From freelancers and e-commerce sellers to solo-founders, all benefit from the legal protection and simplicity of a Single-Member Limited Liability Company (SMLLC).
With this guide, you can get started with the definition of SMLLC and insights on its formation and maintenance along with tax implications.
What Is A Single-Member LLC?
A Single-Member LLC or Single-Member Limited Liability Company (SMLLC) is a type of LLC owned by a single individual, known as a “member.” SMLLC affords the owner the benefit of limited liability and enjoys the independence of an individual business owner, functioning much like a multi-member LLC.
The SMLLC is a hybrid business structure that merges the liability protection of a corporation with the tax benefits and ease of doing business as a sole proprietor.
They are among the most common business entity options in the United States, especially for small business owners, solopreneurs, and non-U.S. residents wanting to open U.S. branches.
Why Choose a Single-Member LLC? (Benefits)
Knowing the benefits associated with a Single Member LLC (SMLLC) is crucial before forming one. Here are a few advantages:
1. Limited Liability Protection
In the face of business debts or lawsuits, your personal assets like a house, car, or bank accounts are safe. In case of an SMLLC lawsuit or debts, the business assets at most risk are only those belonging to the business itself.
2. Pass-Through Taxation
The IRS regards a Single-Member LLC as a disregarded entity. This allows business income and expenses to funnel directly into your personal income tax return. Unlike corporations, this structure avoids the burden of double taxation.
3. Simple Structure and Management
Boards, shareholders, and bylaws are parts of a corporation. An SMLLC has few formalities to abide by. You, as the sole decision maker, are able to run operations swiftly and efficiently.
4. Professional Credibility
Customers, investors, and banks, like business partners, regard an LLC after your business name adds legitimacy. It gives more trust in you, allowing for better dealing with people when seeking funds or opening a business bank account.
5. Business Continuity
While a sole proprietorship ceases to exist upon the owner’s death, an LLC continues operating as long as it is well structured. Also, you can easily change ownership or introduce new members later on.
Steps to Form a Single-Member LLC
Let’s outline the procedure in a series of steps.
Step 1: Decide on the State of Formation
You’re free to choose any US state, or even one you do not live in, to start your LLC. Here’s how to choose:
- Home State: Preferred if you are physically present in the U.S. and intend to operate within the state or region.
- Delaware: Popular due to their advanced business regulations, confidentiality, and overall legal climate.
- Wyoming: No state income tax, very low costs, and privacy are some of the advantages offered.
- Nevada: The state does not levy corporate or franchise taxes, making it business-friendly.
⚠️ Note: Forming your LLC in one state, but operating in another could mean that you have to register as a foreign LLC in the state where you are based, which adds costs.
Step 2: Choose a Legally Compliant and Distinctive Business Name
The name of your LLC must comply with the following requirements:
- Be unique within the state of incorporation.
- Have an ending designator such as “LLC,” “L.L.C.,” or “Limited Liability Company.”
- Not include restricted terms like “Bank,” “Insurance,” or “Corporation” without obtaining the requisite permits.
✅ Ensure you haven’t overlooked your Secretary of State’s website prior to taking these next steps. You might also want to pigeonhole a name if you’re not prepared to make a filing right away.
💡 Tip: For brand coherence, consider claiming the corresponding website and social media accounts.
Step 3: Choose a Registered Agent
A Registered Agent Designates an Individual or Business Who Will Be Responsible for Receiving the Following:
- Legal documents (lawsuits).
- Government mailbox.
- Compliance documents.
The agent must fulfill the following criteria notified.
- Possess a physical address in the state of formation (No P.O. Boxes).
- Maintain regular operating hours.
Every U.S resident can appoint themselves as their own registered agent, or opt to utilize Registered Agent Services for discretion and convenience, which is especially useful for those living abroad.
Step 4: Articles of Organization Fill Out
Filing Articles of Organization and having them approved is what fully forms your LLC with the state as an officially recognized entity.
Items you traditionally need to submit include:
- Name of the LLC and principal address of your business.
- Details of the Registered Agent.
- Specify the type of management.
- Specify the term of the LLC.
- Sign the Organizer’s document.
Filing fees also differ by state, ranging anywhere from $40 in Kentucky to $500 in Massachusetts. Some states also offer expedited filing for an additional cost.
The majority of states allow for applications to be submitted:
- Online: the fastest and most popular method.
- Via postal service.
- In person: least common.
Step 5: Write a Single Member Operating Agreement Draft.
A single member operating agreement serves as the governing document of the company and dictates its internal workings. An operating agreement may not be mandated for amending a business license in your region, but it is always recommended.
Some recommended sections to include are:
- Member’s ownership and role
- Procedures for adding members or transferring ownership
- Banking and financial protocols
- Dissolution terms
- Liability clauses
Defaulting to state law dictates that a business defaults to state law undermines the affiliation without an operating agreement. It’s imperative to provide a business with legal name separation while enabling for claiming defaulting by the business itself alongside controlling the state legislation in openly switching the law.
