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Create Your LLC Operating Agreement Checklist

1. Decide a name for your LLC
2. Principal Office
3. Registered Agent/Office
4. Initial members
5. Decide the ownership interests of each member
6. Decide the amount of capital each member will contribute.
7. Will any members be granted an interest solely for the performance of services?

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SINGLE MEMBER LLC OPERATING AGREEMENT

Single Member Operating Agreement

It is important to create an Operating Agreement to separate the LLC from the sole individual member. Without the formality of an LLC Operating Agreement, the LLC would look a lot like a sole proprietorship – which does not limit a member’s personal liability for business debts. Having a formal written Operating Agreement will lend authority to your LLC's separate existence. In addition, without an LLC Operating Agreement, the basic operation of the LLC would be governed by state law, which may not be advantageous to the LLC, it members, or the business it conducts.

Taxation

The member of a single member limited liability company (“SMLLC”) will benefit from the limited liability associated with a LLC as well as the benefit of a single level of tax and the flow-through of business losses.

For tax purposes, a SMLLC is treated as a sole proprietorship and will not require a separate federal income tax filing. The income tax can be reported on schedule C of the member’s personal income tax return (Form 1040). For federal income tax purposes, a SMLLC is disregarded. Therefore, if a SMLLC is treated as a disregarded entity for federal income tax purposes, the income of the LLC is taxed to the owner directly, without any entity level tax. In addition, LLC losses would “flow through” to the member and the member could deduct his, her, or its ratable share of the losses generated.
Employment Taxes

Over the years, there has been confusion regarding SMLLCs, specifically, how they can report and pay employment taxes.

The confusion in this area arises when determining employment tax requirements for an SMLLC that is a disregarded entity. Notice 99-6 gives the SMLLC classified as a “disregarded entity” two options for reporting and paying employment taxes:

1. Using the name and EIN assigned to the LLC, or
2. Using the name and EIN of the single member owner

Even if the employment tax obligations are reported using the SMLLC’s name and employer identification number (EIN), the single member owner retains ultimate responsibility for collecting, reporting and paying over the employment taxes.
 

 
Disclaimer: The information provided in this site is not legal advice, but general information on legal issues commonly encountered. Neither myLLCoperatingagreement.com nor myLLCagreement.com is a law firm and neither is a substitute for an attorney or law firm. This site is not intended to create an attorney-client relationship, and by using myllcoperatingagreement.com or myLLCagreement.com, no attorney-client relationship will be created with myllcoperatingagreement.com or myLLCagreement.com.

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