If you run your own business as the sole owner, then you're what's known as an "independent contractor." Perhaps you make baby clothes out of your home and sell them on an e-commerce website like Etsy. Or maybe you rent out a shop re-finishing old furniture. Independent contractors are usually organized as sole proprietorships or as single-member limited liability companies (SMLLCs).
If you're the sole owner of your business and you haven't filed any paperwork with your state to incorporate your business, then you—like millions of others—have a sole proprietorship. While a sole proprietorship works for many entrepreneurs, you should consider the benefits of forming an SMLLC. The paperwork might be well worth the legal protections you'll gain.
You might be familiar with a limited liability company (LLC). While an LLC is typically associated with a group of business owners (who form what's sometimes called a "multi-member LLC"), single business owners can also take advantage of this business structure. When there's a single owner of an LLC, it's called a "single-member LLC."
Every state allows you to form an LLC with just one member (or owner). However, in most states, some professions face restrictions or additional requirements. More specifically, you might not be allowed to form an SMLLC—or a standard LLC—in your state if you work in the following professional fields:
Additionally, some businesses that provide financial services—such as banks and insurance companies—aren't allowed to form an SMLLC (or any LLC). 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), you're not likely to encounter this particular issue.
If you can't form a standard SMLLC because of your profession, you'll likely need to create what most states call a "professional limited liability company" (PLLC) instead. Check your state's laws on LLCs and PLLCs to find out which entity you're allowed to form, if either. For example, California doesn't permit PLLCs; if you're in California, your option is to form a professional corporation (PC) instead.
The specific professions that qualify for PLLCs vary from state to state. For example, New York lists a number of relevant professions, such as podiatry, acupuncture, massage therapy, and interior design that qualify for PLLCs. (But in New York, a PLLC is called a "professional service LLC.")
Generally, to form a PLLC you must:
You'll also probably 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. However, as mentioned earlier, banks and insurance companies will usually need to opt to form PCs instead of PLLCs.
Business owners typically form an LLC when they want to take advantage of its limited liability protections while still being involved in the day-to-day business operations. For someone that solely owns and manages their business, these benefits are even more useful.
Because single owners are usually choosing between forming a sole proprietorship and an SMLLC, we'll look at the pros and cons of SMLLCs as compared to sole proprietorships.
An SMLLC offers the same benefits as a multi-member LLC:
If you want to form an SMLLC, you'll have to face some downsides:
Forming an SMLLC requires almost the same procedure as forming an LLC. Generally, you should take the following steps:
Every business is different and you might have a longer to-do list. For instance, you might need to create a business plan, find a location to open shop, and hire employees. For more information, read the steps to starting your own business.
Once you start your SMLLC, don't forget to maintain all of its licenses, registrations, and permits. You'll also probably need to:
For more information, read our article on operating your SMLLC.
Every state requires SMLLCs to file specific forms and follow naming conventions. Once you form your SMLLC, you'll also need to be aware of maintenance requirements, such as registering for taxes and filing annual reports. Below, you can find the requirements to register an SMLLC in New Jersey, New York, and Pennsylvania.
Naming your SMLLC: The name of your New Jersey SMLLC must contain the words "limited liability company" or the abbreviation "L.L.C." or "LLC." "Limited" can be abbreviated as "Ltd.," and "company" can be abbreviated as "Co." (N.J. Stat. § 42:2C-8 (2023).)
In addition, your New Jersey SMLLC's name needs to be different from other business names already on record with the Division of Revenue and Enterprise Services (DORES) within the New Jersey Department of Treasury. You can reserve your name with the DOT for 60 days. Use New Jersey's business name search to check whether your business name is available.
Filing a Certificate of Formation: To register your SMLLC, you must file a certificate of formation with the DORES. You can register online through New Jersey's Online Business Formation Service. As of 2023, the filing fee is $125.
Registering for taxes: After filing your certificate of formation, you must file the tax/employer registration form (Form NJ-REG) with the DOR. You can register for taxes online.
Filing annual registration forms: You must file an annual report every year on the last day of your SMLLC's anniversary month. As of 2023, the filing fee is $75. You can file your annual report online.
Naming your SMLLC: Your New York SMLLC must contain the words "Limited Liability Company" or the abbreviation "L.L.C." or "LLC." The SMLLC's name must be distinguishable from the names of other business entities already registered with the Division of Corporations (DOC) within the New York Department of State (DOS). (N.Y. Ltd. Liab. Co. § 204 (2023).)
Check to make sure the name you want is available by doing a business entity search on the DOC website. You can reserve a name for 60 days by filing an Application for Reservation of Name with the DOC.
New York's publication requirement: Within 120 days after the SMLLC articles of organization are effective, the LLC must publish a copy of the articles or a notice related to the formation of the SMLLC in two newspapers. Your county clerk will designate which newspapers must publish the notice. You must file a Certificate of Publication, with the affidavits of publication of the newspapers attached, with the DOC. As of 2023, the fee for filing the Certificate of Publication is $50.
