1. What To Know About Single-Member LLCs
2. Management Structure of Single-Member LLCs
3. Steps to Creating a Single-Member LLC
4. Paying Taxes as a Single-Member LLC
5. Protection From Liability

The single-member LLC articles of organization is a document that you need to file with the state when forming your LLC.

LLC stands for limited liability company, and it is a business structure that state law allows you to form. They can be owned by multiple people, one single individual, a corporation, or other LLCs. A single-member LLC has special consideration, however, since it is a one-owner company.

What To Know About Single-Member LLCs

When a single business owner decides to create an LLC, the business entity becomes separate from its owner. There are several advantages to creating an LLC as a single owner:

  • The owner is protected from being liable for debts and other obligations incurred by the business.
  • Single-member LLCs have more credibility as a legitimate business than sole proprietorships.
  • The name of a registered LLC is protected and cannot be used by any other business within its state.
  • Unlike corporations, LLCs do not need to have shareholders, boards of directors, or formal meetings. They can do so if they choose, however.
  • You can be the LLC's sole director and officer as well as the only owner.

Beware of web-based legal services which tell you that many LLC forms, such as an operating agreement, are required to keep your LLC protected from liability. You do not need an operating agreement, though it's still a good idea to create one.

Management Structure of Single-Member LLCs

LLCs can choose between member-managed and manager-managed structures, even if the LLC has only one member. If this is not specifically indicated in the articles of organization or operating agreement, the state assumes you will be a member-managed LLC.

Member-managed LLCs are managed by owners, or in the case of a single-member LLC, the single owner. Manager-managed LLCs are managed by a formally appointed manager who is different from the owner. This manager is given authority to deal with the LLC's daily operations such as hiring and firing workers, writing checks to suppliers, and signing contracts or leases. Owners still have higher authority for many decisions, however.

Most single-member LLCs are managed by the owner. However, there may be some circumstances under which it's preferable to have a separate manager.

Steps to Creating a Single-Member LLC

The first step of creating a single-member LLC is to file the company's articles of organization, which is also referred to as a certificate of organization. This will require a filing fee as well as the form. The state will then process your application and will mail your certificate of formation by USPS mail.

Once this is complete, be sure to open a separate bank account for your LLC. Do not under any circumstances use your personal bank account for business purposes. In order to do this you will need a federal tax ID number, also called an employer ID number (EIN). This is necessary even if you do not plan to hire employees since it serves the same purpose as a social security number for your business. It's free, and a simple process.

Paying Taxes as a Single-Member LLC

Single-member LLCs have simpler tax filing than other types of business such as corporations or LLCs with multiple managers. The IRS considers single-member LLCs to be “disregarded entities” which means that it treats them like sole proprietorships. The business does not need to file its own tax return. Instead, all of the income and expenses will be reported on the single owner's tax return using Schedule C.

Even though it is not recognized by the IRS, forming a single-member LLC does have advantages over a sole proprietorship. Unlike a corporation, LLCs avoid double taxation of profits. However, they can choose to be taxed as a corporation if it is more beneficial.

Protection From Liability

One of the best reasons to form an LLC is the protection it offers from personal liability. LLC members are protected from most debts that the business incurs. That means if your business is sued or owes a debt, creditors cannot come after your personal assets.

However, there are limitations to this protection, especially for single-member LLCs. It mainly protects owners from contract issues, such as when the business cannot fulfill the terms of a contract, and from the actions of another owner. With single-owner LLCs, the second item does not apply. LLC owners may still be held liable for lawsuits that are caused by their own actions or negligence.

If you need more information or help with single-member LLC articles of organization, 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.