For a single-member LLC, the taxpayer and the LLC are the same entity for tax purposes (unless the LLC elects to file its taxes as an S-corp). In that case, it does not matter how the car is titled. As long as the car is used 100% for business, 100% of the expenses are deductible as business expenses.
Where the difference comes in is not taxes, but the liability protection that is (theoretically) afforded by the LLC structure. This will depend on the laws of the state where the LLC is created, and every state may be different. I suppose friend #2 is thinking that if they get in a big accident with their car, the fact that it is titled to the LLC means they are personally protected from liability exposure--they could lose the business but not their personal assets. This may or may not be true in actual fact. But as far as the IRS is concerned, it doesn't matter whether a car used by a single member LLC is titled to the owner or the business.
For a multi-member LLC, where the LLC must file a form 1065 partnership return, the car should be owned by the LLC. Here, the LLC is a different tax entity than the members, and the car should be owned by the business so the costs are allocated to each member's K-1 statement. Alternatively, the car could be owned by a member, and the LLC can reimburse them under an accountable plan, for actual expenses or using the standard mileage rate.
