Single member LLC liability protection offers some distance between LLCs and their owners. However, some legalities are different between single-member LLCs and traditional LLCs.

Single-Member LLCs and Asset Protection

Setting up a single-member LLC is certainly beneficial for some business owners. Whether it's the best choice for you will depend on your situation. Single-member limited liability companies (SMLLCs) are similar to traditional LLCs, except they only have one owner. Businesses with a single owner cannot form a traditional LLC, but they can form an SMLLC.

Protection from liability is a major reason business owners choose the LLC structure in the first place. It was only recently that all states began to recognize the SMLLC structure. A few states did not allow this until recent years.


Forming an SMLLC requires you to complete articles of organization and submit it to your local Secretary of State (SOS). A fee will apply. The process for forming an SMLLC is similar to that of forming an LLC. Be sure to check with your Secretary of State to see what else is required of your SMLLC. There are no requirements for annual reports or minutes.

Asset Protection

Both LLCs and SMLLCs are considered as separate legal entities that are not part of their owners. Credit protection is offered to both members of SMLLCs and LLCs. Rules for corporations do not always apply to LLCs since corporations have stricter regulatory requirements. It is not always the case that single-member LLCs receive the full liability protection that is given to multiple-member LLCs. This is an issue that is still being resolved as the laws become more refined in each state.

There are times when traditional LLCs are clearly at an advantage compared to SMLLCs. Creditors can only acquire a charging order against a member of a multiple-member LLC. That means it only collects payments distributed to that particular member. It cannot attack the assets of the LLC itself.

The laws are not clear as to whether creditors can do more than acquire a charging order when it comes to single-member LLCs. Since the purpose of a charging order is to protect individual owners from other members' debts, the logic of charging orders does not apply to SMLLCs. Some courts have thus allowed creditors to take further actions, such as ordering that the LLC be dissolved or laying claim to the single member's interest in the company. Some states (such as Wyoming) have gone the other way and declared that the protections of charging orders apply to all LLCs, regardless of the number of owners.

State Laws on SMLLC and Personal Liability Protection

Piercing of the corporate veil is another potential downfall of an SMLLC. This happens when:

  • A court rules that an SMLLC and its owner are not truly separate entities.
  • In that case, the owner can become responsible for the business's bad debts.
  • Nevada, Delaware, and Wyoming are the only three states that give equal protections to SMLLCs and LLCs.
  • Legalities around piercing the corporate veil were not designed for LLCs but were instead passed down from the way corporations are treated.

Be sure your operating agreement applies specifically to the way an SMLLC is run and not the way a traditional LLC is run. If you use a template, be aware that a lot of the language is designed for multiple-member LLCs. Plaintiffs have successfully argued to pierce the corporate veil on an SMLLC based on the loose language in the company's operating agreement. Since many of the templates available online include standard legalese, it's not uncommon for owners to not delve too deeply into what's actually being said.

Also, be sure you understand what is expected of you as an SMLLC owner before you write your operating agreement. If your document is inaccurate, this could be used against you later by an opponent who is trying to pierce the corporate veil.

Requirements to Pierce the LLC Veil

If an SMLLC is sued, a judgment can be placed on the company. This may happen when the company is responsible for harming customers or when the business doesn't pay its debts.

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