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How to Form a Single-Member LLC

Learn about some of the things you'll need to do when creating a new single-member LLC.

By , Contributing Author

There's at least one necessary task in forming any single-member limited liability company (SMLLC): Filing articles of organization (or an equivalent document) with the appropriate state office (usually the secretary of state). However, before you can do that, you first need to make sure your business isn't prohibited from existing as a limited liability company (LLC). Moreover, assuming you can form your business as an LLC, filing articles of organization is just one of an array of tasks you'll need to take care of when starting your new company. You will also need to choose a management structure for your SMLLC and it's always a good idea to have an operating agreement as well. A few additional important tasks are covered here.

Can I Form an SMLLC?

Even though LLCs were originally conceived of as companies with multiple members, every state allows you to form an LLC with just one member. However, in most states, there are certain professions that face restrictions or additional requirements regarding the formation of any LLC, including SMLLCs. More specifically, if you work in a field such as medicine, law, accounting, architecture, or engineering, you probably won't be allowed to form a standard LLC in your state. Instead, you'll need to form what most states call a professional limited liability company or "PLLC." (Only one state, California, does not permit PLLCs; if you're in California, your option is to form a professional corporation—or "PC"—instead.) The specific services that are considered professions vary from one state to the next. New York, for example, lists more than 30 relevant professions, such as podiatry, acupuncture, massage therapy, and interior design. Generally, to form a PLLC, you must: (a) be able to show you have the required state license for your profession; and (b) get approval from the relevant state licensing board to form the company. You'll also need to carry a sufficient amount of malpractice insurance—the limited liability protection of a single-member PLLC will not protect you from your own professional malpractice.

There are also a few types of businesses that are not allowed to form an SMLLC (or any LLC). The most important among these is financial services, which includes banks and insurance companies. However, unless you're looking at forming an SMLLC as a subsidiary of a financial services corporation (in which case you'll need significant, expert legal and accounting assistance), this is not likely to be an issue.

Choosing a Business Name

As part of the process of registering your SMLLC with the state you'll need to give it a name. Choosing a business name can be fun, but you also have to be careful. You must make sure that the name you provide doesn't conflict with the name of a preexisting business that's already registered in your state. For example, if you submit articles of organization for an LLC named Gambol Gardens, LLC, and there is already a Gambol Gardens Corporation in your state, your filing will be rejected. To avoid rejection, you will need to do a search of business names already registered in your state. This is typically a simple process that you can do online through your Secretary of State's website. However, in some cases, including where your business may potentially compete with other businesses in many states or nationwide, a more thorough search may be necessary.

For more information, check out Nolo's articles, Choosing a Business Name FAQ, Make Sure Your Proposed Business Name Is Available, and How to Register Your Business Name.

Getting an Employer Identification Number (EIN)

Whether your SMLLC is required to have an EIN mainly depends on how it's being taxed and whether it has employees. More specifically, SMLLCs by default are treated as disregarded entities by the IRS and do not file separate income tax returns. Instead, the single member is considered self-employed, and taxes on business income are included as part of the member's personal tax return. If that's your situation, you can use your own Social Security number when filing taxes for the business and you are not required to obtain an EIN.

However, if you choose to have your SMLLC taxed as a corporation, the company is considered a separate entity by the IRS, you are considered an employee of that entity, and you will need to obtain an EIN. In addition, if your SMLLC has at least one employee (regardless of how your SMLLC is taxed), then you'll need to obtain an EIN. This is because, even if your company is classified as a disregarded entity and you pay taxes on its earnings on your personal tax return, you'll still need an EIN to file the required federal employer taxes with the IRS.

There are other reasons why you might need or want an EIN even if it's not required by tax law. Banks generally require you to have an EIN to open a business account. In addition, companies with which you do business may require an EIN to process payments. And some states require that all LLCs, regardless of federal tax classification, use an EIN on their state tax returns.

For more information, see our article Which Type of Business Entity Needs an Employer Identification Number (EIN)? You can also look at the IRS website.

Other Important Tasks

Apart from choosing a name and a management structure, obtaining an EIN, filing articles of organization, and preparing an operating agreement, there are some other tasks you'll need to complete when forming a new SMLLC. You'll need to set up business bank accounts, have proper business recordkeeping, get insurance, and obtain any necessary business licenses.

Some of these other tasks are covered in other articles on this website. However, for a more complete picture of all of these tasks and many other details of starting an SMLLC, get a copy of Nolo's Guide to Single-Member LLCs by David M. Steingold (Nolo).

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