What Is a Single Member LLC? Complete December 2024 Guide

A common business structure many people opt among the different types of LLCs is a single member LLC. It provides many different benefits for the owner, such as protecting you from being personally liable and adding credibility to your business. Not to mention, you’ll be the only one to make all the decisions for your business, which gives you great freedom and flexibility. If you’ve ever wondered: “What is a single member LLC” and you’d like to get acquainted with all its pros and cons and how it’s formed, then this article is for you.

In addition to informing you about the abovementioned aspects, we’ve included a section where we cover the differences between a single member LLC and a sole proprietorship, as well as a detailed FAQ section where we answer some important questions.

Without further ado, let’s start by defining what a single member LLC is.

Sections

What Exactly Is a Single Member LLC?

Just like its name suggests, a single member LLC is a business entity that’s owned by only one member who has full control of the business. You can still hire employees, but you’re the only voting member as you’re solely responsible of the business.

The major reason why this is among the most common business structures in the US is the liability protection it offers. In case the company gets a lawsuit or a claim, the member/ owner of a single LLC doesn’t have any liability, which is why many entrepreneurs opt for single member LLCs over sole proprietorships.

Advantages of Single Member LLCs

Now that you have a clearer picture of what single member LLCs are, it’s time to go over some of their benefits.

No personal Liability

As we touched on earlier, one of the most compelling advantages of single member LLCs is liability protection. This means that the member’s personal assets are off limits in case the company has to pay off a debt or faces a lawsuit. The owner (member) is seen as a separate entity from the business, so you don’t have to worry about being held accountable for anything related to your business.

Pass-Through Taxation

Another amazing benefit of single member LLCs is the pass-through taxation. Just like the other types of LLCs, single member LLCs don’t have to pay taxes on a business entity level. Both the profits and the losses are directly passed through the owners on their income tax returns.

Your Business Will Be Seen as More Credible

LLCs have a reputation for being more credible and professional than some other business entities, like sole proprietorships. By creating a single member LLC, you’re ensuring that your business is perceived as being more professional, which can be of great help when trying to attract potential investors and customers.

Allows You to Take Greater Risks

If you’re someone who likes taking professional risks, then forming a single member LLC might be for you. When you know that your assets will remain protected regardless of what happens with your business, you’ll be more encouraged to take risks and try out new ideas for your business. At the end of the day, this can be incredibly important for the growth of your business, so it’s a crucial advantage to consider.

The Name of Your LLC Will Be Protected

Since LLCs are required to be registered in the state where they’re formed, no other business would be able to claim your name, so you won’t have to worry about any potential confusion on the part of your customers.

Disadvantages of Single Member LLCs

While there are many outstanding benefits you can enjoy if you decide to form a single member LLC, there are also certain disadvantages you need to be aware of.

Single Member LLCs Can Be Costly

Since they’re a more complicated business structure, single member LLCs have higher formation fees. Additionally, they come with many ongoing fees, such as filings and annual reports.

Ultimately, they’re a great choice if you’re willing to spend a little extra money at the start of your business journey and for the ongoing fees. The costs vary from state to state, so check the financial requirements in your state before making a decision.

Single Member LLCs Come With Many Regulations

Similarly to our previous point, the complexity of single member LLCs automatically entails more regulations and laws that need to be closely followed. While this is certainly manageable, if this is your first time running a business, you might have to hire a professional consultant or a lawyer at some point to get a better idea of what you should and shouldn’t be doing.

Finding Investors Might Be a Difficult Task

Since single member LLCs don’t operate with stocks, it can be quite difficult to find investors for your business. Many investors prefer investing in corporations only for the fact that they can own stock. At the same time, finding investors for a single member LLC is quite easier compared to sole proprietorships or partnerships.

Do Single Member LLCs Need an Employee Identification Number?

You only need an EIN for a single member LLC if you have one or more employees and you want to take advantage of tax liabilities. There are many benefits that come with getting an EIN, so don’t despair if it’s a requirement for your particular type of LLC and consider applying for one even if it’s not a legal requirement for your business.

How to Form a Single Member LLC

By now, you’re aware of all the benefits and drawbacks of forming a single member LLC, so you have a clear idea of whether or not this business structure is for you. In case you decide to give it a shot, here are some of the steps required to form a single member LLC.

Choosing a Business Name

Much like all the other business structures, the first requirement is to choose a business name. Every state has different rules in terms of words you can’t use in your name, but one aspect remains constant – you’re not allowed to choose a name that’s already been used by another business. To ensure that your name is available, you can do a free business name search.

Apply for an EIN

In case you decide to apply for an EIN for all the potential benefits it could bring to your business, now is the time to do so. Applying for an EIN is a relatively easy and straightforward process and you can do it online.

