Starting a new business requires a person to make pivotal decisions. Choosing the structure of their business is one of the most pivotal decisions they have to make.

A business structure is defined as the organizational framework of a business. There are four types of business structures in the United States: sole proprietorships, partnerships, limited liability companies, and corporations.

The most common business structures for individual entrepreneurs are sole proprietorships and single-member LLCs. 

This guide is an introduction to the single-member limited liability company, including the benefits of building this type of company, and a step-by-step procedure for forming one.

Form a Single Member LLC

What is a Single Member LLC?

A single-member limited liability company is a legal structure that gives your business the advantages of a limited liability company while avoiding some of the extra compliance and organizational burdens.

Benefits of Single Member LLC

There are numerous benefits of forming a Single Member LLC. Some of the commonest benefits are:

Separate Legal Business Entity

As a separate legal entity from its owners, your company is responsible for its actions when entering into agreements or contracts.

Limited Liability 

One of the main reasons for switching from a sole proprietorship to a single-member LLC is Limited Liability. 

A single-member limited liability company provides your business with protection from your personal responsibilities in a way that a sole proprietorship cannot match.

Tax Flexibility

The taxation of single-member LLCs can be flexible, since single-member LLCs are generally treated as sole proprietorships, but can choose corporate tax status if that is more advantageous.

Credibility 

New businesses may find that incorporating as an LLC will help them to gain credibility more quickly than if they operate as sole proprietors.

How a Single Member LLC is taxed?

As an owner of a Single Member LLC, the IRS will treat you as an unincorporated entity (unless you opt-out). 

Thus, you will have a tax situation very similar to that of a sole proprietorship.

How to file taxes as a Single Member LLC?

As a single-member limited liability company (LLC) owner, you can claim the status of a sole proprietorship on your personal income tax return by filling out and submitting Schedule C.

Schedule C is used to report your income, expenses, and other income sources from a business you own as a sole proprietor or single-member LLC.

How to form a Single Member LLC in Simple Steps

There are two ways to form a Single Member LLC: Do it yourself or get a professional formation service to do it for you.

To form a Single Member LLC yourself, you have to follow these steps:

  1. Pick a Name for your LLC 
  2. Appoint a registered agent
  3. File your Article of Organization (Certificate of Formation)
  4. Draft your Operating Agreement
  5. Apply for Business Tax ID
  6. Open a Business Bank Account

Pick a Name for your LLC 

The first step to forming a Single Member LLC is to select a name for your LLC. Generally, you will need to follow this naming instruction:

  • You must include the word limited liability company or LLC in your company name.
  • You have to avoid restricted words such as a bank, trust, Law, Attorney, etc.
  • You should not include such words in your company name that confuse your LLC with a government agency.
  • I also recommend registering your LLC name’s web domain even if you do not want to create your business website today.

Appoint a Registered Agent

The next step in forming a Single Member LLC is to appoint a registered agent. A registered agent is also known as a statutory agent or resident agent. 

A registered agent is a person or a company who sends and receives legal papers on behalf of your LLC. These legal papers include official correspondence like legal summons and filing documents. 

Your registered agent must be a state resident where you want to start your LLC. If your registered agent is an individual, he will be a member of your LLC and you. 

File your Article of Organization (Certificate of Formation)

The next step you have to do is to file the formation documents with your Secretary of State. These documents are known by various names, most commonly this document known as Certificate of Formation

It describes the organizational structure of your business. 

Draft your Operating Agreement

An LLC operating agreement is a legally binding business document that entails the ownership of its members, how the company is managed, and the structure of the LLC or limited liability company.

It can provide details such as one meeting naming a registered agent, selecting managers, and adding and dropping members. 

An operating agreement is not required in every state, but it is highly recommended to have an operating agreement to avoid internal disagreements between LLC members. 

Apply for Business Tax ID

The final step is to apply for your Business Tax ID, also known as Employer Identification Number (EIN) and Federal Tax Identification Number.

What are the Purposes of EIN?

  1. An EIN is necessary for your business tax purposes.
  2. It is also required to open a business bank account in the United States.
  3. It is also needed when you want to hire employees legally.

Applying for an EIN is quite simple and free of cost. You can quickly obtain this by visiting the IRS.gov website.

Open a Business Bank Account

Having a separate bank account for your single-member LLC is highly recommended. 

This is because if you decide to switch from a sole proprietorship to a single-member LLC so that your business life is protected from your personal liabilities, you should set up a separate bank account for it.

How Micahguru Formation can help

You’ve come to the right place if you’re thinking about forming a Single Member LLC with the help of a professional incorporation service.

Micahguru Formation is a U.S. incorporation company that helps founders and entrepreneurs globally to launch and manage their U.S. businesses remotely.

As a special thank you for reading our blog, we’d like to give you a discount on your purchase. Use the code (Blogreaders) when checking out and get your special discount.

Conclusion

In comparison to a sole proprietorship, forming a single member LLC involves more work than a sole proprietorship but it offers numerous benefits, including a separate legal entity, legal separation of personal and business assets, and flexibility in tax planning.