In this week's Freedom Friday blog and e-mail newsletter, I want to answer a question that I get from a lot of business owners who are just in business by themselves. That is, they don't have a business partner, they are not starting a business with their spouse or a significant other, there is no one else other than them in starting their business. They want to know which business entity they should form if it's just them by themselves. The answer to that question is a single member LLC. Of course, the next question is, “Ok, well what is that?” And that's what I want to talk about today.
A single member LLC is a limited liability company with one owner, one member. The owner(s) of an LLC are called “members” just like the owners of a corporation are called “shareholders.” So, a single member LLC is an LLC with just one member, and that member is YOU, the small business owner. I want to share with you three (3) benefits to forming your small business as a single member LLC:
1. Limited Liability Protection
The first benefit of a single member LLC is limited liability protection. If you are a small business owner, and you form your small business as an LLC, you will have limited liability protection, if you separate your business assets from your personal assets, you have an operating agreement, you keep records for your LLC, and you maintain business formalities. These are all requirements to keep a creditor from “piercing the corporate veil” with your LLC. It is very important to have these items in place, and to keep your business assets separate from your personal assets, to maintain the benefit of limited liability protection.
2. Flexibility with taxation
The second benefit of a single member LLC is flexibility with taxation. As the sole member of a single member LLC, you have two options with taxation. One option is to have the IRS treat your LLC as a “disregarded entity.” This means that any revenues brought into your small business will directly flow through the small business and onto your individual tax return for taxation purposes. Depending on how much revenue you expect to make from your small business, this may be the correct choice. If you're starting a small business as a side hustle, or not making six figures yet, this might be the easier option here, and you don't have to operate your LLC as a “disregarded entity” forever. You can change to something else later. The other option, especially if you're expecting six figure revenues or better, is to choose to be treated as an “S corporation” for tax purposes. I was talking with a prospective client recently, and I asked if his business was an LLC, and he said no, we're an “S corporation.” An “S corporation” is actually not an actual business entity. It actually is a designation with the IRS. The IRS allows an LLC to be treated as a disregarded entity, an “S corporation,” or a “C corporation.” If you choose to be treated as an “S corporation,” then you can pay yourself a salary from your LLC's revenues, and you can take distributions from the profits of your LLC. Your small business will also benefit from tax advantages and deductions not available if you choose to be a disregarded entity. Before you decide to choose to be treated as an “S corporation,” consult with an account or tax professional to make sure your decision is a good fit for your small business.
3. More professional appearance
The third benefit of a single member LLC is a more professional appearance for your small business. If you choose to form as a single member LLC, you can use that LLC name as a brand for your small business and give a more professional appearance to your small business operations. You really do not get any brand identity from operating as a sole prorprietorship where your business is just your name. However, choosing to form a single member LLC can provide you with a brand identity that may help propel your small business to the next level.
If you are interested in starting a small business anywhere in Oklahoma, or you already have a small business and you are looking to grow, please contact me at [email protected] to schedule a FREE strategy session.
For more information regarding Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com