Launching a business venture in the United States is not as complicated as many people may think. In fact, even an individual can create a company.
Choosing a Business Structure
Among the first decisions that an entrepreneur faces when starting a business is how to structure the company.
Generally, the simplest structure is the sole proprietorship. This is an unincorporated business owned by one person. There is no separation between the company and the owner, so the owner will get all the profits of the business. However, they will also be personally liable for all of the company’s debts.
For some entrepreneurs, a sole proprietorship may seem enough. While it may be the simplest, it does not necessarily mean that it is always the best option.
A sole business owner has another choice. That is the single member limited liability company (SMLLC). It is a legal business entity structure that offers many advantages.
Why Register as a Single Member LLC
As stated earlier, an individual entrepreneur can opt to form an LLC. Here are some of the reasons why this business entity structure is an ideal choice:
- Asset Protection
One of the main benefits of registering as an LLC is that it makes the company a separate legal entity. So unlike a sole proprietorship, a single member LLC offers limited liability protection. The owners, who are called members, will not be personally liable for the actions and debts of the LLC. Even if the company faces lawsuits or is not able to pay its debts, the assets of the member will not be at risk.
However, it is important to note that this protection comes with responsibility. The owner should always make sure that the company acts as a separate entity. For instance, the finances of the single member LLC should not be mixed with that of the member. To ensure this, having a dedicated business bank account and keeping track of company expenses may help.
Similar to a sole proprietorship, a single member LLC is treated as a pass-through entity for taxation purposes by default. That means the company will not pay federal income taxes at the corporate level. Instead, the member will report business income and losses in their personal tax return.
- Raising Capital
A single member LLC is allowed to raise capital in various ways. One of these is to offer admission as additional LLC members. The new members will also have asset protection. However, increasing the number of members will make the company a multi-member LLC.
- Transfer of Ownership
Transferring ownership of an LLC is also easy. The member can sell the company without interrupting its business operations.
Generally, LLCs do not have any restrictions on the number and type of owners. A non-resident can be a member. Even other entities, such as another LLC or a corporation, can also serve as an LLC member.
Unlike corporations, single member LLC’s do not require a lot of corporate regulations. For instance, there is no need to establish a board of directors or hold an annual shareholder meeting. The company does not have to keep well-detailed minutes of meetings.
While the process of forming a single member LLC varies depending on the state, the whole ordeal is typically easy and affordable. It includes the submission of formal paperwork, compliance with various obligations, and payment of the corresponding fees.
Here is a simple rundown of the common tasks a company needs to accomplish:
- Choose an appropriate business name.
- Appoint a registered agent.
- File formal paperwork.
- Obtain an Employer Identification Number (EIN).
- Get the necessary business licenses and permits.
For a more detailed discussion on the LLC registration process, check out our state-specific articles.
Owners of a single member LLC often have to take on various roles. As the sole owner, they will be in charge of handling multiple responsibilities. So it may be hard to set aside enough time to learn and handle business formation.
Fortunately, states allow companies to hire third-party organizations like DoMyLLC. Our team of experts can help streamline the process and make it a hassle-free experience. We can also serve as a registered agent. What’s more, we can personalize solutions to make sure they fit the needs and circumstances of our clients. Contact us to find out how DoMyLLC can help a single member LLC.