Single-Member LLC vs. Partner LLC: A Quick Comparison
Single-Member LLC or Partner LLC? There are many benefits to starting a business with a partner, but if you don’t have anyone to work with you, it’s still possible to be in business. By registering a business as a single-member LLC, you can enjoy all the benefits of a partnership without additional members. If you do want to form an LLC with partners, that’s great too! How you structure your LLC depends on what will work best for the overall company and its member(s).
This article will outline the differences between these two types of LLCs, cover some things to know about taxes, and how to decide which type may be best for your company. We’ll also share a link to all our business startup resources to help you start and manage your new business.
History of the Limited Liability Company
The Limited Liability Company (LLC) is a type of business structure that is popular among small and medium-sized businesses. It was introduced in Wyoming in 1977 and soon became popular across the United States. Today the LLC business entity type is also most popular among startups and small businesses. The Limited Liability Company (LLC) business type has the tax and legal benefits of a corporation or partnership while limiting the owner’s personal liability.
Single-Member LLC Definition
A Single-Member, also known as a 1-person LLC, only has one owner and does not need to file corporate taxes in addition to personal income tax, because the owner is an individual. Single-member LLCs can elect the small business – or “S Corp” status with the IRS, so they are taxed as S-corporations instead of partnerships, potentially lowering personal tax liability.
Single-Member LLC Benefits
Single-member LLCs allow you to be your own boss without all the hassle of running a corporation. Because the LLC business structure supports what is called pass-through taxation, filing a personal tax return with your LLC profits and losses is all that’s required with the IRS. Non-US citizens can also own single-member LLCs, so it’s easier to start than a traditional corporation if you’re from another country.
A single-member LLC is a type of legal entity that provides liability protection while keeping things simple for its owner. It is not a partnership, so the business owner retains all the profits – this means no sharing with other partners or investors, making it an ideal business structure for startups and new entrepreneurs.
Single-Member LLC Disadvantages
One of the disadvantages of a single-member LLC is that the owner will be liable for all the debts and obligations incurred by the business. Another disadvantage is that, in some states, it can be harder to get loans when you are using a single-member LLC. This type of business is owned by one person and may not have any employees other than members. Single-member LLCs must also file a Schedule C form along with their personal tax returns.
Partner LLC Definition
A partner LLC is formed when two or more members organize the business together. Members can be added or removed even after the LLC is formed. They share the profits of the business proportionately based on their financial investment. A Partner LLC can have more than one owner and also employ people other than members.
Partner LLC Benefits
A partner LLC provides many benefits, one of them being the ability to minimize the company’s tax burden. The LLC’s members are taxed as individuals, so the business isn’t required to pay employer taxes like a traditional corporation. Another benefit of a partner LLC is that it does not have to maintain uniformity in the company’s capital contributions.
There are no citizenship requirements for US partner LLCs, so it’s easier to start than a traditional corporation if you’re from another country. An LLC can also be owned by an unlimited number of members, including other LLCs.
Partner LLC Disadvantages
Being business partners may seem like a good idea, but when it comes to making decisions, it can be tough to get multiple members to agree. There is also more paperwork required when more than one member forms a Limited Liability Company. Unfortunately, if one member misuses funds or does anything illegal in the company’s name, it can have a negative impact on other members. All members must pay self-employment tax on their share of the LLC’s profits.
Compare LLCs vs. Corporations here.
Single-Member and Partner LLC Tax Obligations
Regardless of which type of LLC you start, you’ll be responsible for paying federal income tax, employment tax if you have employees, and even state tax depending on where you operate. There are different forms and requirements for both the Single-Member and the Partner LLC, and also for US citizens and Non-US citizens. It’s possible to file the required forms on your own, but some are very long and complex, so you may want to consider having a tax professional file for you.
NOTE: MyCompanyWorks cannot offer tax advice or services, but our tax partners can answer questions and file your tax returns.
Single-Member LLC Federal Tax Requirements
A Single-Member LLC owned by a US citizen is required to file form 1040 along with a Schedule C form each year by April 15th with the IRS. Non-US citizens file IRS Form 5472 along with a proforma Form 1120 that includes the LLC’s name and address, Employer Identification Number if it has one, and the date the LLC was formed. Foreign-owned LLCs must also file Form 1040-NR or Form 1040-NR-EZ as part of their tax returns.
Partner LLC Federal Tax Requirements
An LLC with two or more US citizens as members must file Form 1065 by March 15th each year with the IRS. Once this form is filed, you’ll receive a Schedule K-1 which shows your share of the income, deductions, and other items. The Schedule K-1 form should be submitted with your 1040 personal tax form by April 15th every year.
Non-US citizens will need to file Form 1040-NR or 1040-NR-EZ each year by March 15th.
State LLC Tax Requirements
Each state has different tax structures for LLCs. You’ll need to contact your state’s taxation department to register and pay state income and sales tax if they are collected where you’re doing business. Check out our Business Tax Resource page for more information and help from our partners.
Which LLC is Right for You?
The two most common types of LLCs come in single-member and partner forms.
- A single-member LLC is the easiest type to establish and maintain. The only ownership requirement is that you must be a natural person, not a corporation or other business entity. A single-member LLC may not have any employees other than the member. This LLC type has to file a Schedule C along with a 1040 tax form each year.
- A partner LLC can have an unlimited number of members. It can also employ people who are not members of the LLC. There are many benefits in this type of business structure, such as protecting personal assets from liability for business debts and providing multiple owners with an opportunity to share profits and losses among themselves.
- The key difference between both types of LLCs is that a partner LLC has multiple members, whereas a single-member LLC only has one member – the owner – who signs all contracts, files tax returns, takes on all responsibility for the business, and profits from it.
Deciding which LLC type is right for your business really depends on whether or not you’ll have business partners or investors and also whether or not you’ll have employees. If you need professional tax advice, contact one of our accounting partners to help you decide on the right LLC formation.
Start Your LLC Today
Once you have decided which LLC type is right for your company, you can start your LLC online in any state with MyCompanyWorks. See an average turnaround time on your state’s online order form and find FAQs and loads of helpful startup resources to start and manage your company all in one place.
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