Single Member LLC: The Key Details and Questions

A single member LLC is a type of limited liability company (LLC) which has one owner. This form of business structure has become popular among entrepreneurs and small businesses.

This is because it provides protection against personal liability for business debts and claims. While doing that, the LLC provides flexibility in taxation and accounting rules.

In this article, we'll learn about single member LLCs and how Wise Business can help with your LLC’s financial needs.

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Table of Contents

What Is a Single Member LLC (Limited Liability Company)? How To Start A Single Member LLC Benefits And Disadvantages Of A Single Member LLC Single Member LLC: Frequently Asked Questions How Do You Pay Yourself With A Single Member LLC? Individual vs. Entity LLC: What’s The Difference? What’s The Right Tax Form For Single Member LLCs? Sole Proprietor vs. LLC: What’s The Difference? S Corp vs. LLC vs. Partnership: What’s The Difference? What Is The Wise Business Account For LLCs And Sole Proprietors?

What Is a Single Member LLC (Limited Liability Company)?

A single member LLC, or SM LLC, is a business structure that has one owner. This type of entity has the limited liability protection of a corporation. It also has the flexibility of a sole proprietorship. Put simply, this means that the LLC owner is not liable for any debts or liabilities the business might incur. This owner manages and controls all aspects of the company.

While a single member LLC can look like an LLC with one member, you can also hire employees at a single member LLC. These employees are not considered owners and do not receive any equity in the business.

Single member LLCs are not required to issue shares or ownership interests. This makes them different from corporations or partnerships. There are also fewer filing requirements than those for larger businesses such as corporations.

The Internal Revenue Service (IRS) says the owner of a single member LLC can name their company as either:

• a corporation
• a “disregarded entity”¹

An LLC labeled as a disregarded entity requires that you reflect your ownership of the LLC and the actions you take with it on your tax forms. These forms include:

• Form 1040 or 1040-SR Schedule C, Profit or Loss from Business (Sole Proprietorship)
• Form 1040 or 1040-SR Schedule E, Supplemental Income or Loss
• Form 1040 or 1040-SR Schedule F, Profit or Loss from Farming¹

You must file Form 8832 with the IRS to name your LLC as either a corporation or designated entity¹.

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Other Names For A Single Member LLC

There are many other names for a single member LLC. Here are ten names to look out for that label single member LLCs in a sneaky way.

1. Sole Proprietorship
2. One Owner LLC
3. Single Owner LLC
4. Single Person LLC
5. Single Proprietor LLC
6. Single Entity LLC
7. One Member LLC
8. One Person LLC
9. Individual LLC
10. Sole Owner LLC

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How To Start A Single Member LLC

Starting a single member LLC is easier than you'd think. You can do it yourself with the help of the many online resources available from the U.S. Government.

1. First, you'll need to choose a business name and register it with your state's Secretary of State office. You may also need to file other paperwork. For example, your office may recommend and/or require that LLCs file Articles of Organization and an LLC Operating Agreement. These files give the government and your members an idea of what your business looks like and how you will run it to prevent confusion or legal trouble².

The U.S. Small Business Association (SBA) requires that LLCs have a registered agent before becoming a registered business. This person’s job is to take on your LLC's legal files and file them through the proper channels. You can hire someone from a registered agent service within your state to make this process easier².

2. Once you've registered the business name, you'll need to get any necessary permits and licenses. These are related to your specific type of business activity.

3. After that, it’s important to open a separate bank account for the LLC where you can track all your business’ income and expenses. If you’re not a fan of banks, you can also look into business accounts with money-lending services, such as Wise Business.

Sole proprietors in the U.S. can get started with Wise Business today for free. This means you can take advantage of our minimal fees and no load requirements as soon as possible. We also offer a business debit card that allows U.S. sole proprietors to withdraw funds and use the card anywhere they go. But the best part of using Wise Business is that we make it easy to send and receive funds overseas. You can exchange money between more than 70 countries with no hidden or excessive fees.

4. You'll need to apply for an Employer Identification Number (EIN) from the IRS. This is a unique nine-digit number that identifies your LLC for taxation as its own entity. This can be disregarded for other entities, who can instead use the social security number (SSN) of the owner¹. These organizations are called "Sole Proprietorships".

Once you have completed all these steps, you have formed your own single member LLC!

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Benefits And Disadvantages Of A Single Member LLC

A single member LLC is a great option for small businesses and entrepreneurs looking to gain the benefits of limited liability. This type of entity offers several advantages, including:

• Limited Liability Protection - Corporations and partnerships enjoy this same protection. It means that your personal assets are protected from any debts or lawsuits against your company. This means that if someone sues your business, they can only go after the company’s assets and not yours.
• Flexible Taxation Rules - Single member LLCs have more flexibility in their taxation than larger corporate structures. They have the ability to be treated as either a disregarded entity or a corporation. As a disregarded entity, the owner reports their income on their personal tax return. As a corporation, the LLC files its own taxes¹.
• Easy To Set Up - Setting up a single member LLC is easy and inexpensive compared to other business entities.

