Forming your own company comes with many important decisions, like what type of business entity best suits your needs. If you’re the owner of your business and will not be sharing those ownership responsibilities with any other individuals, you might want to consider forming a limited liability company—specifically, a single-member LLC.
Single-member LLCs enjoy many tax benefits and flexibility in operations. To help you find out if this business entity type is right for you, we’ll walk you through everything you need to know about single-member LLCs, show you how to set one up, and answer questions regarding their taxes and employees.
In This Guide
What Is a Single-Member LLC?
A single-member LLC is a limited liability company (LLC) that is owned by one individual, called a member. This means one person holds all of the responsibility of managing the company and paying necessary taxes.
Many freelancers who decide to start their own businesses opt for single-member LLCs because this business structure allows them to expand and add employees and contractors as they see fit.
How to Set up a Single-Member LLC
You’ll set up a single-member LLC through the secretary of state where your business is located by completing the following steps:
1. Choose an LLC name.
The first step you’ll take when setting up a single-member LLC is deciding on a company name. It’s important to pick a name that best represents your business but also complies with your state laws.
Many states prohibit using words that could be deemed offensive or derogatory, as well as words such as “bank,” “credit union” and “mutual” that require further regulation. You’ll also need to select a unique name that no other business has already claimed.
It’s best to make a list of possible names, then run them through your state’s business entity database to find an available name. From there, you can reserve your name (typically for up to 120 days), and file any trade or assumed names your business might need.
You can also trademark your single-member LLC name federally through the United States Patent and Trademark Office and locally through your state government.
2. Designate a registered agent.
Next, you’ll need to choose a registered agent to receive paperwork and communications from the state government on behalf of your business. This is required in order to officially register your single-member LLC.
Each state has its own requirement for registered agents, but generally, your agent must be over 18, reside in the state your LLC is registered within, and be available during normal business hours. You can also typically partner with a business entity located in your state.
Most states will allow the owner of a single-member LLC to act as their own registered agent. Although this might work well for many LLC owners, be aware that acting as your own registered agent comes with a few disadvantages. They include:
- Being available at your registered address during regular business hours: If you plan on working in the same location during these hours, this may not be an issue.
- Disclosing some of your personal information: Registered agents must disclose some private information as a matter of public record.
- Accepting summons and subpoenas at your place of business: If you do not have clients visiting your office, this might be fine, but be aware that legal communications will be served directly to you.
For these reasons, many single-member LLCs opt to partner with an outside registered agent to handle business communications on their company’s behalf.
3. Obtain proper licenses and permits.
In order to establish a business, many states require single-member LLCs to obtain a general business license. In addition, depending on your industry, your LLC may also need to secure additional licenses or permits (such as a license to sell alcohol).
Some cities and counties also require businesses to obtain specific licenses or permits to operate. Make sure you check with your local government branch to adhere to local requirements, as well as state regulations.
4. Register your LLC.
Once you’ve completed the first three steps, you’ll be ready to officially register your single-member LLC with the state government. To do this, you’ll file your articles of organization (some states might refer to them as your articles of formation).
This process can be completed online, by mail, or even in-person—depending on the state. There is typically a fee associated with filing this paperwork.
To file your articles of organization, you’ll generally need the following information:
- Your official LLC name
- Your operating address
- Your registered agent’s name and address
- Your LLC purpose
- Your industry
- Your (the owner’s) name and address
Filing this paperwork online is typically the quickest way to establish your new LLC. Some requests can be processed within 24 to 48 hours, depending on your state.
5. Create an operating agreement.
Creating an operating agreement is an important step that all single-member LLCs should take. Although most states do not require single-member LLCs to draft or file an operating agreement with the government, this document can be extremely important for protecting your business.
An operating agreement details the ownership and management structure of your LLC, outlines partner investments and distributions, and provides an overview of the operational plan for your business. Even though single-member LLCs will not need to worry about detailing partner distribution percentages, this document is still important to create.
An operating agreement can benefit your single-member LLC by:
- Confirming your LLC status
- Making it easier to open business financial accounts
- Protecting your personal liability
- Allowing your business to operate per your operational plan in the event that you’re incapacitated or unable to run your company for a period of time
You can partner with a business attorney or use professional templates offered by business services to complete your operating agreement. It should be kept on file at your office.
Single-Member LLC Taxes
Now that you know how to form a single-member LLC, let’s explain how single-member LLCs pay taxes.
