LLCs are created by filing appropriate paperwork within the state where the organization will operate. It is important to understand the rules and requirements for the creation of a Limited Liability Company to ensure that you and your organization get the benefits and the protections that this business form provides. The rules permit you to have a Limited Liability Company with only one member but the tax treatment of this type of organization may differ from certain other LLCs. An experienced Scottsdale Arizona business lawyer at Lotzar Law Firm, P.C. can provide you with assistance with the creation of a Limited Liability Company and can help you to determine what type of business entity is appropriate in your situation.
Starting a Limited Liability Company with Only One Member
A Limited Liability Company is a type of business organization that has been created by statutes at the state level. When an LLC is started, the owner(s) must understand how the business will be treated by the Internal Revenue Service in addition to following all state rules. The owners generally can elect to have their LLC treated as a Partnership, as a Corporation, or as a “Disregarded Entity.”
When an LLC has two or more members, it will automatically be classified by the Internal Revenue Service as a Partnership unless a specific form, Form 8832, is filed with the Internal Revenue Service. Form 8832 alerts the IRS that the LLC should be treated as a Corporation.
If an LLC has just one member, it is automatically treated by the IRS as a “Disregarded Entity.” Unless you elect otherwise, the Limited Liability Company with only one member will thus be treated as a separate legal entity from its owner for some excise taxes and for some employment taxes. However, it will be considered a Disregarded Entity when it comes to income taxes.
Like a Multiple-Party LLC, a Limited Liability Company with only one member can file Form 8832 to be treated as a Corporation. The LLC must affirmatively select this option with the IRS. If Form 8832 is not filed, this means that as a Disregarded Entity the LLC’s activities must be reflected on the tax return of the organization’s owner. The owner of the LLC will need to declare income from the organization on a 1040 Schedule C, E, or F depending upon the type of income earned.
Essentially, the IRS rules treat a Single Member LLC just like a Sole Proprietorship for tax purposes, unless the organization affirmatively files paperwork asking the IRS to treat it as a Corporation. The LLC that is classified as a Disregarded Entity will need to use the Social Security Number or Employer Identification Number that belongs to the single member owner for all purposes related to income tax and information returns.
An experienced Scottsdale Arizona attorney at Lotzar Law Firm, P.C. can help determine if you should form a single member LLC and whether your organization should elect to be classified as a Corporation or not. Call today to schedule a consultation and learn more.
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