Most states require you to draft articles of organization as the initial step in the process of forming a legal LLC. Each jurisdiction designates a specific office, such as the secretary of state, that is charged with the creation of business entities. The articles must include the name of your business, its principal place of business and the name and address of the agent you authorize to accept legal service of process. There is no restriction on designating yourself as the agent. The official date of LLC formation occurs when the appropriate office files the articles. In the event information on the articles changes, you must make an amendment and deliver it to the state office.
Most jurisdictions provide limits on a member’s personal liability when conducting business activities of the LLC. However, as the sole member of the LLC, you may not receive the same level of personal asset protection as a multi-member LLC. Many state courts allow personal creditors to obtain a judgment from your interest in the LLC. As the sole member, your interest represents 100 percent of the assets of the business.
Once you create the LLC, it exists for an indefinite amount of time irrespective of the level of business activity. The laws governing your LLC will only force its dissolution if you use the LLC to conduct fraudulent or criminal activity. However, as the single member, you have the authority to dissolve the LLC and cease all business activity at any time for any reason. At the time of dissolution, you must pay any outstanding balances you have with creditors of the LLC. Once you satisfy all third-party obligations, you may liquidate the company with all remaining assets becoming your personal assets.
The Internal Revenue Service automatically designates a new single-member LLC as a sole proprietorship solely for income tax purposes. This requires you to report all profits and losses that relate to the business activities on the Schedule C attachment to your personal income tax returns. Schedule C allows you to claim all business expenses that are otherwise not available on a personal tax return. You must combine the resulting income or loss with other personal income that does not relate to the LLC and pay the appropriate tax using individual income tax rates. As an alternative, the federal tax law allows you to elect corporate tax treatment by filing IRS Form 8832. However, taxing the LLC as a corporation imposes an additional level of tax. The LLC must report and pay tax on its earnings, and you must pay a second level of tax on any after-tax earning distributions you take.