Forming a Single-Member LLC: A Step-by-Step Guide

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Many people register their business name and run as a sole proprietor when they’re just starting up. Sole props are the most common business form, and for many side hustle-type businesses, this is good enough.

Once your business grows, however, it’s time to graduate to an LLC. The limited liability company entity will protect your personal assets from any business liabilities.


Overview: What is a single-member LLC?

A single-member limited liability company (SMLLC) is a legal configuration that shields the personal assets of owners (called members) from the legal liability of a business.


4 benefits of forming a single-member LLC

Here are a few reasons to form an SMLLC.

1. You will protect your personal assets

The term “limited liability” explains perfectly why these companies are formed: they protect the personal assets of the members. You still may have to personally guarantee loans, leases, or surety bonds (if you run a construction company), but no one suing your business can make a legal claim on your personal assets.

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2. You can put LLC in your name

This may seem like a joke, but having LLC in your business’s name makes it seem more legitimate. Some suppliers and customers will take you more seriously knowing you went through the work to incorporate.

3. You can choose how to file taxes

Once you register your LLC, you can file as a sole proprietor on your personal return, or you can file a business tax return as an S corporation, which is a pass-through entity.

4. It’s easier to grow

If you register your business name and run as a sole proprietor without completing the LLC filing, you will need to go through the entire process again if you ever want to sell part of your business to expand.

As an SMLLC registered as an S corp, you can easily amend your LLC docs to sell part of the business.


How to form a single-member LLC

The exact steps vary by state. We’ll use my state, Utah, to go through the steps, but realize they may vary in your state.

1. Find your state website & register a business name

Start by searching for your state’s secretary of state website. Make sure to click on the website that ends with .gov and find the link to registering a new business.

In Utah, the LLC application is actually on the Division of Corporations webpage because there is no secretary of state in Utah.

Start by creating an account, this will be a requirement for every state to allow you to log back in to file annual reviews.

Next, you will be prompted to answer a ton of questions. Here are some Utah asks.

Screenshot of new business questions.

Some questions you’ll encounter from the state. Source: utah.gov.

If completing an LLC application for a typical operating business, you would likely answer no to every question here except the 944 question. If you sell alcohol, cigarettes, or radioactive waste, you would check yes on those questions.

Utah then brings you to a screen where you will answer questions to determine what you need to do next. By answering no to each question, it led me to complete the Articles, obtain an EIN, and apply for a sales/use tax license. See the steps below for more information on those items.

The next graphic is what we’ve been waiting for.

Screenshot of Utah gov page ‘declare the business entity.’

Choose entity type limited liability company and that you will file with the IRS as a single member. Source: utah.gov.

Choose entity LLC for entity type and single member as your filing option with the IRS. Next, you’ll choose a name and then move on to the steps below.

2. Complete entity docs

You will be required to complete Articles of Incorporation on the secretary of state website. Also complete an operating agreement for the business. It makes sense to set out the rules of the business for any potential sale and for banks and other entities that will request it.

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3. Register an EIN

You’ll need an employer identification number (EIN), even if you won’t be hiring employees soon. Banks will require an EIN for LLC business accounts and loans and you will need to use it to complete your tax return as well.

You can apply for the EIN on the IRS’s website here.

4. Obtain licenses

Business licenses and sales/use tax requirements vary by locale. Typically, the sales/use tax license will be a state requirement and your county or city may have a business license requirement depending on your type of business.

5. File everything

The best practice is to keep an electronic version of all entity and formation docs. You never know when you’ll need them for a loan or even to register a username to pay unemployment taxes. Make sure to keep the same info for every state you register in.


Register your SMLLC today

For many small businesses, the sole proprietorship entity type can work most of the time. You never know when disaster will strike and your home could be up for grabs. Registering for an LLC won’t take much time and can save your personal assets in a crisis.

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View more information: https://www.fool.com/the-blueprint/single-member-llc/

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