         |
 |
  | |
Single Member LLC Better Than Unincorporated Business
© 2000, 2003 - Linscott R. Hanson
|  |
The big difference is, the LLC is a recognized legal entity for purposes of state law. It provides a liability shield like a corporation, but with far less formality. There is no requirement for the election of Directors and Officers. No annual meetings need be held and no minutes need be prepared. In fact, the LLC act says, in so many words, "The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company."
A single member LLC is what the Internal Revenue Service calls a "disregarded entity." This means that for purposes of the IRS, the company is totally transparent. Not only does it pay no tax, but the company need not even file an income tax return. Although S Corporations "pass through" their income, they still have to file a tax return. Single member LLCs instead report profit or loss on their owners' tax return. An individual will report his business on Schedule C of his personal return just as any sole proprietor does.
The State of Illinois Department of Revenue follows the lead of the IRS, so no Illinois corporate or partnership return is required for single member LLCs, either.
Sole proprietorships cause problems at the owners death. Ordinarily a probate court supervised proceeding is involved to wind up the business, pay bills, close out bank accounts and so forth. On the other hand, the ownership of a single member LLC can be placed in a living trust, totally avoiding probate, and permitting the trustee to continue or wind down the business after the owner's death, without involvement of the probate court. Alternatively, the membership interest can be issued "t.o.d." to someone else under Illinois' Uniform Transfer on Death Act, also avoiding probate.
Although the cost of creating a single member LLC is higher, its lack of formality makes it far less expensive to keep up, annually, than a corporation.
The graphic is a portion of the walled city of Carcassonne in the South of France. Its significance for this article is the enormous wealth which it both represented and contained within its walls, and the superb job of asset protection it did, when the Cathars, under the leadership of Raymond-Roger Trencavel, withstood a five year siege laid by Northern crusaders under the leadership of Simon de Montfort, in the early 13th century AD. It is submitted that if modern-day asset protection counselors can construct a plan of asset protection that can sustain a five-year siege, they will have succeeded as well as can be hoped for. In view of a Colorado Bankruptcy opinion issued in 2003, In re Ashley Albright, 2003 Bankr. LEXIS 291 (Bankr. D. Colo. April 4, 2003), it would seem prudent, however, to use a multi-member, rather than a single member LLC if asset protection is a principal purpose.