Step 6: Acquire an Employer Identification Number (EIN)
An EIN or a Federal Tax ID, as referred to by the IRS, is critical when:
- Paying taxes
- Opening a business bank account
- Hiring staff
- Applying for a business license
Application can be done in two ways:
- Online via a secured SSN or ITIN
- By mail or fax via Form SS-4 for Non-US residents
⚠️ Non-residents of the US lacking an SSN or an ITIN can only apply via mail/ fax. It could take several weeks.
Step 7: Open a Business Bank Account
The personal and business bank accounts must be kept separate in order to maintain your LLC’s limited liability protection. This is a crucial step.
Documents needed:
- EIN confirmation letter issued from the IRS CP 575
- Articles of Organization
- Operating Agreement
- ID (Government issued like passport or Driver’s license)
With a business bank account, based in the US, you are able to:
- Issue invoices to clients
- Record and monitor the cash inflow and outflow
- Safeguard and maintain the Limited liability protection
- Establish company credit
For those who do not reside in the United States, some banks, virtual banking systems and service providers offer remote account setup.
Step 8: Obtain Business Licenses and Permits
Depending on the state and city where the business is located, the following may be needed:
- General business license
- Home occupation permit
- Sales tax permit (if the business offers taxable goods and services)
- Professional or occupational licenses (such as for contractors, medical professionals, or legal professionals)
Consult your local:
- State Department of Revenue
- City or county offices
Paying fines or having one’s business suspended can occur when operating without proper licenses.
Step 9: Stay Compliant with Ongoing Requirements
Compliance, as the primary ongoing requirement, ensure an SMLLC maintains legal standing after formation.
The following are common requirements:
- Annual Reports: Submitted yearly (or every other year) with a nominal fee attached
- Franchise Tax: Required in states like Delaware, California, and Texas
- BOI Reporting: Starting 2024, FinCEN must receive the Beneficial Ownership Information Report
- Bookkeeping and accounting: Clear maintenance of all business transactions
- Registered Agent Renewal: Confirm that the agent remains active and in good standing
Failure to comply can lead to administrative dissolution or penalties.
How Are Single-Member LLCs Taxed?
Assumed to be the default option, an SMLLC gets taxed as a sole proprietorship:
- Business income and expenditure is recorded in the Schedule C section of the IRS Form 1040
- Self-employment tax, usually around 15.3%, will be applied to profits.
But you can choose to be taxed as:
S Corporation: To possibly reduce self-employment taxes
C Corporation: In case you wish to reinvest in the business for a long term or if you want to draw in some new investors
💡 For optimal setups pertaining to your income level and business objectives, consult with a tax professional.
Can Single-Member LLCs Be Established By Non-U.S. Residents?
Absolutely! Non-U.S. residents can set up and fully control a U.S. LLC without residing in the United States.
However, there are these additional considerations:
- Apply for an EIN through Form SS-4 (no SSN available)
- File a BOI Report with FinCEN
- Privately opt for an ITIN to assist with tax returns
- Engage the right specialists to set up a U.S. bank account
The United States is one of the few countries that hospitably accepts non-U.S. entrepreneurs, thus it ranks highly among international e-commerce sellers, consultants, and investors.
Let Bizstartz Help You Launch Your SMLLC
At Bizstartz, we have assisted entrepreneurs across the globe in confidently and swiftly starting their U.S. LLCs. We provide:
- LLC formation in all 50 states
- EIN application (available for non-U.S. residents too)
- Drafting of the Operating Agreement
- Compliance of BOI filing
- Registered Agent services
- Assistance in opening business bank accounts
- Ongoing compliance support
👉 Want to get started? Create your LLC with Bizstartz today
Frequently Asked Questions (FAQs)
1. Do I require a lawyer to establish a Single-Member LLC?
No. You can go without one as the entire process can be undertaken by yourself online on your Secretary of State’s website. However, if your business has complex operations involving legal contracts, foreign ownership, or other intricate factors, enlisting professionals or attorneys can ensure everything is executed lawfully and properly.
2. Can I switch from Single Member LLC to Multi Member LLC later on?
Certainly. You can change your Single Member LLC into a Multi-Member LLC anytime by revising your Operating Agreement and informing your state’s business office. Additionally, you might have to submit an amendment to your Articles of Organization. It can adapt as your business expands due to its flexibility.
3. Do I need to pay myself a salary for being the only owner of an SMLLC?
If your LLC is untaxed and classified as a disregarded entity, traditional salary-like payments are not made. Instead, you pay yourself by way of owner’s draws, which means moving money from the business account to your personal account. If your LLC is taxed as an S-Corporation, you will need to designate a portion of your income as a reasonable salary and will be required to, as an employee, subject to payroll taxes.
4. Is an SMLLC more advantageous compared to sole proprietorship?
In very many cases, yes. Both options are easy to manage, but unlike sole proprietorship, Single Member LLC comes with limited liability protection, which ensures that personal assets are kept separate from business debts, obligations and legal issues. On the other hand, sole proprietorship accepts personal liability for business-related risks.
5. What is the timeline for forming a Single-Member LLC?
The timeline changes according to each of the jurisdictions:
- Delaware and Wyoming, for example, offer same or 1-2 day processing (often with expedited fees).
- In other regions, the time frame can be 1-3 weeks depending on how busy the office is and how the form was submitted (online versus mail).
Filing through a professional service such as Bizstartz will save time significantly and guarantee accuracy along the way.
