Single Member Limited Liability Company – Basics

A limited liability company is a business structure that limits the liability of its members and passes through its income to its member with no tax at the entity level. An LLC acts as a combination between a general partnership and a corporation.

There are different types of LLCs such a series and a single-member LLC. The topic of LLCs alone can be daunting and as such, this post is only meant as a primer for you to understand what the basic function of a single-member LLC and the advantages and disadvantages of registering as one. My recommendation is if you’re interested in what might best suit your situation, please contact a lawyer and/or accountant to help guide you through this process.

A single member LLC (SMLLC) is an LLC that has one member. Under IRS rules, unless the single member LLC elects to be treated as a corporation, it is disregarded for federal income tax purposes, meaning the owner of the LLC reports the business’ income and expenses using a Schedule C form and files the form with the individual’s 1040 form. Basically, it’s like being a sole proprietor but with some legal protection. You fill out a Schedule C form and file the form with your personal taxes.

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Source: Limitedliabilitycompanycenter.com

Advantages

  • Unlike a sole proprietorship where there is no delineation between the business and personal liabilities, at least as a single-member LLC, one is afforded that distinction, which is a major plus. The implication is if a litigious suit were to ever be filed against you, your personal assets could potentially remain protected from the liabilities of the LLC.
  • The profits of the LLC are only taxed at the member level (meaning you) and not at the LLC level. This is known as a “pass-through” entity as the income generated by the business is passed through to its owner and reported on the owner’s personal income tax return.
  • In terms of flexibility, registering as an LLC provides you with the choice of determining whether you want to be taxed as a sole proprietor, partnership, S-corp, or corporation, all of which have their own tax implications that are far too complex to review in this post. Just know that because you have the option of deciding what kind of corporate structure you’d like to be taxed at, which is a huge advantage of becoming an LLC.
  • Unlike a corporation where record keeping and administrative paperwork are a must and as a result, require a lot of work outside of clinical, being an LLC, especially a single-member LLC, requires much less work.

Disadvantages

  • Earnings are subject to self-employment tax, meaning 15.3% of the income you generate through private practice will towards paying Social Security and Medicare.
  • Lack of uniformity among LLC statutes differ within each state and as a result, some states may not recognize the business if the LLC is operating in more than one state.
  • Again, for those of you who are new to this, this disadvantage is really inconsequential. Basically, investors do not like to work with LLCs because it’s difficult for you to provide stock options. It’s not like a corporation where you’re able to have shareholders and provide stock options as a means of providing ownership.
  • Hard to convert to a C corporation. Again, this is another inconsequential disadvantage. The day you get a large group of providers and decide to a bigger business is the day you stop reading this blog for advice.
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