Jump to Section
Need help with a Single Member LLC?
What is a Single Member LLC?
A single-member LLC is a limited liability company that is owned and operated by only one person. The owner of an LLC is referred to as a “member” of the LLC. Single-member LLCs, often abbreviated to SMLLC is a great option for someone who wants the freedom of a sole proprietorship with the liability protection of an LLC.
State laws vary on the formation and rules that apply to SMLLCs. Some states require a written operating agreement if the sole member of the single-member LLC is also acting as the manager of the LLC.
Single-member LLCs offer the same liability protection as multi-member LLCs and corporations. They are taxed similarly to a multi-member LLC unless the member elects otherwise and is approved by the IRS.
Click here to find out how the IRS classifies single-member LLCs.
How Single Member LLCs Work
Formation- To form a single-member LLC, the owner must complete several steps.
- The owner must file Articles of Organization with the Department of State in which the company will be operating. Some states call these formation documents a Certificate of Organization . Each state will require a filing fee with these documents.
- Although they are not usually necessary, it is a good business practice to prepare an operating agreement for your SMLLC. Some states will require a written operating agreement so it is important to know your local laws or consult with an LLC lawyer about what is required. The operating agreement is similar to corporate bylaws in that it will outline how your business will run and operate.
- The last step that is required for SMLCC formation is to appoint a registered agent . The registered agent is in charge of receiving legal documents and correspondence on behalf of the company. The registered agent is required to have a physical registered address.
Here is an article about expected operating agreement costs .
Disregarded Entity- Unless the single-member LLC elects to be taxed as a corporation, the IRS will designate the SMLLC as a disregarded entity. This means that the business is basically ignored for federal and sometimes state income tax purposes.
Taxes will be collected through the member's personal income tax return and the SMLLC will only be responsible for paying employment taxes if there are employees and certain use taxes.
Taxes- A single-member LLC has the option to elect to be treated as a corporation by the IRS for tax purposes. To accomplish this, the member must file Form 2553 , Election by a Small Business Corporation, with the IRS.
If the SMLLC does not elect to be treated as a corporation, it will be considered a disregarded entity. In this case, all of the SMLLC’s activity like profit and losses will be reported on the member’s personal tax return. The member will use Form 1040 or 1040-SR Schedule C to report the SMLLC’s activity.
Similar to a sole proprietorship, the member of an SMLLC is considered self-employed, not an employee of the company so the SMLCC is subject to self-employment taxes.
Advantages- A single-member LLC offers several advantages to members that a sole proprietorship does not. Some of those advantages include:
- An LLC is a legally separate entity from the owner. This provides the LLC member with asset protection and liability protection against debts and risks incurred by the company.
- Having the designation of “LLC” gives your business credibility and makes it more appealing to customers
- Once your LLC is registered with the state, your business name is protected and no other companies can use it.
Read this article for more information about how a single-member LLC works.
Single Member LLCs vs. Multi-Member LLCs
The most obvious difference between a single-member LLC and a multi-member LLC is that single-member LLCs only have one owner while a multi-member LLC has two or more owners. However, this isn’t the only difference. There are several aspects of running a business that must be considered when deciding between an SMLLC or an MMLLC.
- Ownership Structure- A SMLLC will only have one member while an MMLLC can have an unlimited number of members. Each ownership structure offers advantages and disadvantages. The member of an SMLLC has the freedom to run the business as they please without having to agree with other members. An MMLCC however can benefit from additional capital and more expertise from various members who can all bring something unique to the business.
- Management Structure- A single-member LLC is managed by the sole member. A multi-member LLC must choose if they will be member-managed in which all the members of the LLC participate in the management of the company or a manager-managed LLC in which a manager is appointed to run day-to-day operations.
- Liability Protection- Both SMLLCs and MMLLCs provide liability protection for the members of the LLC. In both business structures, the members are separate entities from the company so they benefit from asset protection. In some cases, however, owners can be held personally liable for certain business practices.
- Taxes- A SMLLC is treated as a sole proprietorship and an MMLLC is treated as a partnership (unless the company elects to be treated as a corporation). Both business structures are pass-through entities . All profits and losses will be reported on the owner's personal income taxes.
- Laws- Both business structures are subject to federal and state laws and are required to be compliant to continue operating legally. Generally, multi-member LLCs will have more complicated requirements.
Image via Pexels by ELEVATE
Are Single-Member LLCs similar to Sole Proprietorships?
Single-member LLCs are similar to sole proprietorships in that both of these business entities only have one owner. The main difference however is that in a sole proprietorship, the owner and the business are the same. In an SMLLC, the business is a separate legal entity from the owner.
Being a separate legal entity provides the owner of the SMLLC with liability protection that the owner of a sole proprietorship does not benefit from. If a lawsuit were to be filed against a company that is structured as a sole proprietorship, the owner could risk losing their personal assets like real estate, vehicles, and personal bank accounts.
If a lawsuit is filed against a single-member LLC, the owner only has to worry about losing what they have put into the business. In most cases, creditors cannot come after any LLC member’s personal assets.
Although SMLLCs benefit from liability protection, they are more complicated to establish and require more paperwork than a sole proprietorship. To establish an SMLLC, the owner must file articles of organization with the state and pay more expensive filing fees.
Both single-member LLCs and sole proprietorships are required to fulfill the following requirements:
- Obtain an EIN to open a business bank account and hire employees
- Apply for and obtain any necessary licenses and permits to operate the business
- Withhold payroll taxes from employee wages
Another similarity is that both business structures are taxed as pass-through entities. This means that the profits and losses for the company pass through the business and on to the owner. The owner is required to file all business activity on their personal federal tax return.
Who Needs a Single Member LLC?
Single-member LLCs are great business structure options for entrepreneurs who require liability protection due to the type of business they operate. An SMLLC works best for the following types of companies:
- Rental Properties- Entrepreneurs who are going to begin a rental property business will normally opt for an SMLLC due to the benefit of asset protection. LLCs offer owners flexibility to expand and grow all while protecting personal assets.
- Multi-Entity Structure- Some business owners will set up a “parent” LLC that owns the other SMLLCs. This allows for a consolidated tax return and provides additional protection as your wealth increases.
- A Start-up that may convert to a corporation- Because LLCs offer great flexibility to owners, it is easy to expand and grow the business. Once the company income reaches a certain level, owners can opt to restructure as an S Corporation.
Get Help Forming a Single Member LLC
Do you have questions about forming a single-member LLC and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from LLC lawyers and corporate lawyers who specialize in business formation.
Meet some of our Single Member LLC Lawyers
Creative, results driven business & technology executive with 24 years of experience (13+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. My engagements often include legal consultation & advisory roles, drafting of NDAs, TOS & Privacy Policies, contracts and corporate law, business strategy advice & consulting, in-house counsel, Founder & entrepreneur guidance and other roles as needed by my clients. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.
Seasoned technology lawyer with 22+ years of experience working with the hottest start-ups through IPO and Fortune 50. My focus is primarily technology transactions with an emphasis on SaaS and Privacy, but I also provide GC services for more active clients.
I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!
I am a NY licensed attorney experienced in business contracts, agreements, waivers and more, corporate law, and trademark registration. My office is a sole member Law firm therefore, I Take pride in giving every client my direct attention and focus. I focus on getting the job done fast while maintaining high standards.
A twenty-five year attorney and certified mediator native to the Birmingham, Alabama area.
Longtime corporate real estate counsel with specialities in commercial leasing, contracts, corporate governance, and general small business/startup/entrepreneurship legal issues.
I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.