How to distinguish between a 1-member and 2-member limited liability company?
By Hoa Nguyen
06/12/2024
Single-member LLCs and two-member LLCs are both popular business entities, but there are important differences. This article will detail the differences in management structure, legal responsibilities of members, as well as ways of raising capital and making decisions, helping you choose the type of business entity that best suits your business needs.
How to distinguish between a 1-member and 2-member limited liability company?
1. Similarities:
According to Enterprise Law 2020, a single-member LLC and a two-member LLC have the following basic similarities:
- Both have legal status from the time of being granted the Certificate of Business Registration;
- Members are only liable to the extent of their capital contribution.
- Ability to adjust the increase or decrease of charter capital;
- No mandatory requirement to establish a supervisory board;
- The procedures for business registration, bankruptcy and dissolution are all similar;
- It is not allowed to issue shares, unless the LLC converts into a joint stock company.
2. Differences:
A single-member LLC and a multi-member LLC differ in characteristics such as the number of members, organizational structure, responsibility for capital contributions, and the process of increasing and decreasing charter capital. The table below details the differences between the two types of companies:
Criteria | One member LLC | Limited liability company with 2 or more members |
Number of members | A single-member LLC is owned and contributed by one individual or one organization. | A 2-member LLC has from 02 to 50 members contributing capital and being joint owners. |
Increase, decrease charter capital | A single-member LLC increases its charter capital through the owner's own capital increase or by mobilizing additional capital from others. The owner has the right to decide on the form of charter capital increase. | A limited liability company with two or more members increases its charter capital by increasing the capital contribution of members or accepting additional capital contributions from new members. The company reduces its capital by buying back the capital contribution of members. |
Right to transfer capital contribution | The owner of a single-member LLC has the right to transfer part or all of the company's capital contribution. | In a limited liability company with 2 or more members, a member transfers capital by selling all or part of the capital contribution to another member. If after 30 days the transferred capital is not purchased or not fully purchased, the owner of that capital contribution has the right to transfer it to a third party who is not a member of the company. |
Organizational structure | A single-member LLC is not required to have a Board of Members. In the case of a company owned by an organization, the organization shall be managed according to one of the following two models: Company Chairman – Director/General Director or Board of Members – Director/General Director. | A limited liability company with 2 or more members will have a Board of Members, Chairman of the Board of Members, Director/General Director. |
Responsibility for capital contribution | The owner of a single-member LLC is fully responsible for the debts and other financial obligations corresponding to the charter capital of the company. | Members of a limited liability company with two or more members are responsible for debts and property obligations within the scope of the capital they have committed to contribute to the company. |
Thus, the basic difference between a single-member LLC and a two-member LLC lies mainly in the number of members. If an individual or organization wants to maintain the sole position of owner, they should choose a single-member LLC. On the contrary, if they want to raise more capital and have diversity in management, a two-member LLC is a more suitable choice.
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