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Ask HN: Advice on single-member LLC for consulting or SaaS business?

• davismwfl 7y ago
  A lot depends on the state in which the LLC is formed and in which state are you operating. For example, single member LLC's in some states are not as protected as a multi-member (or standard corporations C or S), but in other states they are equal. In IRS terms generally they are no different, but the operating agreement is critical. The LLC's Operating Agreement is likely the single most important document to create, manage and maintain. So much is based on the operating agreement that without a properly defined one, I'd argue the LLC isn't really valid. If you don't have one, you need one and you need it to be specific to the state law that you are formed and also operating under. EIN's are generally not obtained by an LLC unless you are a multi-member or employ a person that is not an owner of the LLC. Either one of those is typically the reason to file for an EIN, even if it is just the intent is to employ people in the next 12 months or whatever, usually you obtain an EIN. This dictates how you fill out tax forms for companies during billing. Running consulting out of an LLC is a great way to go, I built 2 successful consulting agencies using the LLC structure even taking in some outside money in one of them to help us scale a product. LLC's are super flexible and while pretty easy to manage there are a few things to look out for, the operating agreement being the most critical piece IMO. The OA literally defines how you distribute funds, assets, allocations, voting, adding members, removing members, managing the business, dissolution etc. So without it the company isn't really legit in my mind. Most states don't require you file an OA and so people don't understand that it is so critical and without it you are subject to court interpretation and weird defaults depending on the state etc. Some banks require you to show them the OA before they will open an account in the businesses name, not super common, but not rare either. Also, for any LLC or company, make sure you get your DUNS number and setup a couple of small credit accounts (even for tiny amounts) just so you build the credit as early as possible. This can literally help save your business later.
  • elamje 7y ago
    Good advice. I didn’t realize the OA was so important. I haven’t found any information online about SMLLCs that would lead me to think that it’s important; what has made you think it’s important? Lawyer, online resource, etc?
    • davismwfl 7y ago
      Yep, I have had multiple attorney's & accountants over the years affirm how critical the OA is to taxes and operational details of the company, so I've never been without one. The OA is critical because without it you default to a set of rules that the state defines which may not be correct for your operation, and may not protect you from the business or the business from you. Also, from a tax perspective this could mean you default to the least ideal tax plan for your situation, so don't let that happen. A little to your point though, usually single member LLC's are pretty simple so it isn't as complex but you still need an OA as it deals with a lot of stuff outside of just distributions. As a single member LLC the OA is what separates your personal assets from the business, and defines a set of guidelines that if the business follows will keep you and the business protected. Good part is there are templates for the OA's available online that you can just fill in all the key details for now. And when you have a few dollars run it past an attorney (and tax person) to clean it up and make sure things are good for how you want to operate. Obviously if you can do that immediately that's best, but that isn't always possible so as long as you have the basics in place then you are good.