Setting Up a Single Member LLC

Some people, when setting up their own business, want to avoid corporate formalities such as having a full team of c-suite executives or shareholders. If that is how you see your business, with you as the sole shareholder, director, and officer some states will allow you do this. You can set up a single member LLC.

There are a few key steps to this, both in setting up and in maintaining a single member LLC. We will cover how to form the LLC, how to choose a management structure, and how to adhere to all rules in your state so you can keep your LLC protected.

Basic Structure

The difference between a corporation and an LLC is that with a corporation you have to have a board of directors, a president, and treasurer, while with an LLC, you have the option to operate under a single person as the principle.

Management Structure

You have 2 management structure options with an LLC: 1) member managed or 2)manager managed. Unless you specify otherwise in your Operating Agreement, you will be operating as a member-managed LLC by default.

1. Member Managed – The owner is the manager and most single member LLCs choose this option.

2. Manager Managed – A manager role is created, separate from the owner – the manager retains the authority to write checks, hire/ fire staff, and enter business contracts, but the owner has the authority on higher level decisions. This includes taking out loans etc. This is the best option if you own a retail store for example.

Title Choices

Single Member LLCs offer the freedom of choosing whatever title you prefer; you can be the president, the marketing director, the principal – whatever you fancy!

Operating Agreements

While it is not required to create an Operating Agreement for a single member LLC, it is a great way to sort out all the details you need to know. For example, it requires an answer to how your LLC will be funded, who will be making decisions, and what happens if you are no longer able to run the business. It also becomes evidence that you have separated your personal and your business affairs. This helps you to protect your personal assets.

Taxes on Single Member LLCs

Single member LLCs are so much easier to deal with when it comes to tax season. Corporations have to file separate tax returns. With a single member LLC you can report your income and expenses on Schedule C of your individual tax return. As single member LLCs are considered ‘disregarded entities’ you will be taxed like a sole proprietorship.

Liability and Single Member LLCs

Personal liability protection is one of the most beneficial parts of a single member LLC. This means that you, as a member, are not liable for the debts of the business. No matter whether your LLC gets sued or cannot pay its debts, your personal savings or assets are safe.

While liability protection protects you from contract suits, and against the wrongdoings of a business partner, it does not protect you in the case that you cause harm to someone through your business.

To ensure you keep your corporate veil intact (that a plaintiff cannot poke holes in it), you should be sure to keep all business accounts and finances completely separate from your personal finances.

Be sure you understand every step of setting up a single member LLC before taking the first steps, While it is pretty simple and easy to navigate, make sure you don’t slip up by forgetting something important.

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