Find a Partner: Single Member LLC
A single member Limited Liability Company or SMLLC is as the name suggests, an LLC with a single member. When the LLC laws were enacted by states SMLLC was not initially recognized as a legal entity. Gradually all states and District of Columbia started accepting SMLLC’s as a Legal form in their territory. Though the law in all states is clear about the limited liability status of SMLLC’s, it is yet to be tried and tested in courts. The limited liability status is moot when the entity is suspected of being used for dubious activities. The onus may rest on the single member to prove the legitimacy of business operations.
Single member LLC can attain the legitimacy of a multimember LLC if a proper Operating Agreement is drawn and adopted and the business operations are conducted strictly in line with the agreement. This will provide a clear and separate personality to the SMLLC from that of its member. Some states insist that the operating agreement should be in writing if the single member LLC is managed by the member itself. Operating agreement will also help to have specific conditions for smooth functioning of the LLC, because, in the absence of an operating agreement the LLC will be subject to the state laws by default which may have restrictive terms.
For federal taxation purposes the SMLLC is disregarded as an entity unless it has elected to be classified as a corporation. When elected to be classified as a C Corporation, the income tax returns of the SMLLC has to be filed as a separate entity and taxes have to be paid directly on its business income or profits. In Single member LLC Vs. S Corp tax returns, both has a pass through taxation benefit but the S Corporation have to file all the corporate returns required by IRS and the state.