A single member Limited liability company (LLC) is a business entity that offers both liability protection and tax benefits. However, a LLC involves a cost to properly establish and paperwork that is not required with a sole proprietorship. This may lead one to ask—is the single member LLC a good idea?
From a business lawyer’s prospective, the answer is yes. If you are a business owner with no partners, the benefits of a single-member LLC are worth the costs. When properly formed and operated, the single member LLC gives its owner liability protection from the debts and obligations of the LLC. For example, if you take out a loan in the name of your LLC, only the company is liable for the loan. Your personal assets will not be at risk even if your company cannot pay the loan. Because of this, it may be harder for you to get a loan solely in the name of your LLC, but it at least gives you the security of knowing that your personal assets are not at risk when you are doing business in the name of the LLC.
There is no same protection for a sole proprietor. If you are a sole proprietor and take out a loan for your business, you are personally liable for that debt meaning your personal assets can be at risk for actions that occur while operating your business. Although there are costs to setting up and maintaining an LLC, the benefits make it a good idea (and this does not even include the tax benefits of a LLC which is a topic for another post). It is rarely a good idea in today’s society to operate a business as a sole proprietor.
If you are a business owner or are thinking of starting a business and want to learn more about how a single member LLC can benefit your benefit your business, we would love to talk to you about it. Our experienced business attorneys are always here to give you a free telephonic consultation when you need it.