What is an LLC?
A limited liability company (LLC) separates the business from the owner, offering some liability protection. An LLC with only one owner is called a Single-member LLC (SMLLC). For income tax purposes, an SMLLC is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and affirmatively elects to be treated as a corporation.
A sole proprietorship is a business that is owned by one person, and the business is not legally separate from the owner. The IRS treats single-member LLCs as sole proprietorships by default.
Forming an LLC
Yes, in the District of Columbia, as well as all 50 states, one person can form an LLC as a single-member LLC. To confirm a company’s LLC status, call the secretary of state’s office or visit the website.
The purpose of forming an LLC is to protect the personal liability of the owners by separating personal assets from that of the business. A Single-Member LLC can be owned by an individual person, an existing company, a non-US citizen or non-US resident.
Limited liability companies (LLCs) can also choose to be treated as a corporation by the IRS, whether they have one or multiple owners. It can also be owned by virtually any other organization. Owners of a multi-member LLC can manage themselves as a group or establish a single manager to govern. These two structures are called “member-managed” and “manager-managed," respectively.
Disadvantages and Considerations
A sole proprietorship is a business owned by only one person. The biggest disadvantage of a sole proprietorship is the potential exposure to liability. In a sole proprietorship, the owner is personally liable for any debts or obligations of the business.
One person can form an S corporation, while in a few states at least two people are required to form an LLC. Existence is perpetual for S corporations. Conversely, LLCs typically have limited life spans. Multi-member LLCs are owned by two or more people who have an equal right to participate in management decisions.