Texas Single Member LLC

The Texas single-member LLC (SMLLC) is the most popular entity choice for businesses with one owner. In this article, we will address frequently asked questions including advantages, disadvantages, costs, taxation, annual maintenance, etc. If you are considering a single-member LLC, we hope you find these FAQs informative.

What is a single-member LLC?

A single-member LLC is an LLC with only one owner. The term “member” in the LLC context is synonymous with owner. By contrast a multi-member LLC is an LLC owned by more than one owner.

What is an LLC?

A limited liability company (LLC) is a type of business entity that, like a corporation, shields its owners from liability. LLCs are easier to start and less complicated to run than corporations, making them ideal for small businesses and sole proprietorships.

Should I form a Texas single-member LLC?

The single-member LLC is the most popular type of business entity in Texas for a reason. The benefits of an LLC are substantial, and the costs and administrative burdens are minimal. When compared to a sole proprietorship or a corporation, the single-member LLC is a no brainer.
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What are the benefits of a single-member LLC?

The benefits of a single-member LLC are as follows:

  • The owner is shielded from the liabilities of the business. The primary benefit of conducting business through an entity like an LLC is to protect the owner’s personal assets from the liabilities of the business. If you are operating as a sole proprietor, you are personally responsible for the liabilities of the business. Whereas if you operate through an LLC, the liability for the business stays with the LLC and the most the owner can lose is his investment in the LLC.
  • The LLC's assets are shielded from the owner’s creditors. An LLC can also protect the business assets from the personal liabilities of the owner.
  • Continuity of Ownership. Conducting business through an LLC provides more flexibility and continuity of management and ownership. If a sole proprietor dies, the business will come to a standstill until someone is appointed with authority to run the business on behalf of the deceased owner. But an LLC cannot die, and the company documents can provide instructions for what to do in the event of death or disability.
  • Added Credibility & Professionalism. Conducting business through an LLC gives a more professional impression. Clients will feel like they are dealing with a more organized, established, and trusted company.
  • Low set up costs
  • No annual maintenance costs
  • Perpetual existence
  • Tax flexibility
  • Limited compliance requirements
  • Transferability of ownership

Disadvantages of a single-member LLC

The disadvantage to operating business through an LLC is the costs associated with forming and maintaining the entity. Although formation/creation costs are relatively low for a single-member LLC, they are greater than the costs associated with a sole proprietorship. How much does it cost to create a single-member LLC?

Can an LLC have only one owner?

Yes, an LLC can have one owner (a single-member LLC) or more than one owner (a multi-member LLC).

Are there any benefits to having more than one owner?

Some states have taken the position that charging order protection (i.e., limiting the remedy of a judgment-creditor of an LLC member to a lien against that member’s interest in the company) is only available to multi-member LLCs. The idea being that charging order protection is for the benefit of the judgment-debtor’s business partners, and, if there are no partners, there is no need for the protection. Texas does not follow this position. However, if maximizing protection of the LLC's assets is the objective AND you are operating outside of Texas, there might be a benefit to having more than one member of the LLC.

If the owner of the LLC would prefer to report tax items related to the business separately from his personal taxes, then having a multi-member LLC would help. This is because a multi-member LLC is considered a partnership by default and is required to file its own tax return.

What are the differences between an LLC and a corporation?

LLCs and corporations are both entities. They both protect the business owners from the liabilities of the business. However, corporations have more formalities, are less flexible, and offer inferior protection for the business assets from the owner’s liabilities.

Corporations have more formalities and legal requirements to operate. For example, a corporation must conduct annual meetings of its shareholders and directors. There is no such requirement for LLCs. LLCs are more flexible in how their ownership and management structures are set up. They can be run like a sole proprietorship or more formally like a corporation.

Corporations are subject to double taxation (the corporation is taxed and so is the owner), whereas single-member LLC are disregarded entities, meaning tax items are reported on the owner’s personal tax return.

Although both entities protect the owner from the liabilities of the business, LLCs offer superior protection of the business from the liabilities of the owner. If a judgment is taken against an owner of a corporation, the creditor can foreclose on the owner’s shares and take control of the corporation. If a judgment is taken against an owner of an LLC, however, the creditor can only get a charging order against the owner’s membership interest (they cannot foreclose on the membership interest or force a liquidation of the company).

How is a single-member LLC taxed?

Unless you elect otherwise, a single-member LLC is considered a “disregarded entity” by the IRS and does not file a federal tax return. Instead, the owner of the LLC will report the LLC’s profits (or losses) on the owner’s tax return and will generally pay federal income tax on the LLC's net earnings. If the owner is an individual, he or she would report profits or losses on a Schedule within his or her federal tax return, just like a sole proprietor.

