A single-member LLC (Limited Liability Company) is a legal entity for business purposes that has just one owner, also referred to as a member. By dividing the owner’s personal assets from the company’s assets, the LLC form provides personal liability protection. This means that the owner’s private assets are still protected in the event that the firm is sued. But the topic of whether a single-member LLC can have more than one owner comes up frequently. The answer is negative; only one owner may be a member of a single-member LLC. It can only have one member, as the name would imply.
The proprietor of a single-member LLC is regarded as self-employed. A salary, a draw, or both are options for the owner. A salary is a regular payment paid to the owner for their labor in the firm, whereas a draw is a distribution of company profits. The owner must, however, make sure they pay themselves a fair wage. In the absence of this, the IRS may categorize the distribution as wages, in which case the owner may be obligated to pay payroll taxes.
LLCs are recognized by the state of Texas as either passive or non-passive businesses. An LLC that doesn’t actively do business is referred to as a passive entity. An LLC that actively conducts business activities is referred to as a non-passive entity. Even though it only has one member, a single-member LLC is a non-passive entity because it actively engages in business activity.
A legal document that describes an LLC’s policies and procedures is called an operating agreement. It lays out each member’s rights and obligations and regulates how the LLC’s members interact with one another. Although an operating agreement is not required by Texas law, it is strongly advised that LLCs draft one. A clear set of rules for decision-making, profit distribution, and other crucial business matters can be found in an operating agreement, which can also aid in preventing disagreements amongst members.
A single-member LLC is not a passive entity in Texas, to sum up. Even if there is just one member, it is a non-passive company because it actively engages in business activity. Although there can only be one owner of a single-member LLC, the owner may also get a salary, a draw, or both. A clear set of rules for decision-making, profit sharing, and other crucial business matters should be included in an operating agreement, which should be drafted for each LLC.
Depending on the number of members, there are different ways that an LLC’s ownership might be divided. In a single-member LLC, there is only one owner; however, in a multi-member LLC, ownership may be distributed among the members equally or according to their financial contributions. Depending on their respective roles and responsibilities within the company, the owners can also decide on various ownership percentages. Additionally, ownership may be sold or transferred with the consent of the current owners to other members or external parties. The operating agreement for the LLC should provide a detailed description of the ownership split.
For a number of reasons, an LLC’s members may wish to have their operating agreement in writing. A formal operating agreement, which describes each member’s rights and obligations, can, among other things, prevent miscommunications between the members. Second, a written agreement can serve as a point of reference in the event of disagreements or conflicts since it outlines the steps that should be taken in these circumstances. Finally, having a written agreement can make the members feel more secure because it makes sure that everyone is on the same page and that there won’t be any surprises later.