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By The Wyoming LLC Attorney Team

Jun 03, 2022
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Delaware Single Member LLC

How to Start an LLC

Summary

This article explores the benefits of a Single Member LLC in Delaware, emphasizing tax advantages, privacy, limited liability protection, and professionalism. Forming an SMLLC in Delaware is straightforward, and it's essential to understand how it's taxed, including federal and state income tax and self-employment tax.

When starting a business you have the freedom to select from various business entity types in the United States, with the limited liability company being one of these choices. Known more commonly as an LLC, this business structure provides privacy for owners and eliminates personal liability for the company’s debts. LLCs are hybrid entities that combine both ideas of a corporation with those of a partnership or sole proprietorship.

Start an LLC in Delaware

What Is a Single Member LLC?

Single-member LLCs (SMLLC) is a limited liability company with only one member. Unless a single-member LLC elects to be taxed as a corporation, it will be treated as a sole proprietor for taxation purposes. This requires you to file your taxes as you normally would, and pay based on the income of the LLC.

SMLLC Benefits

Potential Tax Savings

As compared to a corporation, a single-member LLC offers a variety of tax benefits. Rather than face double taxation as a C-Corporation, the income from a single-member LLC flows directly to the owner. Taxes are paid once on only net income.

Privacy

If formed anonymously, you will have complete privacy by forming an LLC. Even as a single-member LLC, your personal information will not be made public. You can purchase and do business transactions anonymously.

Limited Liability Protection

Forming an LLC means that you will be afforded liability protection when it comes to your personal assets. If your business is sued, creditors do not have the right to come after your assets.

Professionalism

Although you can be a professional sole proprietor, having the name of an LLC appears more substantial. It can allow you to be taken more seriously, especially when it comes to obtaining funding.

How to Form a Single Member LLC in Delaware

Forming a single-member LLC is done the same way as any other LLC. The only true difference between a single member and a standard LLC is the number of owners.

In Delaware, you will be required to mention the fact that there is only one member of the LLC, but it will most likely make the operating agreement simpler.

Benefits of Forming a Single Member LLC

  • Separate business entity: Provides you anonymity as well as no liability.
  • Legitimate business: Setting yourself up as a single-member LLC provides you the look of a legitimate business. Rather than applying or purchasing as a sole proprietorship, you are an entity.
  • Copyrights: Because the SMLLC is formed within the state of Delaware, you must register your business name. This means that no one else can use your business name.

How Is a Single Member LLC Taxed in Delaware?

By default, a single-member LLC is taxed as a disregarded entity. If you choose to, the SMLLC can also be taxed as a C or S-Corp through an additional filing with the IRS. The only exception for an SMLLC is that it cannot be taxed as a partnership. In order to be taxed as such, you must have more than one member.

Single-member LLCs are required to pay three different forms of tax:

  • Federal income tax: Because an LLC is not taxed as an entity, a single-member LLC will be taxed as though it is a sole proprietorship. This requires you to pay income taxes on a Schedule C form, and then the net income is combined with the rest of your income on your personal tax return.
  • State income tax: The state income tax in Delaware is graduated on any income under $60,000. This ranges from 2.2% to 5.55%. If you make more than $60,000, the income tax rate is 6.60%.
  • Self-employment tax: As the sole owner of a single-member LLC, you will be considered self-employed. This means that you are not an employee, and therefore you must pay self-employment taxes. These taxes include Social Security and Medicare taxes. The amount is based on your net income from the business each year.

Delaware Employer Identification Numbers

Your employer identification number commonly referred to as an EIN, is like a social security number for your business. Even though your business has no employees, you will still be required to show an EIN to open a business bank account.

Forming a Single Member LLC in Delaware

Overall, if you are operating as a sole proprietorship, then forming an LLC can provide stability and professionalism. It is a great option to provide yourself personal liability protection, and privacy in business. If you have questions regarding the formation of your Delaware LLC, reach us through our contact form or call +1 (307) 683-0983. One of our knowledgeable paralegals will be happy to guide you through the process.