A single-member or multi-member limited liability company (LLC) is a great entity structure for new business owners seeking added personal liability protection. As a business owner, you must plan for the unexpected. This includes making sure there’s money in the bank for slow months to ensuring enough inventory is on hand during a mad rush. An LLC entity type provides personal liability protection of your individual assets, limiting business risks from reaching you personally.
Choosing between a Single-Member or Multi-Member LLC
Deciding how to set up LLC involves the big decision of choosing whether to be a single-member or multi-member LLC. Particularly for married parties, the decision is not always clear. Commonly nowadays, spouses are banding together as business duos. An LLC can be the best entity structure suitable to fit their needs. There’s the option to have one spouse as the sole member of the business or place both spouses as members. But, what are the pros and cons?
One advantage of a single-member LLC is that there is no need to file a tax return for the business in addition to your individual tax return. The IRS views the business as a “disregarded entity” and the business’s income and expenses are reported directly on the member’s personal tax return with a Schedule C. Something to keep in mind though is that Schedule C filers are subject to self-employment tax.
Multi-member LLCs must file a form 1065 income tax return and provide the resulting Schedule K-1s to each member. Since the apportioned business outcome is reported on to the individual’s tax return, members will not be able to complete their individual tax return until they receive the LLC’s Schedule K-1. LLC’s filing form 1065 must abide by the filing deadline of March 15th. Particularly for spouses, the benefit of having both individuals as members is in the event of death. Avoid the hassle and likelihood of having to go through probate and make continuing the business easier by listing both spouses as members.
Other Things to Know about Setting up an LLC
- With either member option, S corporation election is available by filing IRS form 2553. LLCs may want to choose this option to take advantage of officer payroll benefits. As a single-member LLC, business owners are not eligible to pay themselves a W-2 payroll. To take advantage of the massive QBI deduction, electing to file as an S corp is the choice of several LLCs.
- Make a name for yourself, literally. A rather fun and creative part of starting a business is naming your pride and joy! Once decided, name availability will need to be verified with your Secretary of State and Articles of Organization need to be created. Time to get crafty!
- Open a bank account in the name of the LLC. You’ll need a number of items created before you can open the bank account, including Articles of Organization, an Operating Agreement, and a federal identification number. As with all business bank accounts, keep personal expenses out. Remember, it has no “business” being there.
- Put your assets under the LLC! This is very important and where a lot of LLCs fail to be set up properly, therefore essentially voiding the benefit of becoming an LLC in the first place.
With multiple components to properly set up, it’s easy to get lost with the options and paperwork. Let’s be proactive and get your business off on the right path.
The bottom line
We establish and maintain a business and personal relationship with our clients. We know that Your BUSINESS is Your Life, and Your LIFE is Your Business and we take both seriously.
You may also be interested in: