Understanding SMLLC

What is a Single Member Limited Liability Company “SMLLC”? 

It is a separate disregarded legal entity which by state statute creates limited liability protection. Your personal assets are separated and protected from those assets within the entity.

What is a disregarded entity? 

A disregarded entity is a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. The owner is subject to the tax of net earnings from self-employment in the same manner as a sole proprietorship.

What are the differences between SMLLC and Sole Proprietorship? 

Compliance

• SMLLC:

                 - File Annual or Biennial reports with state

                 - Maintain separate business accounts and keeping separate from owners personal affairs

                 - Record major changes by Articles of Amendment or Operating Agreement

• Sole Proprietor:

                 - The State does not recognize it as separate entity. No corporate compliance

Taxes

• SMLLC:

                 - Treated as sole proprietor- self employment taxes on net earnings and subject to income tax at personal individual rates. Schedule C on Form 1040

                 - Flexible with Conversion-electing for corporate tax treatment. May be taxed as S-Corporation(disregarded entity) or C-Corporation

• Sole Proprietor:

                 - Self employment taxes on net earnings and subject to income tax at personal individual rates. Schedule C on Form 1040

Liability

• SMLLC:

                 As its own legal entity, OWNER IS NOT HELD PERSONALLY RESPONSIBLE FOR DEBTS OR IF LEGAL ACTION IS TAKEN AGAINST THE BUSINESS (UNLESS individual is fraudulent or willfully ignored compliance rules.)

• Sole Proprietor:

                 OWNER IS PERSONALLY LIABLE FOR ALL DEBTS AND LEGAL OBLIGATIONS OF THE BUSINESS.(Personal assets may be taken as restitution)