ABA Family Legal Guide

Forming and Operating a Small Business

Types of Business Organizations

Limited Liability Companies

What is a single-member LLC?

In some states, an LLC can have a single member. The single-member LLC, or SLLC, is a very attractive form of doing business for several reasons.

First, for the sole proprietor who is seeking liability protection, he or she will enjoy as the sole member of a SLLC the same liability protection as that of a corporate shareholder.

Second, the IRS will not regard the SLLC as a separate taxable entity from its member. This means that a single member will report profits or losses on Schedule C of his or her federal income tax return, under his or her own Social Security number. The SLLC does not file its own tax return. In the event your state has an income tax, you should consult a lawyer or accountant in your jurisdiction to determine if a separate return has to be filed for any state income tax.

Third, the fact that a SLLC is a separate legal entity allows the member to transfer all or part of his or her interest in the SLLC to another, which would be impossible for a sole proprietor.

Finally, you may not need to file for an EIN (which was discussed on pages 482-3) if you are operating a SLLC and have no employees. However, if you hire employees, then you will need to obtain an EIN. If your business is already established as a sole proprietorship with employees and you are converting the business to a SLLC, you will want to refer to IRS Notice 99-6. That notice discusses when a SLLC should apply for its own EIN and when you should continue reporting under your preexisting EIN. Consult your accountant or lawyer if you have any questions concerning the EIN requirements.