Single Member LLC

A single-member LLC is a limited liability company with a single owner who has complete control of the company.

Single Member LLC | Professional LLC | Series LLC | Member Managed | Manager Managed | Foreign LLC

There are several options when it comes to starting a company. One of the most important of which is choosing which type of company is best for your needs. For example, if you are starting a company and plan on being the sole owner of this company taking on the responsibilities, you may want to look into opening a limited liability company, better known as a single member LLC.

Check out the complete guide on What is an LLC?

There are a variety of tax breaks and considerable flexibility in the way you can run your business as a single-member LLC. To help determine if this is the right type of company for you, the following article will show you what you should know about setting up your single-member LLC and provide you with information about taxes and employment that relate to such a company.

What is a Single Member LLC?

A single-member LLC is a type of limited liability company (LLC) owned and operated by a single person, or member. So one person is responsible for running the business and paying taxes.

A single-member LLC is a little different from a regular LLC or a multi-member LLC in as much as it has only one person instead of multiple members. This type of LLC is especially useful to freelancers planning on starting their own business because a single-member LLC lets them grow their operations as they see fit, including any neededcontractors or employees.

How to Form a Single-Member LLC

You will want to use the secretary of state for the state in which you are located to form a single-member LLC. This is done as follows:

Choose an LLC name

Perhaps the first and most important step in setting up your LLC will be choosing a name for your company. It is pretty important to choose a name that represents the spirit and culture of your company as well as something that complies with the laws of the state.

For example, some states will not allow you to choose a company name that includes derogatory or offensive words. Furthermore, you will not be able to use words that require further regulation such as “credit union”, “mutual” or “bank”. Furthermore, you will not be able to use a name that has already been selected by another company.

To begin, list out as many names as you can possibly think of then run the list through thebusiness entry database in your state to find names that are available. Once you have selected a name, you will have to reserve the name you have chosen — up to 120 days— and then file a trade name if applicable or other business names may need.

Yoursingle-member LLC can also be trademarked through the US Patent or Trademark Office. This can also be done through your local government.

Registered Agent Designation

The next thing to do will be to select your registered agent who will be responsible for receiving legal communications and notices on your business’s behalf. This is a requirement to make your single-member LLC official.

Different states have different rules about who is allowed to function as your registered agent. Typically, the rules state that your agent must be older than 18, a resident of the state in which your LLC is registered, and available at the location between regular business hours. Furthermore, you are allowed to partner with any business entity that is already located within this state.

Many states will also allow the sole-owner of the single-member LLC to function as their registered agent, but there are some disadvantages to this. For example:

If you personally act as your registered agent, you must be present at your registered location during working hours. If you plan to be there all day long for the vast majority of the time, this may not be a problem for you.

If you will be acting as your own registered agent, you must also reveal certain personal information that will be held in public records.

Acceptsubpoenas or summons from the local courts. This may not be a problem unless you happen to have clients at your location at the time. In which case, being served a court’s summons may cast your business in a bad light.

Often single-member LLCs will choose to partner up with a registered agent that will handle the business communications for their company for these reasons.

Obtain proper licenses and permits

To start a business, most states will require that a single-member LLC obtain an official business license. Furthermore, depending on the specifics of your business, you may be asked to take out additional licenses and other permits. For example, a liquor license is needed if your business will be buying or selling alcohol.

There are also some counties and cities that have other specific requirements for certain businesses to operate. It will be very important to do your homework and make sure that your business has obtained all the requirements that apply to its operations on both a local and state level.

Register your LLC

After you have completed steps 1 to 3, you will now be ready to finalize your single-member LLC with your state’s government. This should be done by filing your articles of organization. In some states, they may ask that you additionally include the articles of formation.

The process can be done online and it can also be completed in the mail. If you so choose, you can also register your single-member LLC in person. Be prepared to pay a fee for filing the paperwork.

Here is some of the information you will be asked to provide when you are making this process.

*Your single-member LLC’s official name.

*Address of operations.

*The name and address of your registered agent.

*The purpose of your single-member LLC

*The industry.

*Your name and address as owner of the single-member LLC

The fastest way to complete this registration process for your single-member LLC will be online. Some processes can be completed in 24 to 48 hours, depending on which state you are in.