Single-member LLCs are considered pass-through entities, which means the profits are passed on to the owner. Therefore, single-member LLC taxes will not require owners to pay corporate taxes, but instead, claim profits and losses on their personal tax returns.
That said, like any LLC, a single-member LLC does have the option to elect to be taxed as a corporation by filing Form 8832 with the IRS.
Obtaining an EIN
An EIN, or employer identification number, is issued by the Internal Revenue Service (IRS) to businesses. Your EIN works similar to an individual’s social security number—it clearly identifies your business and allows you to open business accounts and pay employees and taxes.
Single-member LLCs may need to obtain an EIN. You’ll need to obtain an EIN if:
- You have employees or contractors to pay
- Your bank requires an EIN for a business bank account
Single-member LLCs without employees may not need to obtain an EIN, but there are benefits of doing so—like separating your personal and business finances. If you opt not to secure an EIN, you’ll pay taxes through your social security number on your personal tax return.
You can request an EIN online with the IRS. The application only takes a few minutes and your EIN will be available immediately.
Any single-member LLC with employees will need to pay employment taxes, also called payroll taxes. You’ll do this by setting up a withholding account with your state Department of Revenue.
This will allow your LLC to withhold federal and state payroll taxes from your employees.
As the owner of the LLC, you will not be considered an employee of your business and are therefore subject to self-employment taxes.
These taxes are due quarterly at both the state and federal level. You can estimate them on your own or partner with an accountant or tax specialist.
If your single-member LLC will be collecting sales tax, you’ll need to apply for a sales tax license in your state (if applicable). This will allow you to pay the state government any sales tax your LLC collects.
Is a Single-Member LLC Worth It?
There are many good reasons to form a single-member LLC, but this business structure is not right for everyone. Here are some pros and cons to help you decide if this entity type is right for your company.
- Liability protection
- Separation of business and personal finances
- Recognition as an established business
- Can choose how you want to be taxed
- Option to add new members or pass on ownership to others
- Formation process requires paperwork and associated fees
- Must meet compliance, recordkeeping, and other ongoing state requirements
- Some courts hold that single-member LLCs are not separate entities and do not award owners liability protection in the case of debts or lawsuits
Frequently Asked Questions
Can a single-member LLC have employees?
Yes, single-member LLCs can, and often do, have employees. Many think because of the term “single-member” this type of LLC is for companies of one; however, this term actually refers to a single owner.
Single-member LLCs with employees do have different requirements, however, such as obtaining an EIN and setting up payroll withholding accounts.
Does a single-member LLC need an EIN?
It depends. A single-member LLC does not always need an EIN, particularly if the LLC does not have any employees. In this case, the LLC owner would file taxes under their social security number rather than an EIN.
If a single-member LLC has employees, an EIN is required. Some single-member LLCs without employees also opt to obtain an EIN since it’s free and makes it easier to secure business financial accounts and separate personal and company finances.
Is a single-member LLC a sole proprietorship?
No, a single-member LLC differs from a sole proprietorship. Although like a sole proprietorship, a single-member LLC is a pass-through entity (where taxes pass through the company to the owner), a sole proprietorship is a much more simplified business structure.
Unlike a single-member LLC, a sole proprietorship does not need to be registered with the state—and therefore has no legal separation between the business and the owner. As an example, if you begin freelancing or working for yourself without setting up a business entity, you’re automatically running a sole proprietorship.
Use our guide to learn more about the differences between an LLC vs. sole proprietorship.
How do you pay yourself in a single-member LLC?
As the owner of a single-member LLC, you won’t receive a paycheck. Instead, you’ll pay yourself by withdrawing money from your company’s profits.
You’ll decide on the amount to withdraw, then either write yourself a check or transfer money from your LLC business bank account to your personal bank account.
Many single-member LLC owners opt to pay themselves a steady salary or percentage of gross profits.
Are single-member LLCs subject to double taxation?
No, single-member LLCs are taxed as pass-through entities—and as a result—avoid paying corporate taxes. These businesses only pay taxes on their company profits once, on their personal tax returns.
Single-member LLCs will only be subject to double taxation if they’ve elected to be taxed as a C-corporation by filing Form 8832 with the IRS.
The Bottom Line
Forming a single-member LLC can help small businesses with one owner enjoy liability protections and tax benefits. The business formation process is fairly simple, usually taking anywhere from a few days to a few weeks, depending on your state.
We recommend reviewing all of your business entity options before deciding on a single-member LLC and reaching out to a business attorney with any questions you may have.