When starting a business, you’ll need to decide how you want that entity to be recognized legally. This decision can determine the structure of your company, who you work with, and how you manage your assets. An option for solo entrepreneurs is to form a single-member LLC. Here’s a quick overview of the single-member LLC and why it might make sense for your business. Defining a Single-Member LLC A single-member LLC is a limited liability company run by 1 person. In this case, there aren’t other owners, shareholders, partners, or employees related to the organization. Single-member LLCs can be opened by freelancers, contractors, and other self-employed individuals. Are There Other Types of LLCs? The IRS designates other LLC formats based on the structure of the business entity. For example, an LLC with at least 2 members is called a partnership. Eventually, these LLCs can expand into corporations. The number of people who work for your company and how it operates will determine how you classify yourself to the IRS. What Is an LLC? LLC refers to limited liability companies or businesses that distinguish between the personal and professional assets of its owners. In many cases, an LLC is a pass-through entity, where the burden of paying taxes passes through the organization and falls on the individuals who run the business. A solo entrepreneur can establish their brand and certain protections without having to worry about paying corporate taxes. What’s the Difference Between Single-Member LLCs and Sole Proprietorships? A sole proprietorship is the most basic business entity—any individual can start a business as a sole proprietor. However, with a sole proprietorship, the finances of the person and business are often intertwined. A freelancer might deposit their client paychecks directly into their bank accounts rather than contributing to a business account first. While it’s recommended that sole proprietors keep their personal and professional finances separate, it isn’t mandated legally in the same way as for a single-member LLC. How Do You Pay Taxes as a Single-Member LLC? Your taxes won’t change much as you launch your LLC compared to operating as a sole proprietor. You will “pass through” the tax burden to your personal income and file taxes based on the money you’ve made. How Do You Become an LLC? Single-member LLCs are formed at the state level. If you want to launch a business under this entity, review your start guidelines to understand the associated fees and application process. After you launch your LLC, you will be responsible for submitting an annual report to the state confirming your operating information and your plans to stay in business. Launching a business is an exciting time as you work to turn your dream business into a reality. Consider forming a single-member LLC to protect your assets—both liquid and not. For additional financial resources, check out the free tools at Lendio, which were developed to help small business owners better track expenses and invoices.