A Good Structure for Expanded Business Operations

Are you interested in expanding your existing business operations into new locations? How about starting up entirely new ventures or acquiring existing businesses? An excellent vehicle for these type of operations is a single-member limited liability company (SMLLC).

A SMLLC is an LLC with only one owner, also called a "member." The SMLLC's sole owner or member can be a corporation, a partnership, a multi-member LLC, another SMLLC or even an individual.

Under applicable state law, an SMLLC generally protects its sole owner or member from liabilities related to its business operations in essentially the same fashion as a corporation. An SMLLC can be equally effective in protecting its member from real estate liabilities (for example, from unknown environmental contamination problems). For that reason and the others listed in this articles, an SMLLC can be a good vehicle for owning real estate properties.

For federal tax purposes, the SMLLC's existence is ignored. It's simply treated as an unincorporated branch or division of the member (or as a Schedule C, E or F activity if the member is an individual). This means no separate federal tax filings are required for the SMLLC's business or real estate operations. In most cases, this ultra-simple treatment applies for state tax purposes, too.

More good news: If the member (sole owner) wants to take money or assets out of the SMLLC, there are no federal income tax complications, because the entity doesn't exist in the eyes of the IRS.

What about if you want to move money or assets into the SMLLC? No problem there either, because the sole owner or member is treated as making transactions between itself. Such moves have no federal tax significance.

In contrast, establishing new corporate subsidiaries, limited partnerships, or multi-member LLCs to own expanded, new, or acquired business operations — or to own real estate holdings — will inevitably trigger tax complexities.

To sum up, an SMLLC is "invisible" for federal tax purposes while still providing the desired liability protection advantages to its sole owner or member, pursuant to your state's LLC laws. Contact our firm for more information.

Tax Facts about SMLLCs

• The Limited Liability Company (LLC) structure is allowed by state statute. Owners are called members.
• Since most states do not restrict ownership, members can include individuals, corporations other LLCs, and foreign entities.
• A few types of operations generally cannot be LLCs, such as banks, insurance companies and nonprofit organizations.
• When an LLC has only one member, the fact that it is an LLC is ignored or "disregarded" for the purpose of filing a federal tax return. This is only for tax purposes. It doesn't change the fact that the business is legally a Limited Liability Company.
• If the only member of the "disregarded entity" LLC is an individual, the LLC income and expenses are reported on Schedule C, Schedule E or Schedule F of Form 1040. If the only member of the LLC is a corporation, the LLC income and expenses are reported on the corporation's return, usually Form 1120 or 1120S.
• If the SMLLC prefers to file as a corporation instead of as a "disregarded entity" it must submit an IRS form to make the election for this status.
• SMLLCs cannot file a partnership return.