Time to Startup!

The BizFilings blog covering business tips and trends.

Is a Single-Member LLC the Option for You?

Published on Jul 6, 2010


Check out 'Is a Single-Member LLC the Option for You?' at 'Time to Start Up,' the small business blog by BizFilings.
stocksealAs a small business owner, you may wonder what the advantages and disadvantages are of forming your business as a single-member limited liability company (SMLLC).  Essentially, an SMLLC can be defined as operating an LLC with only one owner. Under current IRS obligations, an SMLLC that is not classified as a corporation will be classified as a disregarded entity, which is taxed as a sole proprietor for income taxes. Translated this means, that the SMLLC member simply reports the income and expenses of the LLC on his or her own Form 1040 on Schedule C, under his or her own Social Security number. The SMLLC does not have its own tax return. Small business owners should consult with a lawyer or accountant in case your state has an income tax. This way you'll be able to determine if a return has to be filed for any state income tax. Similar to all LLCs, an SMLLC is designed to protect against personal liability. But there is lingering concern as to whether a member of an SMLLC will be granted equal protection from liability as a member of an LLC with multiple members. The biggest risk with an SMLLC is that certain courts have not deemed SMLLCs as separate entities; dismantling their purpose to protect the assets of the LLC from the creditors of the member.  The LLC may be the newest form of business organization in the United States - coming into existence in the 1980s and 1990s - but it still bears advantages of combining the liability protection of a corporationwith the tax treatment of a partnership. Considering to divvy out even two percent of your company aptly positions you to enjoy the advantages of forming as an LLC. The bottom line is that you need to go over your options with a lawyer or accountant to discuss possible issues in determining what formation works best for you. Is your business currently classified under SMLLC status? If so, why did you choose to form your business as an SMLLC?