What are the pros and cons of including a spouse as an owner of an LLC? In this article, we delve into the ramifications and highlight scenarios where it might be more prudent to exclude your spouse.

A single-member LLC is considered a disregarded entity. In other words, a federal tax return for the LLC is not required. Instead, the LLC’s profits (or losses) are included on the owner’s tax return. The LLC's owner will generally pay income tax on the LLC's profits the same way a sole proprietorship would pay income tax on its profits.

A multi-member LLC is taxed like a partnership. Therefore, the LLC must file a federal tax return (IRS Form 1065). If partnership taxation is your desire, you can accomplish this by adding your spouse as an owner of the LLC.

An LLC can also elect to be taxed like a corporation (S-corp or C-Corp) whether your spouse is an owner or not. Read more about LLC taxation. 

From a liability perspective, a Texas LLC provides a liability barrier between the business liabilities and owner’s assets whether the LLC has one member (owner) or multiple members.

From a management perspective, a multi-member LLC generally requires input from both owners. When the LLC takes action, it should be documented that the owners authorized it. With a multi-member LLC, the documentation becomes even more important.

If one spouse wants to make all of the business decisions (and both spouses desire to own the LLC), the LLC can elect to be manager-managed and governed by a sole "manager."

When an LLC has multiple owners (members), each member is entitled to their portion of a distribution.

The governing document for a single-member LLC (the company agreement) is often around 20 pages shorter because there are many multi-member concepts (i.e., what happens if the members disagree) that do not need to be addressed in a SMLLC company agreement.

If the LLC is designed to hold mortgaged real estate, there may be some mortgage related implications. Lenders, when asked to consent to the transfer of the mortgaged property to an LLC, will often require all of the borrowers to be the owners (aka members) of the LLC. If both spouses are listed as borrowers on the mortgage, then both spouse will likley need to own the LLC to obtain the consent to transfer from the lender.

The single-member LLC is the better choice when:

1. the business owner does not want to share profits with partners (profits must be distributed to each owner typically in proportion to their ownership percentage).
2. the business owner does not want to consult with a partner when making decisions or before taking an LLC action.
3. the business owner wants the operating agreement to be simple. Many multi-member concepts (i.e., what happens if the members disagree) do not need to be addressed in a single-member LLC operating agreement.
4. the business owner wants to be taxed like a single-member LLC (disregarded entity) and plans to move outside of Texas (to a non-community property state).
5. the LLC is going to hold mortgaged real estate, and the mortgage is under just one of the spouse's names.