The Limited Liability Company, while an attractive form of organization,
can be a confusing business structure. In practice, a few major
differences separate the single member LLC from a standard format (or a
Limited Liability Partnership).By definition, the distinguishing
difference between single member LLCs and normal ones is that the former
only have one member, owner, or manager. The technical difference ends
here, but there are a few other differences that will arise from this
status.Note: not all states will always allow you to form a single member
LLC, mandating that you instead organize as a sole proprietorship. This
is unfortunate because it takes away limited liability privileges, but it
is a consideration. The good news is that you do not have to live in a
state to organize your company in it (you solely have to intend to do
business in it), so you are not limited by your geographic location. As
an example, you may live in Nevada and organize an LLC in Delaware,
similar to how incorporation works.A Risky Endeavor
Unfortunately, because of the nature of LLCs (that is, they were created
with partnerships in mind), some benefits of LLCs do not necessarily pass
through to their single member counterparts. Many legal experts will
encourage you to create your organization or company as a partnership,
even if you only give two percent of your company to a very close family
member or friend. This is due to a few confusing laws and
regulations:Charge Order Protection
In charge order protection, the government prevents your personal
creditors from seizing assets belonging to the company. Instead, they can
only claim your personal share of the profits the business generates. In
creating an SMLLC, you are making this complex. Because of this, it is
recommended to fill out IRS Form 8832 and elect to have your business
taxed as a corporation, which will help you prevent this.Death and
Operating Agreements
As a single member LLC, your company will come with a number of
limitations (this is due in part to the fact that this form of business
originated as a partnership alternative). A major but neglected advantage
to corporations is that they are indefinite - their existences are not
tied to one single person's life or well-being. Should an owner
(stockholder) die, then the corporation simply redistributes his or her
ownership accordingly and continues on. Standard, multiple-partner LLCs
work in much the same way. Single member LLCs, however, do not. In this
case, it is important to denote in the operating agreement who will take
over ownership upon the owner's death. This should also typically be
backed up in the will of the individual.Tax Time
Single member LLCs also have special taxation rules. The IRS regards the
structure as a disregarded entity and taxes LLCs with one owner in the
same way it taxes sole proprietorships.In record keeping, as always, keep
perfect records and always keep your personal finances and business
finances separate. This is standard for all organizations, but is
especially important for convoluted situations such as forming and
operating an LLC as a single member.While many do not recommend operating
as a single member LLC, it is possible and potentially the better choice
among other forms of operation. Always keep your complex status in mind
as you operate and keep records, and be prepared for a headache come tax
time (or upon writing your will).