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What Constitutes A Single Member LLC?A limited liability company is well-regarded for its flexibility. In this article, we take a look at what constitutes a single member LLC? The limited liability is a unique business entity. It was first created under the laws of Wyoming in the late 1970s to attract more business to the state. The entity was designed with small businesses in mind by combining two important factors – a shield against personal liability for business debts and flexibility on the tax side of things. Over the years, every other state in the Union passed similar legislation and the LLC became highly popular. The ease of forming and using an LLC is such that it is often the entity of choice for new businesses. Many new businesses are owned by one person. With this in mind, the vast majority of states now allow for the creation of a Single Member LLC. It is exactly what the name seems to suggest. There is one “member” that owns all the interest in the LLC. A “member” is the equivalent of a shareholder in a corporation. The Single Member LLC is very popular for a couple of reasons. A “one man shop” doesn’t really have time to deal with administrative corporate record keeping unless you hire someone like me. The Single Member LLC requires about 10 percent of the paperwork required by a corporation. Put another way, it is much easier to run and cheaper as well. Is there a downside to the Single Member LLC? Unfortunately, there is. The biggest downside has to do with a tax implication. Most LLCs are tax advantaged because they can be treated for tax purposes like a partnership. The IRS, however, defines a partnership as two or more parties involved in a revenue producing business venture. Well, the Single Member LLC only has one person. As a result, the IRS treats the entity like a sole proprietor and taxes it accordingly. This means you have to pay self-employment taxes on the entity. What constitutes a Single Member LLC? In California, it is a business that has filed articles of organization as an LLC and has only one owner/member. ******************* Nothing in this article is intended to create an attorney-client relationship. Please contact me if you have any questions. |
