Single Member LLCs: Not All LLCs are Created Equal

• December 26, 2023
• All About LLCs

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LLCs were specifically created for small businesses to be able to receive asset protection like big corporations, but without all the overhead and compliance. 

The way it works is that the LLC is a legal invention that separates an owner from their business. In order to get your protection you must follow the rules. If you do not, your LLC will be viewed as a facade and you may be held personally liable.

While any LLC can be pierced given the right conditions, Single Member LLCs can be especially vulnerable, because it does not involve any other members other than you. The most important thing a single member can do to stay clear of liability, is to act in a way that shows a clear distinction between your personal self and your LLC.

So here are some great ways to always ensure your SMLLC will protect you, and on the flip side some behaviors that are almost guaranteed to break down you LLC barrier.

1. Bank Account – Maintain a separate bank account. Obtain an EIN # for your LLC even though it’s not officially required. If you are commingling your personal funds, the courts will commingle your personal assets!
2. Annual Filings – Strictly adhere to making timely filings with the state (each state is different but mostly annually), or hire a company that specializes in this, for a small fee.
3. Registered Agent – An LLC needs a Registered Agent which mean an address in the state for service of process. This sometimes gets lost in the shuffle especially since it must be renewed every year and not everyone knows whose theirs is. If you don’t pay and the registered agent resigns, your LLC protection is in jeopardy.
4. Capitalization – Adequately capitalize the LLC to be able to operate on its own. If you are going to trickle money into the LLC bank account and never have enough, that is a sign that it doesn’t exist independent of its members.
5. Segregation – Separate personal and business matters. Do not mix business with pleasure. The LLC stands alone and so do you!
6. Operating Agreement – Although not always required by state law, definitely have an operating agreement. Do not download a generic operating agreement from the internet without adapting to your personal needs. If it ever came to court, it could come back to haunt you.

LLCs allow people in the US to operate in a friendly environment and lower the risks. They are one of the things that have made the American dream possible. 

Since it is so easy, make sure you strictly adhere to these little formalities, so you don’t wake up one day to an American nightmare!

 

Note: Information provided here is for general knowledge only, consult a lawyer or CPA in your state for specific legal advice.

 

Tzvi Weiser is an LLC specialist with a rich business background, serving in executive positions in real estate, hi-tech and international marketing. He was a New York lawyer and has an MBA and accounting degree.