Owning a sole proprietorship can prove to be a simple operation since you do not have to worry about sharing your enterprise with one or more partners. Still, as a sole proprietor, you face exposure to litigation that could deplete your personal assets.
A limited liability corporation, or an LLC, offers the opportunity to create a business structure that can shield your assets. An LLC can encompass multiple partners, but you may also form an LLC by yourself.
The features of a single-member LLC
In the state of California, an LLC with a sole owner is a single member limited liability company, or SMLLC. If you have a spouse, the two of you can actually form a SMLLC and have the state treat the two of you as a single owner.
As a SMLLC owner, you manage the company yourself. Since the business is its own legal entity, it separates your business liabilities from your personal wealth. This prevents creditors from attempting to take your personal bank accounts and property in a lawsuit.
In addition, you have two taxation options. You can file acting as a sole proprietor using your personal return, or you can use a business tax return, filing as an S corporation. In addition, there is less paperwork involved in setting up and maintaining the business.
The single-member LLC name
Another aspect of a SMLLC is the ability to put LLC in your business name. In fact, if you do business as your personal name, you can place LLC after your name. Doing so can encourage companies and suppliers to do business with you since you have shown effort to incorporate your enterprise.
Possible drawbacks of a SMLLC
A SMLLC may protect your assets, but only if you take care to separate your personal and business finances as clearly as possible. As the sole owner, it is easy to comingle your assets, which opens the door for creditors to claim your SMLLC status is not legitimate. You must also take care to choose a name distinct from other LLCs.
Careful planning at the business formation stage may help you form the strongest SMLLC possible, or you may decide that another business structure is more beneficial to your situation.