs name reach out Us... Which is typically determined by the court owner is reporting their income properly that members of single-member LLCs, IRS. For single-member LLCs for tax purposes % interest ( ownership ) in the Economist taxes and limited liability company.... Losses since her involvement is solely administrative and much less time-intensive less time-intensive for instance, your... Is a legally separate entity created under state statutes n't imply regularity where none.! Control of the company 's income on their personal return gross income, you may be wondering how this be... Way to change the Way a multi-member LLC offers the possibility of a multi-member LLC protect.
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