Single Member LLCs: A Complete Guide

By Bryce Warnes — Reviewed by Janet Berry-Johnson, CPA on January 17, 2020

Ifyou want the liability protection of an LLC, but with the simple tax filing of a sole
proprietorship, then a single member LLC could be the right structure for your
Contents
business.
What is a single member LLC?
The pros and cons of
LLC
a single member
What is a single member LLC?
How to form a single member LLC
A single member limited liability company (SMLLC) is an LLC with just one voting
Paying business tax as a single member—you, the LLC owner. Multi-member LLCs have multiple members, who
member LLC
vote on major decisions and share ownership of the company.
How to pay yourself as a single
member LLC
Whether they have a single owner or many, all LLCs come with liability protection.
Hiring employees as a single member That means, if your company is sued, or can’t pay its debts or federal tax, your
LLC
personal assets—as opposed to the money in your business bank account —can’t
be seized.

Tired of doing your own books? The corporate veil

Try Bench. The protection an LLC gives you from liability is often referred to as the corporate
veil —a kind of imaginary curtain dividing your personal assets and those of the
business.

But the corporate veil has one weakness: you. To pierce the corporate veil means
to mix your personal and business assets.

In the event you’re sued or someone levies your assets, and you’ve pierced the
corporate veil, a court may rule your liability protection null and void. That brings
personal liability into effect—meaning your personal assets are on the line.

An SMLLC is not a sole proprietorship

Even if you elect to pay income tax like a sole proprietorship (more on that shortly),
a single member LLC is not a sole proprietorship. Unlike a sole prop, an SMLLC
can:

Elect how it files taxes (as a pass-through entity or a corporation)

Bring on additional members
Protect members’ assets from liability

That being said, an LLC structure may not be the best type of business entity for
you; it’s important to consider the pros and cons.

Further reading: Sole Proprietorship vs LLC (Main Differences)

The pros and cons of a single member LLC

Here’s a short summary of the single member LLC business structure vs. sole
proprietorships.

Pros Cons

Have to file lots of paperwork to form one

Liability protection (sole props form automatically, when you
start doing business)

Must submit compliance forms to prove

Ability to bring on new members you’re following the rules and stay in good
standing

Flexible federal income tax filing (choose to Must maintain corporate veil—piercing it

file as a sole prop or corporation) puts your assets at risk

Can pass on ownership to others, eg. family

members

How to form a single member LLC

Inorder to form a single member LLC, or convert your sole proprietorship to an
SMLLC, you need to to the following:

Register a business name

Apply for an Employer Identification N umber (EIN)
Designate a registered agent—the person who receives all tax
correspondence
File articles of organization with your Secretary of State. The cost of doing
this, and the information you must provide, varies state by state.
Open a business bank account
Stick to your state’s compliance requirements—such as filing annual reports
or submitting an operating agreement. (Requirements vary state by state.)
Abide with all hiring laws, if you’re an employer

Ifyou’re starting from scratch, our guide on how to start a small business has
everything you need to know.

Paying business tax as a single member LLC

By default, your single member LLC is taxed as a sole proprietorship. In that case,
the IRS treats your LLC as a disregarded entity. That means that, even though it’s
legally a separate entity from your person, you and your small business are one
and the same for income tax purposes.

However, you can also elect to file using the rules for a C corporation or S
corporation .

Filing as a sole proprietorship

How to elect: You’re automatically treated as a sole proprietorship if you don’t
elect another status.

How to file: Report all business income on Schedule C of your personal tax return
( IRS Form 1040 ).

Filing as a C corporation
How to elect: File IRS Form 8832

How to file: Report all business income on IRS Form 1120 . That income will be
taxed at the corporate rate.

Keep in mind—any dividends or salary you earn from your SMLLC will also be
taxed as personal income on IRS Form 1040 . For this reason, single member LLCs
rarely elect to file as C corporations.

Filing as an S corporation
How to elect: File IRS Form 2553

Report all business income on IRS Form 1120S .

An S corporation is a pass-through entity; you’ll pay your personal tax rate on all
business income.

Why bother filing as an S corporation? When you elect to file as an S corp, the IRS
doesn’t treat you as a self-employed individual. So you don’t need to file self-
employment tax like you normally would when filing as a sole prop.

How to pay yourself as a single member LLC

As a single member LLC, If you pay personal expenses directly withyour business
profits, you’ll pierce the corporate veil. To maintain liability protection (and keep
your bookkeeping organized ), you need to pay yourself through distributions.

That means cutting yourself a check and recording it on the books as an owner’s
draw . You don’t need to apply payroll taxes to this draw, as you aren’t an
employee. But if you plan on filing taxes as a sole proprietorship, you’ll need to pay
self-employment tax to the IRS.

Hiring employees as a single member LLC

A single member LLC is able to hire and pay employees. As a business owner,
you’ll need to be sure you’re withholding payroll taxes and paying them to the IRS.
Payroll taxes include:

Unemployment insurance
Medicare
Social security

For a deeper dive, check out our guide to payroll taxes .

This post is to be used for informational purposes only and does not constitute legal, business, or tax
advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to
matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the
information contained herein.

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