Single-member LLC filing requirements are similar to the requirements for multiple-member LLCs; both types require articles of organization to be filed for the LLC's formation, and both require owners to report profits and losses on personal tax returns. There are some important differences, though.

LLCs were created from partnerships, and liability protection was added. The IRS does not officially recognize single-member LLCs. It only allows LLCs that have at least two owners. You can, however, form a single-member LLC, which is abbreviated as SMLLC. It has some advantages over sole proprietorships, namely limited liability and the appearance of legitimacy.

The liability protection that SMLLCs offer is not as strong and undisputable as a traditional LLC, but there are still good reasons to form one:

  • You can add “LLC” to your business name, which makes you appear more professional and credible to vendors, suppliers, customers, and clients.
  • It's easy to become an S corporation instead if you choose.
  • Single-member LLCs can choose to avoid self-employment tax by electing to become an S corporation retroactively for the year.
  • Owners of single-member LLCs protect their personal assets from business liabilities.
  • Switching to a traditional LLC is a simple process; you can give a very small amount of your business ownership to a family member.
  • The IRS classification of “disregarded entity” means that single-member LLC owners are taxed just like sole proprietorships, and any profit or loss is reported on their personal tax returns using Schedule C. The LLC does not file its own return.
  • Unlike corporations, SMLLCs do not need to file annual reports or meeting minutes.

Why SMLLCs Can Be Problematic

While single-member LLCs are similar in most ways to traditional LLCs, there are some important differences. The most common reason people choose to form LLCs is for the liability protection, referred to as “charging order” protection.

LLCs and corporations both add liability protection for businesses so that owners' personal assets will not be taken by creditors to settle the debts or lawsuits against the business. However, an LLC adds another level of protection called the charging order. This means that LLC partners are protected from the actions of other owners.

If an LLC owner was sued or had unpaid personal debts, his or her creditor would not be able to take away his membership interest in the LLC, even though that would be considered an asset. Doing so would mean the other LLC members would have to deal with a new LLC owner, whether they wanted to or not. Therefore, federal law only allows creditors to seize the unfortunate member's profits from the LLC.

If there is only one member, this is irrelevant. If you, as the owner of an SMLLC, are sued or have unpaid debts, there is nothing to stop your creditor from taking away your business assets because there are no partners' wishes to consider.

This problem can easily be avoided, however, by sharing a small amount of your membership interest in the LLC with another individual. This may not be your husband or wife, because the IRS considers married couples to be one single member. Instead, you may choose one of your children or another close relative.

Doing so does not mean you need to give up control of your LLC, or even to allow their input in running it. You can make sure your partner remains a silent partner by creating a manager-managed LLC and appointing yourself as the manager.

Operating Agreements

Operating agreements are usually not required to be filed, but they are valuable documents nonetheless. These are the company's bylaws and contain important rules and guidelines about how the business will function both day-to-day and when certain situations arise in the future.

Single-member LLCs have almost no protection against lawsuits without an operating agreement because so few records are required to be filed and maintained. There are only three states in the U.S. that give SMLLCs the same protection as multi-member LLCs.

Along with taking on a silent partner, you can protect yourself by creating an operating agreement and keeping annual company minutes along with any other relevant legal documents. These may reflect the fact that the LLC is actually a two-member entity.

If you need more information or help with single-member LLC filing requirements, 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.