Create an Operating Agreement

Preparing your operating agreement is the next step in the process and something no single-member LLC owner should forget. While this is not always required for single-member LLC in every state. Drafting and filing an operating agreement with the government is an important way to protect your business.

The operating agreement is a document detailing themanagement and ownership of the single-member LLC. It also includes an outline of your partner investment and distribution as well as an outline of your business plan. Even though most single-member LLC will not have to worry about dealing with partnerships and percentages it is still a very important document to keep on hand.

An operating agreement is important to your single-member LLC because it:

*Confirms your LLC status.

*Makes opening business banking accounts an easier task.

*Protects personal liability.

Operating agreements also allow your companies to operate in line with your plan even in the event that you are incapacitated or otherwise prevented from running your company according to plan.

It is a good idea to keep a copy of this on hand at your place of business.

Taxes for Single-member LLCs

Now that you have a better idea of how the single-member LLC is formed, let’s begin explaining how these LLCs pay government taxes.

Single-member LLCs are also called pass-through entities, this means that profits are passed directly to the owner. This means that as the owner of your single-member LLC you will not be required to pay corporate taxes, but rather you will claim your profits and losses on your own regular personal tax returns.

With this in mind, just like any other LLC, your single-member LLC will not be given the option to be taxed as a corporation through filing the 8832 Form with the IRS.

Applying for an EIN

The EIN, or Employer Identification Number, is provided to your business by the IRS and works similarly to the individual’s social security number. It provides identification for your business and also allows you to open accounts for your business and pay employees.

But not all Single-member LLCs need to obtain an EIN. You will need to obtain an EIN for your single-member LLC if:

*There are employees or contractors to pay.

*Your bank requires EIN to open business bank accounts.

Single-member LLCs that operate without employees do not need to open an EIN, nevertheless, there are some specific advantages to doing so. For example, an EIN allows you to separate your business and personal finances. If you don’t get an EIN, your income would be taxed through your social security number on your personal tax return.

You will be able to contact the IRS and request your EIN online. The application doesn’t take long at all and your EIN will be available right away.

Employment taxes

Single-member LLCs that have employees will also need to pay taxes for employees. These are also called payroll taxes. To do this you will first have to open a “Withholding Account” with the IRS.

Your company may benefit from an LLC status by not having to pay federal and state payroll taxes.

Self-employment tax

As the owner of your single-member LLC, you will not be considered an employee of your business and will be subject to paying self-employment taxes.

The taxes will have to be paid quarterly at a federal and state level. You can estimate these yourself or work with an accountant or tax specialist to have this done.

Sales tax

If the single-member LLC that you own and operate will be collecting sales tax, you will also have to apply for a license to collect these as well. A sales tax license will allow your single-member LLC to pay sales taxes to your state government.

If your single-member LLC will be collecting sales tax, you’ll need to apply for a sales tax license in your state (if applicable). This will allow you to pay the state government any sales tax your LLC collects.

Is a Single-Member LLC Right For You?

There are many good reasons to open your very own single-member LLC, but this doesn’t mean it is the right choice for everybody. Here are some of the advantages and disadvantages to opening a single-member LLC

Pros

Liability protection.

Business and personal finances can be kept separate.

Recognition as an established business.

Freedom to choose how your operations are taxed.

You will be able to add new members and even pass ownership to others.

Cons

The formation process can mean a lot of paperwork and some associated fees.

Imperative that compliance, recordkeeping, and other ongoing state requirements are met.

Frequently asked questions

Q: Can a single-member LLC have employees?

A: Yes! Single-member LLC can and many times they do have other employees. Some people assume that because they are called “single-member” no one else can be a part. But the “single-member” part only refers to the owner.

Q: Does a single-member LLC need an EIN?

A: This depends on a variety of points. For example, not all single-member LLCs need an EIN, especially when the single-member LLC doesn’t have any other employees. In such a situation, the owner of the single-member LLC will pay their taxes under their social security number. Of course, if the single-member LLC does have employees, they will require an EIN to pay taxes.

Q: How do you pay yourself in a single-member LLC?

A: As the owner of your single-member LLC, you will not be collecting a regular paycheck. Instead, you will be taking your cut of the funds from the company profits. It is your choice how much cash you will withdraw. This can be done with a check or transfer to your account from the company account.