A limited liability company (LLC) can come in many shapes and sizes. Some LLCs are major multinationals with billions of dollars in annual revenue and highly complex ownership structures. Others are mid-sized businesses. The smallest of LLCs—owned and operated by one person—are known as single-member LLCs.
What is a single-member LLC?
A single-member LLC (SMLLC) is an LLC that is owned and operated by one person, known as the LLC member. This limited liability protection provided by a SMLLC means that the member’s personal assets are protected from any debts or liabilities incurred by the LLC.
SMLLCs are popular among entrepreneurs because of this liability protection and because they are relatively simple to set up. The SMLLC structure is also flexible and can work with many different types of business entities.
How do single-member LLCs work?
The flexibility of the single-member LLC structure means that different SMLLCs can look and function very differently, depending on the company’s needs and strategy. That said, most SMLLCs do have some structural similarities, in addition to the limited liability protection they provide.
Sole ownership
Unlike multi-member LLCs and partnerships, single-member LLCs can operate with a single owner.
Single-member LLC operating agreement
Like multi-member LLCs, most single-member LLCs have an operating agreement, a legal document usually created at the company’s founding that outlines many key details about ownership, management, and governance.
If a single-member LLC does not have an operating agreement, it will be subject to state laws governing LLC operations in the state in which it was formed.
Simplified and flexible management
Single-member LLCs generally have no requirements for boards of directors or member meetings, and they generally have fewer restrictions and reporting requirements than other business structures. These factors allow the owner of a single-member LLC to generally operate the business as they see fit.
Single-member LLC taxes and filing
As with multi-member LLCs, the member of a SMLLC must pay taxes on the LLC’s profits. However, the tax treatment for SMLLCs is different from most other common small-business structures.
Single-member LLC as a disregarded entity
For federal tax purposes, the Internal Revenue Services (IRS) treats single-member LLCs as a disregarded entity. In effect, this type of classification means that the IRS does not treat the SMLLC as a separate entity from its owner. Instead of paying taxes through the SMLLC as a separate entity, the member pays any taxes related to the company’s operations through their own personal income taxes.
Does a single-member LLC need an EIN?
If a single-member LLC has any employees or is required to pay certain excise taxes, then it must file Form SS-4 with the IRS to apply for an employer identification number, or EIN. However, if an SMLLC does not have any employees and does not have excise tax liability, it may not need an EIN. In that case, the single member may file the SMLLC’s taxes under their own name and personal taxpayer identification number.
Does a single-member LLC get a 1099?
A 1099-NEC is a type of tax form that tracks payments that a business makes to someone who isn’t an employee. This includes single-member LLCs. Any business that pays a single-member LLC more than $600 for services during the year must send a Form 1099-NEC to the SMLLC to fill out and file with the IRS.
Single-member LLCs vs. other entities
A SMLLC is one of several common legal structures among startups and small businesses. Here are some of the notable similarities and differences between these popular structures.
Single-member LLC vs. sole proprietorship
A sole proprietorship is another type of structure for a business with a single owner. A sole proprietorship is not the same as a single-member LLC—they are two different types of business structure with different protections and requirements. Here’s a look at how the two compare across a few relevant categories:
|
|
SMLLC |
Sole proprietorship |
|
Registration |
Must file articles of incorporation or similar founding documents with the state |
No paperwork required to form separate legal entity |
|
Liability |
Limited liability protection for owners |
No liability protection. Owners can be held fully liable for debts and obligations incurred by the business. |
|
Taxes |
Owner reports income and expenses on personal tax return |
Owner reports income and expenses on personal tax return |
Single-member LLC vs. multi-member LLC
Single-member LLCs are the same type of legal entity as multi-member LLCs, with the obvious exception that SMLLCs have just one member. Other notable differences include:
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Complexity and management: Because they have multiple members, the management, ownership, and profit distribution at multi-member LLCs tends to inherently be more complex than at single-member LLCs.
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Taxation: Multi-member LLCs usually elect to be taxed as pass-through entities, while single-member LLCs are usually treated as disregarded entities for tax purposes. These are different classifications, but the effect is the same, with all members paying any LLC-related taxes through their personal tax returns.
Single-member LLC vs. S-corp
While a single-member LLC is a structure for a small business with one owner, an S-Corp is a structure typically used by larger and more complex entities with many employees and shareholders.
S-Corps are generally subject to more formal rules and regulations than single-member LLCs, including different requirements for taxation, shareholder meetings, and corporate governance.
Like a single-member LLC, an S-Corp provides limited liability protection to its owners. S-Corps are taxed as pass-through entities, the same as multi-member LLCs.
→ Learn more about the different types of corporations
How to pay yourself as a single-member LLC
If you are the sole member of a SMLLC, the IRS does not allow you to pay yourself a salary. Instead, most single-member LLC owners pay themselves through what’s called an owner’s draw, or simply a draw: The member draws money out of LLC as needed, either by writing themself a business check or by transferring money directly from the LLC’s account to their personal account.
The member in a single-member LLC has other ways to pay themself, too. If the company is profitable, the LLC member could choose to pay themself out some of those profits as a distribution. A member who personally paid for some business expenses might also reimburse themself from the LLC business account.
It’s important for an SMLLC to maintain records of all draws or other types of payment to the member for tax purposes.
