Single-Member Limited Liability Company

A single member limited liability company is an LLC with only one owner (called a “member”). Since this structure offers the benefits of limited liability protection with the simplicity of a sole proprietorship, it’s ideal for solo entrepreneurs.

In this article, we will explore what this structure is, the process of forming one, and how it differs from other similar business entities such as multi-member LLCs and sole proprietorships.

What Is a Single Member LLC

A single-member LLC is a type of LLC that only has one member, as opposed to a multi-member LLC, which has two or more.

While both of these entity types benefit from the same LLC benefits, there are a few differences in how a single member LLC is treated, which we’ve discussed in greater detail below.

Member Management and Voting

The ”member” is the sole owner of a single-member LLC and the only person with rights in the company. These rights include, but are not limited to, the right to receive distributions of the company’s assets and the right to vote and manage business affairs.

Note that only being able to have one “member” doesn’t mean you can’t have employees. It just means you can only have one “voting member.”

A “voting member” is a person with an ownership stake who makes major decisions for the business.

Capital Contributions

In a single-member LLC, the sole member has made or will make an initial contribution to the capital of the company as set forth in the company records.

If the member determines that additional funds are needed for the business’s working capital, the member may contribute additional funds. On top of this, any and all profits and losses shall be allocated to the member.

Taxation

By default, a single member LLC is taxed in the same manner as any other standard LLC. For federal tax purposes, the Internal Revenue Service (IRS) considers them to be a “disregarded entity” — meaning profits and losses simply appear on the sole member’s personal income tax return.

Owners must then pay income tax using one of the following forms and either their SSN or the business’s Employer Identification Number (EIN):

• Form 1040 or 1040-SR Schedule C, Profit or Loss from Business (Sole Proprietorship)
• Form 1040 or 1040-SR Schedule E, Supplemental Income and Loss
• Form 1040 or 1040-SR Schedule F, Profit or Loss from Farming

An individual owner of a single member LLC who operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship.

However, a single member LLC can also elect to be treated as a corporation, in which case the business must file a separate return for federal income tax purposes using one of the following forms:

• Form 1120: For LLCs with the C Corp election
• Form 1120-S: For LLCs with the S Corp election

Note: Single member LLCs are treated as a separate entity for the purposes of employment tax, payroll taxes, and and certain excise taxes.

Single Member LLC vs Multiple Member LLC

For some small businesses — especially family businesses — the lines can blur regarding who’s an owner. If you have more than one potential owner, but are still contemplating forming an single member LLC, you should consider the following:

• Tax Treatment: Single member LLCs must pay taxes in the same way a sole proprietorship is taxed while multi-member LLCs are instead taxed as partnerships. However, both of these structures will require members to pay income taxes on their personal tax returns
• Efficiency: Multi-member LLCs may take longer to make decisions as more people need to agree upon something before action can be taken. By contrast, single member LLCs will only need their sole member or manager’s consent

For more information on this, be sure to check out our LLC Taxes article.

Single Member LLC vs Sole Proprietorship

For an individual who runs their own business, it might seem simpler to remain a sole proprietorship than to become a single member LLC as it’s the most basic business structure and requires no formal action to exist. Freelance contractors, for example, often maintain sole proprietorships.

With that said, making the switch to a single-member LLC offers some definite benefits:

• More Legitimate: Some business owners feel like their business seems more “official” when they form an LLC. You may even find that customers, clients, and potential partners take you more seriously once you’ve formed an LLC
• Name Registration: After formally creating your LLC, its business name will be registered with the state — meaning no other organization can use it
• Limited Liability Protection: Since an LLC and its owners are officially treated as separate legal entities, you’ll have the peace of mind that your personal assets will remain protected regardless of the debts or liabilities your LLC accumulates

Learn more about the difference between these two business structures with our Sole Proprietorship vs LLC guide.

How to Form an Single Member LLC

The process for forming a single member LLC is identical to that of any other LLC, and typically includes the following steps:

1. Naming Your LLC
2. Appointing a Registered Agent
3. Submitting Your LLC’s Articles of Organization
4. Creating an LLC Operating Agreement
5. Getting an EIN
6. Filing Your BOI Report

For a more detailed explanation of each of these steps, be sure to check out our How to Start an LLC guide.