Do you know the difference between a limited liability company (LLC) and a single member LLC? While both may sound like they have similar duties, these two entities are quite different from one another.
LLCs And Single Member LLCs: Defining The Difference
The key difference between a limited liability company and a single member LLC is in the entity’s name.
Limited Liability Companies (LLCs)
Limited liability companies were initially created to be a replacement for standard partnerships. This entity provides its members with liability protection. This ensures a separation between personal and professional assets. The assets and debts of an LLC are its own, as are the assets and debts of each member. If an unforeseen, negative circumstance should impact the business, it would not affect the personal belongings of the LLC’s members. Their assets would be safe.
Do LLCs differ from single member LLCs in any other way besides having multiple members? LLCs are also treated as partnerships on a federal level. An LLC may choose to be taxed as another entity that is not a partnership, but must file the appropriate forms with the IRS to make this change.
Single Member LLCs
A single member LLC lives up to its name. Only one member may run the business. If you’d like to add additional members, you may opt for a member managed LLC or manager managed LLC. (More about both of these formations and what they do momentarily.)
Much like LLCs, single member LLC formations are recognized at the state level by every state in the United States. You may incorporate as a single member LLC in any state you wish to do business. However, unlike an LLC, a single member LLC is not considered to be a partnership.
What does this mean for entrepreneurs that choose to incorporate as a single member LLC? We’ll tackle this area in more detail in a moment. For now, a single member LLC must be treated as its own separate, legal entity. This is true of running the business itself and how a single member LLC will report on its taxes.
Member Managed LLCs And Manager Managed LLCs
Want to add members, or managers, on to an LLC? Consider these two business formations in lieu of a single member LLC.
- Member Managed LLC: Every member in a member managed LLC is treated as an equal. All members share the same amount of responsibility in the LLC’s day-to-day operations. Due to the equality that members have, there isn’t a separate level of management to run the business. This formation is ideal for small businesses that may have limited resources or owners all equally invested in running the company.
- Manager Managed LLC: A board of managers oversees the direction and operation of a manager managed LLC. This board may be similarly compared to a board of directors in a corporation. These individuals exercise more control over the business than the members. A manager managed LLC is often preferred by members that are not comfortable running the LLC on their own, or run a large LLC that makes it difficult for all of the members to equally share management responsibilities.
Would you like to file as a member managed LLC or manager managed LLC? Specify which management structure you’d like to form on your LLC’s organizational forms. (Pro tip: there’s usually a box you can check off that indicates the LLC structure you’d like for your business!) Then, pay the filing fee and submit the paperwork.
Still want to form a single member LLC? Here’s what you need to know about the process.
Incorporating A Single Member LLC
Forming a single member LLC is not too different from forming an LLC. Generally, you’ll file an application, along with your Articles of Organization, with the state and pay a filing fee. However, there are a few additional details to keep in mind during the filing process.
- The Articles of Organization will request that you list all of the LLC’s members. As a single member LLC, this will mean listing only yourself.
- You must be able to create and maintain proof of your single member LLC’s existence. A single member LLC is treated like a separate business entity and must be run accordingly. Common proof for its existence may include an LLC operating agreement, recording minutes during meetings to mark any major business decisions, and adopting necessary resolutions. Without this proof, your LLC’s status could be revoked.
Still Have Questions About Single Member LLCs?
If you’re not sure which LLC formation is the best fit for you and your business, consider consulting a legal professional for additional advice. For questions related to single member LLC structures — as well as member managed and manager managed entities — contact MyCorporation’s skilled professionals at 877-692-6772.