Paying the annual LLC fee: New York imposes an annual filing fee on typical SMLLCs (with the default tax status of disregarded entity) that have any income, gain, loss, or deduction from New York sources in the immediately preceding tax year. The fee is based on the company's gross income and can range from $25 to $4,500. To pay the fee, you must file Form IT-204-LL with the Department of Taxation and Finance (often just called the Tax Department).
Filing biennial registration forms: You'll need to file a biennial statement with the DOS every two years for your SMLLC. You can file online. As of 2023, the filing fee is $9. For more, see our article on New York LLC biennial report requirements.
Naming your SMLLC: The name of your Pennsylvania SMLLC must contain the term "company," "limited," or "limited liability company," or an abbreviation of one of those terms. (15 Pa. Cons. Stat. § 204 (2023).)
In addition, your SMLLC's name must be distinguishable on the records of the Pennsylvania Department of State (DOS) from the names of other business entities already registered or reserved with the state. (15 Pa. Cons. Stat. § 202 (2023).)
Check to make sure the name you want is available by doing a business name search on the DOS website. You can reserve a business name for 120 days by filing a name reservation with the DOS. You can mail in a completed reservation name form or submit your reservation online using Pennsylvania's Business One-Stop Shop Hub.
Filing a Certificate of Organization: You can register your SMLLC by filing a certificate of organization with the DOS. You can mail in a completed certificate of organization form to the DOS or file your certificate online using the Business One-Stop Shop Hub. As of 2023, the filing fee is $125.
Annual registration and tax requirements: Starting in 2025, LLCs will need to file an annual report with the DOS every year. You might also need to register with the Pennsylvania Department of Revenue to pay business taxes. For more information, read our article on Pennsylvania LLC annual report and tax filing requirements.
If you're already in the groove of running your business, it can be hard to take a step back to restructure it. Even when you're starting out, it can be easier to dive right into selling your goods or services instead of taking time to file paperwork and create internal documents. But it's important to set up your business in a way that can benefit you in the long term as early as you can. If you have experience starting a business or your business is relatively easy to set up (for instance, you don't have any employees or complicated regulations to follow), then you can probably form your SMLLC on your own.
But if you're entering a highly regulated field or you've hired or are considering hiring employees, you should talk to a small business attorney licensed in your state. They can walk you through your state's LLC laws, draft your operating agreement, create employment policies, and navigate license and permit processes. A business lawyer can help you through the entire formation process, or you can consult an attorney with specific experience only when needed. For instance, if you only need help registering for taxes, you can consult a tax attorney. Similarly, if you need help with hiring employees, you can speak with an employment lawyer.
If you're interested in forming an SMLLC but have more questions, check out our frequently asked questions (FAQ) below. You can also visit our section on SMLLCs for more information.
Should I form a single-member LLC or a sole proprietorship?
Whether you decide to form an SMLLC or a sole proprietorship depends on a multitude of factors. If you don't want to file any additional paperwork or pay filing fees and you want to be taxed on your individual return, then a sole proprietorship could be the best option for you. But if you want to limit your liability and you're interested in being taxed as a corporation or S corporation, then the extra paperwork and fees might be worth it to form an SMLLC.
To learn more about the pros and cons of these business structures, read about sole proprietorships vs. LLCs.
How much does it cost to start a single-member LLC?
The costs of starting an SMLLC are very similar to the costs of starting an LLC. You'll need to pay initial fees, such as filing fees with your articles of organization. You might also have to pay fees associated with business licenses and permits. You also might need to pay ongoing costs including annual report fees, taxes, and license renewal fees.
You'll also want to contribute some money up front to fund your SMLLC. Investing money in your SMLLC can not only cover initial costs, but it can also help your business appear to be separate from you as a person.
For more about the importance of contributing initial capital, read about first investments in an SMLLC.
Can a single-member LLC be manager-managed?
Yes. Most SMLLCs are member-managed because solo owners usually want to both own and manage their businesses. But you can choose to be manager-managed. If you choose this option, then you can appoint yourself or someone else as the manager.
For more information, read about manager-managed SMLLCs.
How do I dissolve a single-member LLC?
The steps to dissolving and winding up an SMLLC are almost identical to the steps to dissolving an LLC. You'll need to file official dissolution paperwork with your state. You'll also need to inform creditors of your dissolution and settle your debts. Because you're the sole owner, you can distribute any remaining assets to yourself. Don't forget to cancel any active licenses, registrations, or permits for your business.
For additional guidance, see how to dissolve an LLC.
Can a single-member LLC have employees?
Yes. An SMLLC, like a sole proprietorship, can have employees. But if any of those employees (or anyone else) becomes an owner, then you no longer have an SMLLC.
For tips, read our article on hiring your first employee.
Can I elect to be taxed as an S corporation?
Yes. To be taxed as an S corporation, you'll first need to elect to be taxed as a standard corporation (or C corporation). Then you can file an IRS Form 2553, Election by a Small Business Corporation to elect to be taxed as an S corporation. An S corporation, like an LLC and SMLLC, is considered a pass-through tax entity. But, unlike other pass-through entities, being taxed as an S corporation will help you avoid paying self-employment taxes.
For more about the process, read our article on electing S corporation tax status for an SMLLC.