Should I include my spouse as an owner of my LLC?

Should I include my spouse as an owner of my LLC?

What are the pros and cons of including my spouse as an owner of my new LLC? In this article, we explore some of the implications of adding a spouse as an owner of an LLC.

Tax Implications

A single-member LLC is considered a disregarded entity meaning a federal tax return for the LLC is not required. Instead, the SMLLC’s profits are included on the owner’s tax return, which is similar to how a sole proprietorship would handle federal taxes.

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

It is important to note that in community property states, like Texas, a qualified entity (an LLC owned solely by a married couple) can elect to be taxed like a single-member LLC (i.e., a disregarded entity).

Liability Implications

From a liability perspective, a Texas LLC provides a liability barrier (between the business liabilities and owner’s assets) whether the LLC is owned by one person or many.

Management Implications

From a management perspective, a multi-member LLC 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.

Implications on Distributions of Profit

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

Company Agreement Implications

The governing document (company agreement) for a SMLLC 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 the company agreement.

When is a single-member LLC better than a multi-member LLC?

The single-member LLC is the better choice when the business owner:

  1. does not want to share profits with partners.
  2. does not want to consult with a partner when making decisions or before taking actions.
  3. does not want to file a federal partnership tax return (multi-member LLCs must file a federal return/IRS Form 1065 each year by March 15th, while the owner of a single-member LLC simply reports the LLC’s profits on his or her personal tax return (on Schedule C or Schedule E if the LLC gets rental income from real estate).
  4. wants the LLC to be taxed as a “disregarded entity” (disregarded entity status is only available to single-member LLCs).
  5. when 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.
Start My LLC

Zachary Copp, Esq.

Attorney at The Copp Law Firm

Mr. Copp is a graduate of the University of Texas at Austin and the founder of The Copp Law Firm. He has been licensed in Texas for 19 years and personally formed over 3,000 Texas LLCs since 2015. He was recognized as a Rising Star by SuperLawyers® for seven straight years. See full bio →

Comments 11

  1. So, if I set up the LLC in the name of both husband and wife, I will have the option of electing tax treatment (as disregarded entity or partnership) in Texas?

  2. How would you go about a multi-member LLC, that is currently husband and wife, but you want to add an additional member? So ideally 3 members: two are husband and wife, the other is an investor. Thanks.

    1. Post

      From a tax standpoint, disregarded entity status (aka single-member LLC taxation) would no longer be an option if you added a third member. If you are dead set on adding a third member (rather than structuring the investment as a loan), you will need to do all kinds of things. One task, as an example, would be to have all three members sign an amended Company Agreement (or have the new member ratify the existing Company Agreement). Read more about transferring a portion of an LLC interest.

  3. So what if the wife is the only member and the husband is a manager? Is he now considered a contractor or employee?

    1. Post
  4. When I applied for the EIN # I put that there were 2 members even though it is just my husband and me; we want to be classified as a SMLLC. So would I file a 8832 form to classify as a disregarded entity but say there is only one member, my husband, since he is the first one listed on out joint tax return?

    1. Post

      If there are only two owners, the online EIN Application will ask if the two owners are married to each other and then give you the option to select single-member or multi-member taxation. So, before filing IRS Form 8832, take a look at your EIN Assignment Letter and see if it says “Sole Mbr” or just “Mbr” after the responsible party’s name. If the EIN Assignment says “Sole Mbr” you would not need to file Form 8832 to change to SMLLC taxation. If it says “Mbr” after the responsible party’s name, you’ll want to speak with a tax professional to see if IRS Form 8832 (or SMLLC taxation) would be the best option.

  5. My fiance and I want to start an LLC soon. Once we file the LLC, will we need to go back and change it once we’re married? Also, I have the certificate of formation, under governing authority, what should I check regarding managers? There are only 2 members of our business. Should I check that the company initially has managers or it doesn’t? This confuses me. Thank you for sharing the information by the way. I’m trying to learn so much in such a short amount of time.

    1. Post

      You don’t have to go back and change anything once you are married. If one of the members changes their last name, you can update the state when you file the public information report (PIR) that is due each year by May 15th.

      The governing authority article of the Certificate of Formation is where you decide if the LLC will be governed by its members (owners) or by managers. The managers of an LLC are a lot like the directors of a corporation. If the LLC is member-managed, you would list all of the initial members in the governing authority article of the Certificate of Formation. If the LLC is manager-managed, you would list only the managers. So, if both of you are going to be decision-makers, you can be either member-managed or managed-managed and you would list both of you as governing persons. If only one of you will govern/control the business, you will likely want to be manager-managed and list the controlling spouse and the sole manager.

  6. So, in Texas, should we list both husband and wife as an “Initial Governing Person”, then check the “Sole Member” box when applying or our EIN? I want to be CERTAIN that we are filing correctly and will be considered a SMLLC.
    OR, should I only list my husband, but I can still run the business for him? This is all so confusing, and we need to file asap. Thank you.

    1. Post

      There are really two issues that need to be resolved. The first relates to the way you report LLC profits to the IRS, and the second is how the LLC will be governed.

      An LLC owned by just one person (a single-member LLC) is considered a “disregarded entity” by the IRS, and the LLC’s profits are reported on a schedule of the owner’s personal federal tax return (similar to how a sole proprietorship would report profits to the IRS).

      An LLC owned by more than one person is traditionally taxed like a partnership, and thus a separate partnership tax return (IRS Form 1065) is filed before March 15th each year for the business. The partnership will issue a K-1 to each partner, informing them how much of the business profits they need to include on their personal tax return. However, there is an exception:

      An LLC that is (1) owned by two members (2) who are married to each other (3) who live in a community property state (like Texas) and (4) who file taxes jointly has the option to be taxed like a single-member LLC (aka disregarded entity) rather than a partnership.

      So, if you meet the requirements above, you and your husband can both be members (owners) of the LLC and you can still be treated as a SMLLC. In other words, your desire to be taxed like a SMLLC is viable under either scenario and thus should not be a driving factor. If you wanted the LLC to be taxed like a partnership, then including both spouses as members would be necessary.

      As for governance of the LLC, an LLC can be governed by (a) owners/members or (b) one or more “managers” (who often are, but do not need to be members). So, you and/or your husband could be the owners and then you could be the sole manager (i.e. decision maker). In a manager-managed LLC, you only list managers in the Certificate of Formation under the Article about the Initial Governing Persons. Alternatively, your husband could be the sole member/manager and then appoint you as an officer (i.e., president) to run the day-to-day affairs of the business.

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