Updated November 23, 2020:

Single-Member LLC

A single-member LLC is a way you can set up your business that provides you with some limited liability protection than you would receive with a sole proprietorship.

What is a Single-Member LLC?

A single-member LLC is one of the most common forms of small business in the United States. A limited liability company (LLC) is often partnerships with additional liability protection. A single-member limited liability company is an LLC with one owner. The word single-member recognizes that the LLC has one owner, also known as a member. Single-member LLC is registered in the state where the company does the bulk of its business.

Many states do not allow anyone to form a single-member LLC. The IRS considers these LLCs as disregarded entities and will tax them as a sole proprietorship.

Since LLCs were created to be partnerships, the IRS only agrees to recognize single-member LLCs with the condition that you have to abide by some partnership rules.

Activities of a Single-Member LLC Owner

An owner will take cash from the business for any personal expenses and does not get a salary. He or she is not considered an employee. He or she will put cash into the business as it is needed. The bulk of the funds contributed to the LLC will come from the owner’s personal finances.

Advantages of a Single-Member LLC

A SMLLC is formed in a single state. Part of being approved is the registration of the business’ name. No other company may have the same name. Although sole

proprietors can register a business name with the state, it is a different process.

Much like traditional LLCs, single-member can choose to be taxed like a corporation. You can continue to report your self-employment income on a Schedule C since you are a disregarded entity. This will save money on your tax preparation costs.

There are no minimum tax fees for a single-member LLC. In states with high minimums for traditional LLCs, you can save a lot of money.

A single-member LLC is easier to manage than a traditional LLC. It continues to offer many benefits of limited liability, such as the minimum regulatory requirements.

Both single-member and multiple-member LLCs do not have to have directors or officers or hold re-elections. There are also no annual meetings of the board and stockholders.

It is rather simple to change a traditional LLC or S corporation to a single-member if you want to have a retroactive election to avoid self-employment taxes for the year.

Although there is no liability protection, the single-member LLC is ideal for many entrepreneurs. Customers and vendors often take an LLC more seriously. The cost to start a single-member LLC is less than an S corporation.

Along with the basic level of liability protection provided by incorporation in which your personal property and assets cannot be seized during a debt settlement, the LLC provides you with an additional level of protection. This prevents your personal creditors from taking any of your business assets to deal with your personal creditors.

Single-member LLCs are great to start within many businesses, such as a new rental property. As you increase your number of rentals and expand into other states, you can set up a multi-member LLC very easily.

Disadvantages of a Single-Member LLC

Although there is some additional paperwork, LLCs are less formal that incorporation. Most states require LLCs to file annual reports, unlike sole proprietorships. If the LLC closes down, members will need to notify the state that the business is dissolved.

A disadvantage of an LLC over sole proprietorships is the amount of paperwork involved. You will also have continued maintenance at both state and federal levels.

State laws will give more protection to multiple-member LLCs. Currently, 18 states do not allow plaintiffs from accessing a property in an LLC to settle personal obligations.

To remain protected, you will need to maintain a formal operating agreement that states how your LLC will function. This keeps your liability protection intact. You should also set up a holding company in Wyoming, Nevada, or Delaware. This will force a plaintiff to fight his or her way through other states.

LLCs are rather informal, making it more difficult to get credit, raise money, and establish value for the business like you can for a corporation.

If you need help learning more about a single-member LLC, you can post your legal need 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.