Articles of Organization LLC
A single member LLC is a legal entity that provides liability protection to its owner, just like a corporation or partnership. The owner files taxes as an individual and must pay for the business’s administrative costs alone.
However, there are benefits to operating your small business through a single-member LLC: The paperwork required is minimal, it’s easy to set up, and you can keep your finances separate from yours.
In this article, we’ll cover everything you need to know about running a successful single-member LLC – from tax implications and management structure choices to how much time it takes per week.
What To Know About Single-Member LLCs
A single-member LLC is a business entity different from a multi-member LLC. Single-member LLCs are often used for personal reasons and can also be established for legal protection in certain situations.
The main advantage of setting up a single-member LLC is that it has fewer tax obligations than other types of businesses because there are no shareholders or partners to share profits with. One person owns the company and receives all profits from it.
This means that your earnings won’t be taxed twice, once at corporate tax rates and once at personal tax rates, when distributed as dividends or bonuses (as would happen if you were running a traditional corporation).
Management Structure of Single-Member LLCs and Single member LLC Operating Agreement
Because just one person owns the business, it’s up to you to manage the day-to-day tasks. You can fire up your computer and get started – but if your business becomes successful and grows, you may want to hire some help managing some of these tasks.
The two main options are:
- Hire an agent who will do some or all of the management tasks for you in exchange for a salary or commission.
- Ask a professional manager who runs small businesses like yours to take on this responsibility for you.
Steps to Creating a Single-Member LLC
The process begins with filing the Articles of Organization. The single-member LLC is not legally required to have any operating agreement or formal internal procedures, although having one is a good idea anyway.
After that, you’ll need to open a separate bank account for your business and obtain a Tax ID Number (TIN). The TIN is sometimes called an employer identification number (EIN) or federal tax identification number.
Paying Taxes as a Single-Member LLC
As a single-member LLC, you must pay taxes on your business’s profits. If you do not make any money, there is no tax liability.
Suppose you become an independent contractor for your company instead of paying yourself through payroll deduction. In that case, all expenses associated with running your business are considered deductible when calculating profit and loss statements.
It will include office supplies, advertising costs, and travel expenses associated with doing business at client locations.
Protection From Liability
One of the main benefits of a single-member LLC is that it limits your exposure to business liability. It’s important to remember that no business structure can make you immune from lawsuits – including an LLC.
It’s also important to remember that an LLC is not a substitute for insurance or professional advice. Business owners who don’t have enough money to purchase insurance should always consult with their accountants and lawyers before deciding which company formation makes sense for them.
Conclusion
While the structure of a single-member LLC can be complicated, it’s worth the trouble to figure out how to set one up. Many start their businesses with a single-member LLC to protect themselves from liability and taxes without going through all the paperwork other people require in corporate structures.