There are some potential drawbacks of this type of structure, such as:

• Self-Employment Tax - As the sole member of your LLC, you are responsible for paying self-employment taxes on any profits you make from the company. These taxes can add up and may be more expensive than the taxes of other business entities¹.
• Limited Access To Capital - Unlike larger corporations, single member LLCs have limited access to capital. This can make it difficult for your business to grow and expand in the future without taking on extra debt or investors.
• Less Structure - Without other owners, there is less structure and accountability within a single member LLC. This can make it harder to follow through with decisions that are necessary for your company’s growth and success. You can create Articles of Organization to help make your structure a little more clear, but it is up to you to enforce this².

Deciding to start a single member LLC is up to you. It’s important to weigh the benefits and drawbacks before making a decision on what type of business structure is right for you.

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Single Member LLC: Frequently Asked Questions

How Do You Pay Yourself With A Single Member LLC?

The owner of a single member LLC can take profits out of the business in two ways: either through salary or distributions. You can take a salary as wages and report it on Form W-2, Wage and Tax Statement.

The IRS requires that LLC owners pay themselves reasonable salaries. This means that you cannot pay yourself wages that are too low to reduce your taxes. You must also withhold income tax, Social Security tax, and Medicare taxes from these payments.

You take distributions out as dividends after paying taxes on the profits of the LLC. These distributions are not subject to employment taxes. You will need to report these on your personal tax return as “Other Income” and pay the appropriate taxes.

Individual vs. Entity LLC: What’s The Difference?

The main difference between an individual, or single member, LLC and an entity LLC is that there is only one owner for an individual LLC.

In an entity LLC, there are many owners. When it comes to taxation, an individual/single member LLC will be treated as either a corporation or a disregarded entity. This depends on how the owner chooses to classify it on their individual tax return. An entity LLC usually files its own separate tax return.

What’s The Right Tax Form For Single Member LLCs?

The correct and main tax form for a single member LLC is[ Form 1040 or 1040-SR Schedule C, Profit or Loss from Business (Sole Proprietorship). This single member LLC form allows business owners to report their income and expenses on their individual tax returns.

You may also need to use these two forms:

• Form 1040 or 1040-SR Schedule E, Supplemental Income or Loss
• Form 1040 or 1040-SR Schedule F, Profit or Loss from Farming

This depends on the type of business you are running and its needs¹.

Sole Proprietor vs. LLC: What’s The Difference?

The biggest difference between a sole proprietorship and an LLC is the level of protection they provide. This is especially important for personal liabilities.

A single member LLC provides limited liability protection to its owner. This means that the owner’s personal assets are protected from business debts and liabilities. A sole proprietor does not have any such protections.

While both structures need only one person to form them, an LLC can hire employees while a sole proprietorship cannot. This means that you can grow your company faster with an LLC as opposed to a sole proprietorship.

Finally, taxes for single member LLCs are simpler than those of sole proprietorships. This is because an LLC can elect to be taxed as a corporation or disregarded entity. A sole proprietorship must pay self-employment taxes on all income earned through the business.

S Corp vs. LLC vs. Partnership: What’s The Difference?

The primary difference between an S corp, LLC, and partnership is ownership.

An S corporation is a type of corporation that has elected to be taxed as a flow-through entity for federal income tax purposes. It has shareholders who own the company and report their share of profits or losses on their personal returns.

An LLC can have one or more owners/members, but no shareholders. It offers the liability protection that a corporation has without the taxation structure they have.

A partnership is also owned by two or more people but does not provide limited liability protection.

It's also important to note that you can classify your LLC as a partnership or as a corporation for federal tax purposes. You can do so by filing Form 8832 with the IRS¹. This shows how similar these entities are. It all depends on the internal structure and taxation to differentiate them. And that depends on how you structure and maintain your company.

What Is The Wise Business Account For LLCs And Sole Proprietors?

Wise Business offers plenty of features that make your life easier as a LLC and a Sole Proprietor.

Some key features of Wise Business include:
Better visibility and organization of business finances. This is helpful for account reconciliations and audits.
Administration controls for users. It’s possible to allow team members to carry out specific tasks.
Receive payments from ecommerce platforms (such as Amazon, Stripe, or eBay)
Create invoices using the Wise invoice generator or invoice templates.
Features for bill payment, including a QuickBooks Bill Pay connection. Bill payments will be synced, matched, and categorized in QuickBooks for simple reconciliation.
Batch payment options. This allows the fast payment of up to 1,000 people, by uploading a spreadsheet.

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Moreover, we've got a US business debit card that can help sole proprietors make withdrawals and payments while they're on the move.

The Wise account’s main advantage is that we make it easy to accept and send payments abroad. You can make international payments to over 70 countries in over 40 currencies. So no matter where your employees are working from, you can pay them quickly and easily without high markups.

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Sources:

1. IRS: “Single Member Limited Liability Companies”
2. U.S. Small Business Association (SBA): “Register your business”
3. Wise TrustPilot