Learn all the essentials to starting a single-member LLC in this in-depth guide.
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You’ve decided to start a business on your own — a single-member LLC (SMLLC). Awesome! An SMLLC can be a great way to start your business on a solid footing.
If you’re considering forming a single-member LLC but aren’t sure where to begin, we want to help. Use our guide below to learn more about single-member LLCs and see whether it’s the right legal entity type for your business.
A single-member LLC is a limited liability company that has a single business owner. Typically, anyone who owns an LLC is referred to as a “member.” Many LLCs have multiple members, but in this business structure, just one member forms the company.
Two of the most popular options for starting a business as a sole owner are forming an SMLLC or operating as a sole proprietor. A sole proprietorship would let you get started immediately without filing any paperwork. But that convenience comes with a substantial disadvantage: the sole proprietor has personal liability for everything the business does. Your personal assets can be confiscated to help pay for your business debts if something goes wrong, such as the business being sued.
Starting an SMLLC requires a little more paperwork at the outset, but it gives you personal asset protection (in most cases). As the only member of the SMLLC, you still have the autonomy to call the shots — just with more liability protection. It’s why many entrepreneurs decide they need an LLC.
Starting a single-member LLC is an important process, but you can boil it down to the following basic steps. Some states may require an additional step or two, and some have different names for some of the steps. Likewise, some requirements will vary from state to state. But most states will follow these basic steps.
What will people call your business? Now’s the time to decide. As the only member of the LLC, you get 100% say in your name, but there are a few things to keep in mind. Ideally, your name should be:
Last but not least, your business name must be completely unique from other names in your state. It should also contain a designator like “LLC” or “Limited Liability Company” at the end to let people know they’re working with an LLC. The requirements for this designator vary by state.
In nearly every state, you’ll need a registered agent, known in some states as a resident agent or agent for service of process. A registered agent is an individual or a company that accepts official legal and state communications on behalf of a business. This includes any legal correspondence about lawsuits (called “service of process”), official state notices, and more.
To be a registered agent, typically, a person must be at least 18 and have a physical address (not a P.O. box) within the state where the business is located. They also have to be present at that address during all regular business hours. Because of that, many SMLLC owners choose to appoint someone else as their agent or use a registered agent service like ours.
Once you have your name picked and your agent appointed, it’s time to start filing state paperwork. In most states, the official form is called the “Articles of Organization,” and you can find it on your Secretary of State’s website (or equivalent government site). Most states even let you file these legal documents online.
Be prepared: when you file your Articles of Organization, you’ll need to pay a state filing fee. Every state charges a different fee; some just require $50, and others charge $300 (or more). As soon as the state accepts your payment and paperwork, your SMLLC is officially created.
An operating agreement is sort of like a charter for an LLC; it describes the specifics of how an LLC will operate. Generally speaking, the operating agreement details how much of the profits each member gets, how new members can be appointed, and more. An operating agreement also helps maintain the personal asset protections of the LLC.
Even though you’re starting a single-member LLC, it can be helpful to create an operating agreement. You never know how your business will adapt later on; an operating agreement lays the groundwork for future growth. Plus, if anyone ever challenges your LLC’s legitimacy in court to try to go after your personal assets, having an operating agreement in place is one more thing to demonstrate to the court that you and your LLC are indeed separate entities.
Are you unsure as to how to create an operating agreement for your LLC? We offer a operating agreement template to help get you started.
An EIN, or Employer Identification Number, acts like a Social Security number for a business entity; it’s how the IRS identifies you as a taxable entity. You can apply for one with the IRS for free. If you plan to hire employees, owe excise tax, or a bank asks for one when you apply for a business bank account, you’ll need this number.
You can get your LLC’s EIN through the Internal Revenue Service website, by mail, or by fax. If you’re not fond of dealing with that particular government agency, we can get it for you. Our EIN service is quick and eliminates the hassle.
When tax time rolls around, the LLC itself doesn’t pay any federal taxes on its business income. Instead, the owner of the LLC reports the income on their personal income tax return (often on Schedule C of Form 1040) and pays the appropriate taxes. This usually repeats on the state level, but not all states treat LLCs the same way the federal government does. Some states levy additional taxes on LLCs.
Taxes can get very complicated, so we highly recommend enlisting the help of a CPA.
Once your SMLLC is official, you still have an important new federal obligation to fulfill: filing a Beneficial Ownership Information (BOI) report. Starting in 2024, most LLCs and many other small businesses are required to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN). The BOI report is a requirement under the Corporate Transparency Act, enacted to enhance transparency regarding business ownership to prevent illicit financial activities. Entities subject to this rule include many limited liability companies (LLCs), corporations, and others formed by filing with a Secretary of State or a similar U.S. office. The report is meant to disclose information about a business’s “beneficial owners,” who are individuals with substantial control, ownership interest exceeding 25%, or significant economic benefit from the business’s assets.
