What Does It Mean to Be a Single-Member LLC in Minnesota?

You can form a limited liability company (LLC) business entity in Minnesota even if you are the only member – i.e. the only owner of the business.

In setting up your single-member LLC, you gain an advantage that a sole proprietorship doesn’t have. Namely, as the member of an LLC you are not personally liable for the liabilities, debts, other obligations or actions of the LLC. That protection occurs because an LLC is an entity that is legally separate from its owner.

If you operate as a sole proprietorship instead, you and the business are considered to be the same. There is no legal separation and the sole proprietor is personally liable for all the liabilities, debts, etc. of the sole proprietorship.

Note, however, if you have a single-member LLC but don’t follow certain corporate formalities, such as keeping a separate business bank account, you could still be vulnerable to a “piercing the corporate veil” legal action. In a piercing claim, your adversary asserts that your business behavior is inconsistent with your claim to having a separate business entity.

When you have a single-member LLC, it’s important that the LLC – not you personally – be listed as the party to the contract. When you sign the contract, you should sign your name and then indicate the officer position that you hold, so that it is clear that you are signing as an officer of your LLC and not personally.

Be aware, however, that if you receive a loan from a bank or other lending institution, the lender will likely expect you also to personally co-sign the note also because the bank will want your personal assets available for repayment should your LLC default on the loan.

For tax purposes only, most single-member LLCs choose to be taxed as a “disregarded entity”. That means that your LLCs revenues and expenses can be reported on the same tax return as your individual tax return. There’s just an additional Schedule that is filed to your Form 1040 tax return – Schedule C.

That’s the good tax news. The bad tax news is that you are considered self-employed and thus must pay both the employer’s and employee’s portion of FICA taxes (Federal Insurance Contribution Act). FICA consists of Social Security and Medicare taxes. The FICA tax rate for 2014 for self-employed persons is 15.3% of the first $117,000 of net income plus 2.9% on net income that is in excess of $117,000.

©2014 Wittenburg Law Office, PLLC. All rights reserved.

Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305 952-649-9771 bonnie@bwittenburglaw.com www.bwittenburglaw.com