The owners of Limited Liability Companies are called members. A single member LLC is therefore an LLC with one owner. Not every state allows individuals to form LLCs where they are the sole owner. However every state must respect every other state’s corporations. Thus, regardless of your state’s laws, you may form a single member LLC in Wyoming and enjoy its full benefits without fear.
Not every other country will respect this arrangement however. In such cases it may be advisable to add a partner. For example, gift 2% of the company to somebody else. You may make the company manager managed and list yourself as the manager. This allows you to maintain full control and avoids potential issues with your country’s laws.
There are additional considerations to keep in mind when you are the sole owner. Let us first cover the basics of LLCs, and then we will show you how to protect yourself.
What is an LLC? An LLC is for all intents and purposes its own legal entity – wholly separate and apart from its owners. It may sign contracts and assume liabilities – without fear of the liabilities impacting the owners. This is referred to as the corporate veil. A failure at the corporate level doesn’t necessitate personal ruin.
This encourages businesses to invent and innovate... Just imagine the debtor prisons Britain had to understand why we don’t punished individuals for failed businesses. The only capital at risk is the initial contribution. Learn more about the advantages of an LLC here.
However, through proper business planning, even these risks can be effectively managed. For further information on forming multiple entities, to separate business assets and liabilities from another, view our page on holding companies here.
Here are some of the most commonly asked questions about single-member companies:
How are they taxed? By default the IRS disregards the entity and taxes it as a sole-prop. You may however still elect for corporate taxation. Simply complete form 8832 and note “xyz” on your EIN application. If you need help with this feel free to contact us. You may also read more about limited liability company taxation here.
Do I still need an operating agreement? While Wyoming doesn’t require it, the answer is generally yes. The primary reason is for the springing member provision. In short, in the event of your death you will want your company to transition seemingly to the beneficiary of your choosing. This prevents a lengthy and expensive probate process which often kills companies. Learn more about operating agreements here.
Should I form a Close LLC? Yes. Formalities such as annual meetings are superfluous when you are the only owner. Why hold a one person meeting where you inform yourself of what you intend on doing with your business? A close company isn’t required to hold such meetings. This means reduced paperwork for you. Learn more about the “close” designation here.
What is charging order protection and do I still receive it? Protection from charging orders comes from partnerships, which are where LLCs stem from. In partnerships, personal creditors cannot seize partner’s interests. This prevents unwanted interference and protects other partners from “new” members who do not share the same goals or interests.
The best a personal creditor can do is seize distributions, but they cannot force them. This same benefit is available to single member LLCs in Wyoming. This allows you to outlast creditors and strengthens your bargaining position. Read more about asset protection here.
Why doesn’t every state allow one owner corporations?
There is a theory called the “alter ego” whereby individuals merely use companies as an extension of their activities. The company’s activities are not considered separate from the individuals. Following this thread, an owner and his or her company are inseparable – and accordingly so are their liabilities.
We disagree with this viewpoint as it discourages individuals from pursuing their dreams. It also stifles corporate innovation. Just because you do not want, or cannot find, a partner does not mean you should not be afforded the same protection from liabilities as owners of multi member companies.
Is there anything to keep in mind?
We noted above all fifty states must respect a Wyoming single member llc. However, you must be careful to respect the llc as a separate entity. The single largest mistake you can make is failing to keep you and your company’s finances separate. Do not comingle funds as it can have serious repercussions.
Treating the company as your personal piggy bank causes headaches for taxes. More importantly, if you fail to treat the corporation as a separate entity, then a judge may choose to disregard it. You acted as though it didn’t exist, why should they not too?
Possible consequence for Single-Member LLC: Not every state allows Single-Member LLCs, but Wyoming does. Don’t give your creditors and the courts the chance to argue the LLC should be ignored. This is called piercing the corporate veil and generally is only possible when fraud can be proven. The LLC’s liabilities will become your own.
How do you avoid this? Income and expenses should go through the LLC’s accounts. For example, in case the LLC is short of cash, then the owner should put money into the LLC’s account. Then the LLC pays its debts from its account. Do not bypass this step and do not fail to document whether the money was a loan or capital contribution.
- All income should be made payable to the LLC and put into its account.
- All expenses should be paid from the LLC’s account.
- Document transfers from Members to the LLC as either a loan or contribution.
- Payments to Members should go via the Member’s account. That is, deposit a company check in your personal account AND THEN make whatever payments or purchases you need.
- Payments should be recorded as salary, return of capital, profit distribution or a loan repayment.
Again this impacts taxes and asset protection. Loan repayments are not taxable to the owner and documentation is needed to prevent the IRS from taking the position that the payment by the owner to the LLC was a capital contribution.
What benefits are there to doing business in Wyoming?
- No Taxes
- Low Fees
- Reduced Formalities
- Anonymous Ownership
Learn more about forming a Wyoming llc, their benefits and their privacy by clicking the respective links.