What is an LLC?
What is a single-member LLC?
Should I form a Texas single-member LLC?
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
Can an LLC have only one owner?
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
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?
Does a single-member LLC have to file anything annually in Texas?
Does a single-member LLC need an EIN?
Can a single-member LLC have employees?
Can the member of a single-member LLC be an employee of the LLC?
Can my employer pay my single-member LLC?
Who can be a member of a single-member LLC?
When should I consider forming a single-member LLC?
Can I convert a sole proprietorship to a single-member LLC?
Is a single-member LLC required to have a company agreement?
How do I form a single-member LLC?
What does it cost to form a single-member LLC in Texas?
As outlined above, a single-member LLC must file a Certificate of Formation with the Texas Secretary of State. The State will require payment of the applicable filing fee ($300) when the Certificate of Formation is filed. When this filing fee is paid online or via credit card, the TXSOS will charge an additional convenience fee fo 2.7% or $8.10.
If you'd like to hire us to create your LLC for you, we charge $400 plus the state filing fee. For a single-member LLC, we are discounting our flat fee by $150 for a limited time. You can obtain this discount by using the following link to have us create your Texas single-member LLC.