A Single-Member LLC (SMLLC) is a business structure that is owned and operated by one individual. It combines liability protection with the tax benefits and simplicity of a sole proprietorship. This means that while the owner’s personal assets are shielded from the company’s debts, profits, and losses are reported on the owner’s personal tax return.
To start an SMLLC, the owner must file articles of organization with the relevant state authority and appoint a registered agent. Privacy-oriented states like Wyoming may be preferred by some business owners. An SMLLC defaults to pass-through taxation, where the company itself is not taxed, but the profits and losses are reported on the owner’s individual income tax return. The entity may require an EIN (Employer Identification Number) if it employs others or meets other criteria.
What are the disadvantages of an SMLLC?
- Limited options for raising capital
- Potential credibility issues
- Possible risk of personal liability if the corporate veil is pierced
How do you form an SMLLC?
- File articles of organization with the state
- Appoint a registered agent
- Obtain an EIN if necessary
- Create an operating agreement
How is an SMLLC taxed?
- As a disregarded entity similar to a sole proprietorship
- Profits and losses pass through to the owner’s personal tax return
Single-member LLCs are popular among small business owners, freelancers, and solo entrepreneurs who require legal separation between their personal and business assets. Despite its simplicity and protection, an SMLLC may face limitations in raising capital and building credibility in the business landscape.