1. What is an LLC?
2. Single-Member LLCs
3. Single-Member LLC Taxes
4. Issues of Liability

Can an LLC have one member? Yes, a limited liability company with only one member is known as a single-member LLC. Choosing this type of business entity provides several distinct benefits. 

What is an LLC?

LLCs are a type of business entity that company owners can use to protect themselves from personal liability, including having their assets pursued to cover obligations and debts of the business.

There are also numerous tax benefits that result from forming an LLC, such as the following:

  • The ability to choose how your company will be treated.
  • Increased contribution limits to insurance policies and retirement funds.
  • The ability to lease personal assets to your LLC.

States first issued laws related to forming LLCs in the late 1970s, and when this business structure was first offered, having at least two members was a typical requirement. Traditionally, LLCs have functioned like partnerships, while providing the personal liability protections offered by corporations. If you form an LLC, your company can have as many owners as you wish, who will be called members. 

Single-Member LLCs

Every state in the country allows for the creation of single-member LLCs. You can also form these entities in the District of Columbia. However, if you choose a single-member LLC, you should be aware that you might not receive the full protections enjoyed by LLCs with multiple members. As you might expect, a single-member LLC is a limited liability company that only has one owner. Even with only one member, this type of LLC provides the same benefits of multiple-member LLCs.

A single-member LLC's owner is not an employee and they will not receive a salary. When the owner of the single-member LLC needs to cover personal expenses, he or she can take this money from the business. Similarly, the owner of the LLC will invest his or her own money into the company whenever it is needed. For the purpose of taxation, the owner and the LLC are considered distinct entities.

A single-member LLC is considered a legal business, and the name of the company should include a designator such as “LLC.” Registering a business name is an important part of forming a single-member LLC. Because establishing a single-member LLC requires following a variety of regulations, they are seen as more credible than sole proprietorships

Single-Member LLC Taxes

In terms of federal income taxes, the IRS considers single-member LLCs to be a disregarded entity. Because a single-member LLC has disregarded entity status, it can declare profits and losses on the owner's personal income return, Schedule C forms, or the 1040 form.

Since 2009, single-member LLCs have been required to obtain an employer identification number (EIN) from the IRS. Single-member LLCs are also required to collect and pay employment taxes, as well as excise taxes. As a disregarded entity, a single-member LLC will be taxed the same way as a sole proprietorship.

A variety of state and federal taxes apply to single-member LLCs. However, their method for paying these taxes differs from other business entities. Owners of single-member LLCs are regarded as self-employed, meaning they do not count as employees of their business. Because of their self-employment status, owners of single-member LLCs must pay a self-employment tax for both Medicare and social security, which will be based on their company's net income.

When a single-member LLC is considered a disregarded entity, the owner must fill out a W-9 form for independent contractors and use their personal tax identification number when filing taxes. 

Issues of Liability

As mentioned, an LLC will protect its members from being held personally responsible for company debts. This is important because it shields owner's private assets during lawsuit judgments. However, in some cases, it's possible for a court to find that an LLC member is responsible for the debts of the company. This is known as piercing the corporate veil.

There are limited conditions when the corporate veil can be pierced. For example, if it is found that a member of the LLC has committed fraud, the veil will be pierced and the member can be held liable. It is much easier for the corporate veil of a single-member LLC to be pierced than it is for a multi-member LLC. If this occurs, the business owner is responsible for all debts and obligations of the LLC.

If you need help deciding if you should form a single-member LLC, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. 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.