Forums: Discussions for entrepreneurs and small business.

After reading this article on this website it's made me question whether or not it's a good idea to become a single-member llc.

Here's the article:

http://www.myllc.com/single-Member-LLC.aspx

She mentions giving a family member or friend a piece of your company just to register as an official 'partnership LLC'

The only thing holding me back from actually doing this is the fact that I'm building an internet based consulting/educational company. I feel like there isn't much I could be sued for but I could REALLY be wrong in that assumption.

Would it be worth giving a piece of my company to one of my parents to become a partnership LLC? I know the world is sue happy so I'm a little afraid that the LLC won't protect me as a single member LLC since I'll be considered a sole proprietor in the IRS.

I'm just confused, do you guys know which option would be better?

Thanks for your help.

Vesone Dean

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Vesone, Just because you elected to be treated as a sole proprietor for federal income tax purposes, doesn’t mean that the legal protection afforded by an LLC is equally weak. The tax and legal statuses of an LLC are two entirely separate items.

The other main factor to consider is whether or not you want, or need, to grant an ownership interest in your company to a third party for reasons other than qualifying for a certain organizational structure. Just bear in mind that even if you grant a minority stake in your company to your parents, be that in an LP or LLC, this will entail quite a few administrative responsibilities for them. For instance, your parents will be taxed for their share of profits regardless of whether or not they received any actual disbursements from you/your company.

Assuming that there really isn’t any compelling reason for you to partner with your parents and incorporating as a “single member LP” isn’t an option, I think incorporating as a single member LLC is probably the best way to go about this.

Just keep things as simple as possible.

I hope this helps.

Mark

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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
http://www.Publications.FastVentures.com

That's what I was hoping somebody would say, thank you for your advice, I didn't want to complicate things by re-doing everything I'd already filed.

Thanks again

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Hi Vesone

Each state has its own LLC provisions and the limited liability associated with each entity. I believe you are confusing the tax and legal aspects of a partnership and LLC.

An LLC inherently has limited legal liability however for Tax purposes its treated as  a partnership. In the case of a single person LLC the IRS treats it as a sole proprietorship for tax reporting purposes not for legal purposes. The legal determination is governed by state provisions not the IRS. 

 

When considering a Partnership its generally under seperate state provisions than an LLC and there are several categories of Partnership ie General Partnership(no limited Liability), Limited liability Partnership(some limited Liability) if structured properly.

 

I hope this clarified the issue.

 

Mike Janicki

 

The Jan consulting group

mjanicki@janconsultinggroup.com

www.janconsultinggroup.com

There are pros and cons. I would suggest going into Single Member LLC as partnerships always sour later when the business becomes really profitable.

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