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For those starting out on a freelance career or setting up a small business, there are a number of different challenges to face along the way. It’s not enough to simply come up with a great product or service, you have to know how to market this, as well as all the administrative work that comes along with it. One of the biggest decisions is how to structure your company.
If you’re the owner of the business trying to decide what business entity is best suited to your needs, then a single member LLC might be the right path for you. This essentially means that one person is responsible for the management of the company, including paying the necessary taxes. Keep reading to find out more about single owner LLC companies.
What is a single member LLC?
One of the first questions that new entrepreneurs ask themselves when registering a business is “what is a single member LLC?” The acronym LLC stands for limited liability company, and the term ‘single member’ means that this company is owned by a single person, referred to as a member. This of course differs from multi-member LLCs, which are owned by more than one person.
Forming a single owner LLC is a popular choice for many freelancers starting their own business since the flexible structure allows you to expand as the needs of the business develop, employing contractors and employees as necessary.
How to start a single member LLC
In order to start a single member LLC, you’ll have to contact the secretary of state where you are conducting business. There are several steps involved in this process:
First of all, you will need to choose a name for your LLC. This should not only represent your business, but also needs to comply with state laws, meaning that you cannot include any words that may be considered offensive and you cannot choose a name that another business has already claimed.
Following this, you must designate a registered agent. This will be the person who receives paperwork from the state government on your behalf, and they must be over 18 and a resident of the state in which your business operates. Each state will have its own unique requirements for the registered agent, so make sure to check these beforehand.
The next step is to get hold of any necessary licenses or permits, which will depend on the nature of your business and the industry that you operate in.
After this, you are ready to register your single owner LLC with the state government. You can usually do this online, in person or by mail, depending on the state. Online applications are the fastest, with processes generally taking between 1-2 days.
Single member LLC taxes
One of the most important reasons for choosing to form this type of company is the associated tax benefits. Single member LLC taxes are generally much lower than for other businesses such as corporations as they are considered pass-through entities, meaning that profits are passed on directly to the owner. This means that you don’t have to pay corporation taxes, and will instead use your personal tax returns.
Do I need an EIN as a single member LLC?
In order to hire employees or contractors as a single member LLC, you will need to obtain an employer identification number, also known as an EIN. This is similar to a social security number for individuals in that it allows you to pay employees and open business accounts, and is a unique way to identify your business.
Even if you don’t plan on hiring employees, you can still get an EIN if you want to separate your business tax from your personal tax returns.
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