A single-member LLC can, however, elect to be taxed as an S-Corp or a C-Corp. Read more about LLC Taxation.

How is a multi-member LLC taxed?

Unless you elect otherwise, a multi-member LLC is taxed like a partnership. Unlike a single-member LLC, a multi-member LLC (or what the IRS refers to as a partnership) must file an annual federal tax return (Form 1065) each year and issue K-1s to each member. The K-1 will inform each member/partner what portion of the LLC's profit to report on their federal tax return.

A multi-member LLC can, however, elect to be taxed as an S-Corp or a C-Corp. Read more about LLC Taxation.

Husband and Wife Owned LLCs In Texas

Multi-member LLCs are generally taxed like a partnership. If, however, the LLC has only two members, these two members are married to each other, they live in a community property state (like Texas), and file taxes jointly...then the husband and wife owned LLC has the option to be taxed like a single-member LLC (i.e., disregarded entity).

What is the difference between an LLC and an S-corp?

This comparison is based on a common misconception that an S-corp is a type of entity like an LLC. An S-corp refers to an entity (LLC or Corporation) that has elected to be taxed under subchapter S of the IRS code.

If the SMLLC qualifies, its owner can elect for the LLC to be taxed as an S-corp. In this case, the LLC would be required to file an annual federal income tax return (IRS Form 1120-S). Read more about LLC Taxation.

Does a single-member LLC pay franchise taxes?

An LLC doing business in Texas will owe a state franchise tax if the LLC’s annualized total revenue exceeds the threshold set by the State ($1,180,000 for 2021).

Does a single-member LLC have to file anything annually in Texas?

All Texas LLCs must file an annual report with the Texas Comptroller each year no later than May 15th (starting the year after formation). There is no filing fee for the annual report. Failure to file the annual report timely will result in a $50 late fee and can eventually result in forfeiture/termination of LLC. As you can imagine, forfeiture of the LLC will result in the loss of the liability barrier between the LLC and its members. An LLC that has been forfeited can be reinstated for a fee.

Does a single-member LLC need an EIN?

An LLC will require an EIN if (1) the LLC has employees; (2) it is required to file certain excise tax forms; or (3) it needs a bank account. For these reasons, virtually all LLCs will require an EIN.

Can a single-member LLC have employees?

Yes. Single-member LLCs can have both employees and independent contractors.

Can the member of a single-member LLC be an employee of the LLC?

The member of a single-member LLC cannot be an employee of the LLC unless the LLC is taxed like a corporation. The member can, however, receive distributions of profit.

Can my employer pay my single-member LLC?

Your employer can contract with your LLC for services. The LLC would not be considered an employee (w-2), but rather an independent contractor (1099).

Who can be a member of a single-member LLC?

A member of an LLC can be an individual, an entity, or trust.

When should I consider forming a single-member LLC?

Ideally, you would operate the business through an LLC from inception. The cost of forming an LLC may be prohibitive to businesses just starting out. So, business owners may want to wait until the revenue from the business can support the expense. For a business engaged in high-risk activities, forming an LLC will be a greater priority.

Can I convert a sole proprietorship to a single-member LLC?

Yes. A sole proprietor can form an LLC and begin operating the business through the LLC.

Is a single-member LLC required to have a company agreement?

In Texas, LLCs are not required to have a company agreement (aka operating agreement), but every lawyer will highly recommend having one. A company agreement is the governing document for the LLC. The company agreement can and should include clauses designed for maximum protection of the member from the LLC's liabilities and vice versa. If an LLC does not have a company agreement, the Business Organization Code will govern the LLC.

How do I form a single-member LLC?

A single-member LLC is formed by filing a Certificate of Formation with the Texas Secretary of State. The member can then file IRS Form SS-4 (EIN Application) with the IRS to apply for and obtain an EIN for the LLC when an EIN is required. When we create single-member LLCs, we handle the aforementioned items and also provide (1) a Company Agreement (the governing document for the LLC) with protective clauses; (2) a Unanimous Consent in Lieu Organization Meeting; (3) the required Membership Transfer Ledger; and (4) any requested tax elections.

What does it cost to form a single-member LLC in Texas?

It costs $308.10 to form a single-member LLC in Texas plus the service fee charged by the person (if any) that forms the LLC for you. A single-member LLC must file a Certificate of Formation with the Texas Secretary of State (TXSOS). At the time of filing, the TXSOS will require payment of the applicable filing fee ($300). When this filing fee is paid online or via credit card, the TXSOS will charge an additional convenience fee of 2.7% or $8.10.

If you'd like to hire us to create your LLC for you, we normally charge $400 plus the TXSOS filing fee. However, for a single-member LLC, we reduce our flat fee by $150 (limited time only).  You can obtain this discount by using the button below (the discount will only be visible on the checkout page).

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