Can One Person Form an LLC?

By Jeff Franco J.D./M.A./M.B.A.

The authority to create a limited liability company lies with the government of each state and the District of Columbia. Most of these jurisdictions adopt the principles of the Revised Uniform Limited Liability Company Act, which allows for the creation of an LLC with only a single member. Creating and operating a business as an LLC requires you to adhere to the laws of your particular jurisdiction.

Formation

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.

Personal Liability

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.

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Dissolution

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.

Taxation

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.

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References

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How to Create a Sole Proprietorship in South Carolina

If you are starting a business in South Carolina and want to operate it as a sole proprietorship, it isn’t necessary to file any formation documents with the Secretary of State to create it. In fact, you can begin operating your business at any time. However, despite the fact that South Carolina doesn’t impose formal requirements to create a sole proprietorship, there are other state requirements you must comply with.

Can You File an LLC With Personal Taxes?

The Internal Revenue Service has yet to create a tax return for LLCs. The income and loss that a LLC generates is subject to federal taxation; however, the government requires you to utilize a corporate, partnership or personal income tax return to report the LLC’s earnings and losses. If the LLC receives corporate treatment for tax purposes, LLC members are precluded from reporting the income on a personal tax return.

What Types of Businesses Can Be Converted to an LLC?

All states have either enacted the Uniform Limited Liability Company Act or a law with similar provisions authorizing the formation of limited liability companies. According to these state laws, an LLC can be established for any lawful business purpose. Because of the flexibility of this type of business structure, an LLC is suitable for virtually any type of business enterprise. An LLC is established through the filing of articles of organization with state government. An LLC provides two significant benefits to the owner. First, an LLC provides the same type of liability protection normally associated with a corporation. An owner is not personally liable for the activities of the business organized as an LLC. Second, unlike a corporation, in which an owner faces the prospect of double taxation, an LLC offers a pass-through tax mechanism. With an LLC, an owner faces only tax liability one time.

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