You’ll first need to gather information on your LLC’s beneficial owners, including their full names, addresses, and identification documents. Then go to the FinCEN website, where you complete a form online or by PDF. There’s no fee to file.
Companies formed before January 1, 2024, must file their report by January 1, 2025. Those created after that date have 90 days from their approval by the state to file, and those formed after January 1, 2025, have 30 days from receiving notice of approval. Failure to file can result in substantial penalties, both civil and criminal, making timely submission crucial.
You can get more information on the FinCEN website. If you need guidance following this new federal requirement, our Beneficial Ownership Filing service can help.
Still wondering why you should form an SMLLC? Here are some of the benefits of starting a single-member LLC.
SMLLCs offer flexibility because they’re relatively simple to run. In most states, an SMLLC only needs to complete a few steps (like filing annual reports and maintaining business licenses) each year to stay compliant. Corporations have more complicated requirements.
Personal asset protection is a huge advantage of an SMLLC. In the eyes of the law, the SMLLC is a separate entity that must pay its own debts and face its own lawsuits — not the SMLLC’s owner. And if the business can’t pay up from its own accounts, collectors usually can’t come after the assets of the LLC’s single member. Check out more on keeping your personal and business assets separate.
Running a business by yourself comes with a lot of responsibility, but being the single owner of an LLC gives you a lot of freedom to make the choices that you want. You won’t have to consult stockholders or business partners when you want to add a product line, buy equipment, or make any changes. An SMLLC gives you full control of the business.
You can operate as a sole proprietorship, but some customers feel more comfortable paying checks to state-recognized businesses. The phrase “Limited Liability Company” adds legitimacy.
Since LLCs are pass-through entities for federal income tax purposes, they often have lower tax liabilities. The sole owner pays personal tax rates after reporting their SMLLC income in their Schedule C. Unlike corporations, LLCs aren’t subject to double taxation, where the business profits are taxed at the business level and again on the business owner’s personal tax return. Read the pass-through taxation definition for more.
LLCs have pass-through taxation by default, but they also have the option to be taxed as either an S corporation or a C corporation. Being taxed as an S corporation also has pass-through taxation, but it also has the potential to save members on what they pay in self-employment taxes. Being taxed as a C corporation (the default form of corporation) does come with double taxation, but there are also benefits for certain larger LLCs, such as the ability to make more tax deductions.
Of course, there are some disadvantages to be aware of as well. Some of these disadvantages include:
As with all things in life, it’s important to consider both the pros and cons before making your decision on what type of entity to form.
Recommended article: Single-Member LLC vs. Multi-Member LLC
Starting a single-member LLC doesn’t mean you have to do everything solo. Our LLC formation service can get you up and running for $0 and zero stress. We can also help with registered agent service, compliance, and other services to help you de-stress about the red tape and focus on what matters: your business goals.
Is it better to be a single-member LLC or multi-member LLC?
The answer to this question will often depend on the particular needs and goals of your business. Forming a single-member LLC is often a simpler process than forming a multi-member LLC. And as the sole owner of a single-member LLC, you’ll have ultimate decision-making authority — as opposed to a multi-member LLC, where decisions need to be made jointly with other members.
Despite some of these single-member LLC benefits, forming one may not be right for all businesses. For example, if you have already committed to forming a business with one or more co-owners, a multi-member LLC may be the way to go.
If you’re not sure which option is right for your business, speak with a local legal professional to discuss the available options in more detail.
What are the disadvantages of a single-member LLC?
The biggest disadvantage to an SMLLC is that you’ll shoulder all the responsibilities yourself (or hire people to handle tasks… again, by yourself). A single-member LLC is also limited to the capital investments they can provide individually.
Does the IRS recognize a single-member LLC?
For tax purposes, the IRS regards an SMLLC as a “disregarded entity.” In simpler terms, the IRS recognizes an SMLLC as a legitimate entity. However, it “disregards” it, or doesn’t tax it, during tax season. Instead, the IRS taxes the owner of the SMLLC for any personal income they make off the SMLLC’s profits.
Can I use an EIN for a single-member LLC?
Yes, and you might have to. Some banks require you to have an EIN to get a business bank account. And if you’ll be hiring any employees, you’re required to obtain one for employer-related taxes.
Do all states recognize a single-member LLC?
Yes. All states and the District of Columbia allow the formation of an SMLLC and permit LLCs to have just one member.
Single Member LLC (SMLLC) Resources
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When it comes to compliance, costs, and other factors, these are popular states for forming an LLC.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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