Single-Member LLC
A single-member limited liability company (LLC) is a business structure owned by one person that offers personal liability protection and pass-through taxation.
While the business is a separate legal entity and gives owners personal liability protection, the Internal Revenue Service (IRS) treats single-member LLCs as disregarded entities by default. That means the company’s profits and losses pass through to the owner’s personal tax return instead of being taxed at the corporate level.
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Single-Member LLC Meaning and Definition
A single-member LLC is a formal business structure with only one owner. An LLC offers the personal liability protection of a corporation and the pass-through taxation of a sole proprietorship.
While the business is a separate legal entity and gives owners personal liability protection, the IRS treats single-member LLCs as disregarded entities by default. That means the company’s profits and losses pass through to the owner’s personal tax return instead of being taxed at the corporate level.
Single-member LLCs are popular because sole business owners can avoid the double taxation and administrative burden of a corporation while still enjoying personal asset protection.
Should I Form a Single-Member LLC?
Whether or not a single-member LLC is the best business structure for you will depend on your business’s unique characteristics and needs. Potential advantages of a single-member LLC include:
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Personal Liability Protection: An LLC business structure will protect your personal assets if your business goes into debt or is sued.
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Less Paperwork Than Corporations: You can start and maintain a single-member LLC with relatively little paperwork. This also may reduce some expenses, such as legal fees.
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No Double Taxation: Corporations pay taxes at the corporate level, and then their owners pay taxes on the dividends they receive. This is often referred to as “double taxation.” By default, single-member LLCs don’t pay corporate tax. Business profits instead pass through to the owner’s personal tax return.
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More Credibility With Customers and Creditors: Operating as a single-member LLC rather than a sole proprietorship under your personal name can make your company look more professional.
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Greater Tax Flexibility: Single-member LLCs are taxed as disregarded entities by default, but they have the option to be taxed as an S corporation (S corp) instead.
How to Form a Single-Member LLC
To form an LLC, you must complete these five steps:
- Name Your LLC
- Choose an LLC Registered Agent
- File Your LLC’s Articles of Organization
- Create an LLC Operating Agreement
- Get an EIN
You can start an LLC yourself using our free How to Form an LLC guide, or you can use an LLC formation service to register your LLC for you.
Step 1: Name Your LLC
You must provide your state with a unique and available name when you file your LLC’s formation documents.
Our Business Name Generator and How to Name a Business guide are free tools available to entrepreneurs looking for help in naming their business.
Step 2: Choose an LLC Registered Agent
Your LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You must list your registered agent’s name and address when you file your LLC's Articles of Organization.
Step 3: File Your LLC's Articles of Organization
The Articles of Organization — also known as a Certificate of Formation or a Certificate of Organization in some states — is the document you must file to officially register an LLC with the state.
Step 4: Create an LLC Operating Agreement
An LLC Operating Agreement is a legal document that outlines the ownership and member duties of your LLC.
Step 5: Get an EIN
An Employer Identification Number (EIN) is a number issued and used by the IRS to identify and tax businesses. It’s essentially a Social Security number for a business. Even if your single-member LLC doesn’t have any employees, we recommend getting an EIN after you form your LLC. EINs are free when you apply directly with the IRS. Visit our What Is an EIN? guide for instructions on how to get your free EIN.
Single-Member LLC Taxes
The IRS treats single-member LLCs as disregarded entities by default, which means they’re subject to “pass-through taxation.” Pass-through taxation means the company’s profits or losses aren’t taxed at the corporate level and instead pass through to the owner’s personal tax return. The business’s profits are then taxed at the owner’s personal income tax rate.
This differs from corporations, which are subject to double taxation. Corporations must pay a corporate tax on their profits, and then their owners must pay tax on any dividends they receive.
But, one possible disadvantage of a single-member LLC is that owners must pay both personal income tax as well as self-employment tax. That self-employment tax covers both the employee and employer shares of Social Security and Medicare taxes. The current self-employment tax rate is 15.3%.
Importantly, the Tax Cuts and Jobs Act of 2017 created a 20% tax deduction for owners of pass-through entities. That means owners can deduct up to 20% of the company’s qualified business income (QBI) on their personal tax return — with some restrictions.
How to Start a Business
After you familiarize yourself with the advantages and disadvantages of a single-member LLC and decide if it’s the right business structure for you, you will then need to actually form the business. Whether you choose to form a single-member LLC or not, you must complete several other tasks before you can start selling your products or services.
For more details on those other tasks, check out our state-by-state How to Start a Business guides. In the meantime, here’s a quick overview of some basic steps you must take after forming your business:
- Register for taxes
- Create business banking and credit accounts
- Set up accounting
- Obtain required licenses and permits
- Get appropriate insurance
- Establish a web presence
Single-Member LLC FAQs
What are the benefits of a single-member LLC?
Some advantages of a single-member LLC structure include personal asset protection, less paperwork than corporations, greater tax flexibility, and increased credibility with customers and creditors.
What’s the downside to a single-member LLC?
LLC members (owners) must pay self-employment taxes, and LLCs sometimes have a harder time attracting outside investors than corporations do.
How do I create a single-member LLC?
Creating an LLC is easy. You can start an LLC yourself by using our free How to Form an LLC guide, or you can use an LLC formation service to register your LLC for you.
How much does it cost to form a single-member LLC?
The primary cost of forming a single-member LLC is the state filing fee. This fee ranges from $40 to $500, depending on your state. For more details, check out our How Much Does It Cost to Form an LLC? article.
How are single-member LLCs taxed?
By default, single-member LLCs are taxed as pass-through entities. That means the owner pays personal income tax on the business’ profits.
For more information, read our single-member LLC tax guide.
Where should I form an LLC?
While there may be benefits to forming an LLC in certain states, it’s best to form your LLC in the state where it’s located or conducts business.
Do I need a lawyer to form a single-member LLC?
You can usually form an LLC without hiring an attorney.
How are single-member LLC members paid?
As an owner of a single-member LLC, you can take a distribution (or draw) that — by default — will pass through to your individual tax return. Alternatively, you can take a “reasonable” salary and distribution if you choose to be taxed as an S corp.
Learn more in our How Do I Pay Myself From My LLC? guide.
What’s the difference between a single-member LLC and an S corp?
An S corp is an IRS tax classification, not a type of business entity. A single-member LLC may choose to be taxed as an S corp or as a default LLC. Read our What Is the Difference Between an LLC and an S Corp? article for more information.
Is it better to form a single-member LLC or a DBA?
Your business' unique situation and needs will determine if it’s better to form a single-member LLC or a sole proprietorship with a “doing business as” (DBA) name. Read our DBA vs. LLC article for more information.
What are the Articles of Organization?
The Articles of Organization is a public document used to form an LLC. In some states, it’s known as the Certificate of Organization or Certificate of Formation.