Choose a Registered Agent

Registered agents are individuals or business entities whose job is to receive important documents and paperwork on your behalf. You can, of course, do this job yourself, but if you’re not always available at the address of your business during working hours and you have no desire for extra paperwork, this is a great solution.

Choosing a registered agent is relatively easy. Doing a bit of research prior to hiring someone is always a good idea, since you get to hear other people’s experiences with the service provider.

File Articles of Organization With the Department of State

A step you can’t miss in forming a single member LLC is filing articles of organization in the state in which your business will operate. You will usually need to provide information about the location of your LLC, its name, and the reasons why you formed a single member LLC .This step varies from state to state. If you don’t want to spend hours sifting through the laws of your state, you can always hire a lawyer or consultant who will guide you through these steps.

Make an Operating Agreement

While it’s not a requirement in every state, drafting an operating agreement can be helpful for all the parties involved. An operating agreement is a document that contains information about the ownership, ownership transfer, and how your business will operate.

Open a Bank Account for Your Single Member LLC

One of the last steps you need to complete is opening a bank account for your business. Ensure that your business has a separate bank account from yours if you want to enjoy all the limited liability benefits that come with forming an LLC.

Obtain Any Business Licenses and Permissions

Depending on the type of business you have, you might need to obtain some business licenses and permissions before your business starts to operate legally. If you have any trouble finding out if your business needs a license, you can always contact the Secretary of State’s office and inquire about the legal intricacies.

Once these steps are complete, you’ll be able to get your business up and running!

Can I Hire Employees for a Single Member LLC?

Forming a single member LLC doesn’t prevent you from hiring employees for your business.

As long as you pay taxes to the IRS, there are no laws preventing you from hiring as many employees as you want.

Single Member LLCs vs. Sole Proprietorships

Since single member LLCs are similar to sole proprietorships, many people have a hard time deciding what business structure to opt for. In this section of our article, we’ll go over some of the things single member LLCs and sole proprietorships have in common, as well as some of the ways in which they differ, with the hopes of helping you decide which business structure to go with.

Tax Deductions

Both single member LLCs and sole proprietorships are treated the same in terms of tax obligations, as you’re required to pay self-employment taxes and income taxes, and they both allow for tax reductions. Both structures have a pass-through taxation system which means that the profits and the losses are passed through to the owner.

In addition, you can write off things like the equipment you’re using, travelling for business, and any other expenses you need to cover when working. To ensure that you include all your expenses in your tax report, keep records of every expense and your total income. That way, you’re guaranteed to be entitled to the money that you’ve spent.

Employees

Another thing these two business structures share is the ability to hire employees to help with the business.

Ownership

You won’t be surprised to hear that single member LLCs and sole proprietorships have only one member/owner.

Similar Formation Process

In addition to the abovementioned similarities, single member LLCs and sole proprietorships have a similar formation process, so you won’t have to waste any additional time if you decide to choose one over the other.

Differences Between Single Member LLCs and Sole Proprietorships

As we saw, single member LLCs and sole proprietorships share many similarities. However, single member LLCs require a larger budget to start operating and to compile all the formation obligations. Plus, LLCs have more ongoing fees and legal obligations throughout the year as compared to sole proprietorships. This can be hard to deal with if you don’t have a consultant or a lawyer.

In addition to that, LLCs have limited liability, whereas sole proprietorships don’t. This means that in case a lawsuit or a claim occurs, the owner of the sole proprietorship will be held personally responsible and their personal assets, including their house and car, will be at risk. It’s one of the main reasons why many people opt for an LLC instead of a sole proprietorship.

FAQs

Is a Single Member LLC a Sole Proprietorship?

No, a single member LLC is an entirely separate structure from sole proprietorships. While they have many similarities, like how they’re taxed, there are many crucial differences that separate the two. The main difference between single member LLCs and sole proprietorships is that the latter don’t provide limited liability for its owner, which is a common reason why so many entrepreneurs opt for a single member LLC.

How Can I Pay Myself With a Single Member LLC?

Since you’re going to be the one in charge of all operations, you might wonder how you’ll be able to pay yourself. The answer is – you won’t have a traditional wage, but you can take money out of your business at any time. This process is referred to as a “draw”. Keep in mind that you will only be able to receive the money once all debts and bills have been paid, so make sure you take care of those first.

How Can I Dissolve a Single Member LLC?

Dissolving a single member LLC is a more complicated process than dissolving a sole proprietorship or a partnership. It requires filing legal documents to the state, but the documents vary from state to state. In addition to letting your state know that you intend on closing the business, you have to cancel your EIN.

Final Thoughts

We hope this article gave you a better idea about what a single member LLC is and that it helped you decide if this structure is right for your business.

There are many benefits that stem from forming a single member LLC, one of the most important being the freedom in deciding how to run your company. The best part about it is – all your assets will remain protected even if things go south.