A single-member limited liability company (SMLLC) is an LLC with only one owner (called a “member”). It functions much as any LLC would. In fact, as far as the government is concerned, single-member LLCs are just LLCs. The paperwork to form an LLC and a single-member LLC is the same.

How Does a Single-Member LLC Work?

A single-member LLC is an LLC business structure that offers the same advantages as multiple-member LLCs. There are a few things to consider when deciding to be a single-member LLC, including managing a sole member, making contributions, and treating taxation.

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 an SMLLC, the 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 working capital of the SMLLC, the member may contribute additional capital. Also, any and all profits and losses shall be allocated to the member.

Taxation

If you create an SMLLC, you can elect to be treated as a corporation. That means you’ll need to file a separate income tax return for the business. Otherwise, you’ll do the company taxes along with your personal taxes.

If an SMLLC doesn’t elect to be treated as a corporation, the Internal Revenue Service (IRS) will consider it a “disregarded entity” and the owner should reflect the SMLLC’s activities on their federal tax return. If the owner is an individual, the activities of the SMLLC will generally be reflected on these IRS forms:

• 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 an SMLLC 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.

If the SMLLC is owned by a corporation or partnership, the SMLLC’s profits or losses should be reflected on its owner’s federal tax return as a division of the corporation or partnership.

For federal income tax purposes, an SMLLC classified as a disregarded entity generally must use the owner’s Social Security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax.

Employment Tax and Certain Excise Tax Requirements

An SMLLC classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes.

An SMLLC also must use its name and EIN to register for excise tax activities on Form 637; file and pay excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849.

Single-Member LLCs vs. Multiple Member LLCs

SMLLCs and multiple-member LLCs (MMLLCs) have a few other distinctions.

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 SMLLC, you should consider the following:

• SMLLCs have one owner who’s also the manager. MMLLCs can either be owner-managed (all members participating equally) or have a separate management position for one person. That manager can be one of the owners or a third party.
• SMLLCs are taxed the same way a sole proprietorship is taxed while MMLLCs are taxed like a partnership.
• MMLLCs have more decisions to make and agree upon because they involve more people.

Single-Member Limited Liability Company vs. Sole Proprietorship

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

Still, making the switch to a single-member LLC offers some definite benefits:

• The business will be officially recognized, and its name must include “LLC.”
• The business’s name will be registered with the state, meaning no other organization in the state can use that name. A sole proprietorship can register a name, but it’s a separate process that few people use.
• The owner and business are officially separate entities, which can provide the owner with peace of mind and protect their personal assets.
• 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.

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

How to Form an SMLLC

Forming an SMLLC is much like forming an MMLLC. Each state has its own forms and rules for filing. The steps typically include:

• Choosing a name for the company that’s available and complies with state laws. Some states require you to include “Limited Liability Company,” “LLC,” or a similar abbreviation. Use your state’s business search tool to determine if your desired name is available.
• Filing Articles of Organization, also known as Articles of Incorporation, with your Secretary of State and paying the filing fee.
• Creating an Operating Agreement.
• Getting an EIN.