One type of limited liability companies or LLCs is the single-member LLCs. As the name implies, this term refers to an LLC that has just one member, who is also the owner. This is a common business structure in Florida as well as in other states and frequently abbreviated as SM LLC.
The operating agreement is a key part of any LLC. Some states do not require them, but all smart LLCs will still create an operating agreement. This contract helps bind together members or owners of the LLC. Since a single-member LLC just has one member, many owners feel tempted to skip creating and ratifying the operating agreement.
In reality, however, skipping this step is a mistake for a few reasons. The agreement can demonstrate proof of ownership. The bank you choose to use may also require one. Furthermore, there are specific situations when you will need a manager as outlined in the operating agreement. An example would be if you want someone else to open your bank account, then operate a real-estate property for the LLC. In situations when a manager is required, the operating agreement will clearly outline the actions that this manager can take.
SM LLCs should also be familiar with the tax implications of this particular structure. Unless you change your taxation structure, the IRS treats single-member LLCs as disregarded entities by default. Disregarded entities get to take advantage of the pass-through taxes, so there are no concerns about double taxation like corporations face.
If you want, you can change the taxation structure of your LLC to a partnership, c-corporation, or s-corp. You should work with your accountant to decide which classification makes the most sense. You will need to let the IRS know about any classification changes in under 75 days following when you receive your EIN.
A single-member LLC is actually one of the most common structures for business formations. This comes down to the simple fact that not every business owner will have a partner. While sole proprietorships are another option in that situation, they are not ideal for everyone. There are also liability advantages of LLCs over sole props, which further encourages the formation of SM LLCs.
There are certain fields in which limited liability companies with one member are particularly popular. This includes online retailers and investors in real estate. In those situations, the structure of holding companies featuring subsidiaries is highly beneficial to protect assets from liabilities. By default, this structure of holding companies with subsidiaries creates an LLC, leading to the popularity of the structure.
If you are thinking of forming a single-member LLC, you should remember that you will still need to take care of all the corporate formalities. You are not exempt from them just because your LLC has a sole member. This means you must get an EIN, get your business its own account at a bank, keep your books, hold meetings annually, and fulfill other requirements. The main differences between a multi-member and single-member LLC will show up in the operating agreement. Otherwise, most of the process of formation is identical.