| The LLC is touted as a great business entity for small | | | | Cons |
| businesses. This is particularly true for single member | | | | There is a sneaky con from a tax perspective when it |
| LLCs. If you are considering forming one of these | | | | comes to an LLC. Most of these entities are marketed |
| entities, it is important to realize there are pros and | | | | with the statement that they can pay taxes like a |
| cons that need to be taken into account. | | | | partnership. This is true if there are two or more |
| What is a single member LLC? A person that has an | | | | members. Since we only have one member, the IRS |
| ownership interest in an LLC is called a | | | | will reject partnership tax return filings. Instead, the |
| “member” instead of a “shareholder” is as | | | | agency will require you to file as though the entity is a |
| the case with corporations. As a result, a single | | | | sole proprietorship. This means you end up paying self |
| member LLC is a limited liability company that is owned | | | | employment taxes. At a rate over 15 percent, this can |
| by one person instead of multiple parties. This may | | | | be a nasty surprise. |
| sound insignificant, but it actually is very important. | | | | The second con is found in the simplicity of running an |
| Let’s look at the pros and cons of this business | | | | LLC. Since little is required, most people do almost |
| entity choice. | | | | nothing in regard to keeping records of actions taken |
| Pros | | | | by the LLC. In many cases, they don’t even have |
| The single member LLC is touted primarily because it | | | | an Operating Agreement, which is the bylaw of the |
| provides the owner with asset protection, but is | | | | LLC and dictates how the company will function. In |
| relatively simple to run. So, what do we mean by asset | | | | such situations, the plaintiff in a lawsuit against the LLC |
| protection? Well, the LLC is treated as a separate | | | | will ask the judge to set aside the asset protection |
| “person” for legal purposes. Any debts it incurs | | | | associated with the company by claiming the company |
| by contract, lawsuit or whatever are its alone, not the | | | | is a sham since it has no records and no Operating |
| owner. As a result, the owner is “shielded” from | | | | Agreement. In many cases, the court will agree and |
| the debts of the entity, which is a form of asset | | | | the single member [that’s you] becomes personally |
| protection. | | | | liable for the business debts. That is a disaster. |
| A second positive aspect of the LLC is the ease of | | | | A single member LLC definitely has a place in the |
| use. By this, I mean there are very few legal | | | | world of business entities. If you decide to go with one, |
| requirements when it comes to running an LLC. You | | | | make absolutely sure you understand the tax |
| don’t have to have annual minutes. You really | | | | ramification and have a solution for the internal |
| don’t have to keep any minutes at all. This | | | | corporate documents you need including an Operating |
| obviously makes things pretty simple, but this is also a | | | | Agreement and minutes. |
| trap as we will see in the cons section of this article. | | | | |