Can an LLC Have Only 1 Member?

By Lisa Magloff

A limited liability company, or LLC, is a type of business structure that allows owners -- called members -- to avoid personal liability for the company's debts and obligations. Limited liability companies can also provide certain tax advantages. All 50 states and the District of Columbia allow the formation of single-member LLCs, but single-member LLCs may not have the same legal protections as multi-member LLCs.

A limited liability company, or LLC, is a type of business structure that allows owners -- called members -- to avoid personal liability for the company's debts and obligations. Limited liability companies can also provide certain tax advantages. All 50 states and the District of Columbia allow the formation of single-member LLCs, but single-member LLCs may not have the same legal protections as multi-member LLCs.

Background

A single-member LLC is just what it sounds like -- an LLC with only one member, who is also the owner of the business. Originally, the LLC structure was conceived of as an alternative to a partnership or a corporation. When states began enacting legislation to allow the formation of LLCs, beginning in the 1970s, most state laws required LLCs to have at least two members, but this is not the case anymore.

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Tax Effects

A single-member LLC is treated by the IRS as a “disregarded entity” for federal income tax purposes. This means that any profit or loss from the business can be reported on the member's personal income tax, or 1040 and Schedule C forms. This means that the LLC is treated as a sole proprietorship for tax purposes. However, as of January 1, 2009, IRS rule changes mean that a single-member LLC needs to request an employer identification number, or EIN, from the IRS, and is responsible for paying excise taxes and for collecting, reporting and paying employment taxes.

Liability Issues

An LLC generally shields members from being held personally liable for the company's debts. This means that the owner's personal assets and property cannot be taken away if there is a judgment against the company. When courts hold the members of an LLC personally liable for company debts, this is called “piercing the corporate veil.” Courts allow the veil to be pierced under certain conditions, such as if a member commits fraud. In a single-member LLC, these veil-piercing conditions are much easier to meet and may result in the owner being held personally liable for company debts and obligations.

Debt Issues

Traditionally, an LLC shields the members from charging orders. A charging order is when the court allows a creditor to take control of a company and liquidate it to pay off owed debts. However, courts have begun to allow charging orders to be issued against the owners of single-member LLCs. For example, in 2010, the Florida Supreme Court allowed a creditor to gain financial control of a single-member LLC. Attorney Ken Laino writes in the "Asset Protection Law Journal" that this decision may make it more likely that courts will issue charging orders against single-member LLCs in any states that do not specifically rule this out.

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Pros & Cons of Limited Liability Companies in Florida

References

Related articles

LLC Defined

Limited liability companies are small businesses with the operating flexibility of a partnership and some of the financial protections of a corporation. They have existed since the 1970s and have become a popular choice for small businesspeople and entrepreneurs. An LLC can be created online from home, but the cost and paperwork required varies from state to state.

Difference Between LLC & LLP

An important aspect of starting a business is choosing which type of business entity to create. Two popular business entities are limited liability companies, or LLCs, and limited liability partnerships, or LLPs. Each entity has unique characteristics, but both are also similar in many ways, including the way they are taxed by the IRS.

Which Is Better: an LLC or an LLP?

Many businesses that want the benefits of corporations without the complex tax rules and expensive startup costs involved with that type of entity choose to form as a limited liability company, or LLC, or a limited liability partnership, or LLP. Potential business owners must weigh the pros and cons of each structure when deciding which is better for their company. While LLC legislation is widespread, not all states have LLP laws.

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