Single-Member LLCs – What’s the Deal?

From time to time, I receive question from entrepreneurs about alleged deficiencies in single-member LLCs (limited liability companies).  (As is discussed below, single-member LLCs are different from multi-member LLCs.) This post is adapted from a question about single-member LLCs that I answered on Avvo.

Single-Member LLCs Provide Limited Liability Protection

Q. What is a best way to include a relative-foreigner as LLC member in CA? I formed single-member LLC in CA. Unfortunately I found later that single-member LLCs do not provide usual limited liability protection.

A. It appears that you are confused.

A single-member does provide limited-liability protection (assuming that required formalities are addressed appropriately).

However, Membership may be Subject to Seizure

The “problem” withe single-member LLCs – one cited frequently by asset-protection geeks – is that if the member has personal liabilities, the member’s LLC membership interest may be subject to seizure to satisfy the liabilities, depending on which state’s laws apply.

So, in summary:

• For business purposes, single-member LLCs are fine.
• For asset protection purposes, single-member LLCs are a mistake.

Check out all posts about LLCs.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.