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HERE IS A QUOTE FROM THE IRS, followed by my question.
"An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301.7701-3.
By default, an LLC with only one member is disregarded as an entity seperate from it's owner and must include all it's income and expenses on Schedule C. By default a LLC with 2 or more members is treated as a partnership.
A single member LLC doesn't have to apply for an EIN number on a ss-4 form, because the LLC should use the name and EIN number of the owner."
THAT WOULD BE ME. MY QUESTION IS SINCE I'M A SINGLE MEMBER LLC, IF I USE MY OWN PERSONAL EIN NUMBER, WOULDN'T THAT TIE ME DIRECTLY TO THE LLC DIRECTLY IN THE EVENT OF A LAW SUIT. OR IS IT JUST FOR TAX PURPOSES ONLY , AND MY LLC WOULD STILL PROTECT ME AGAINST LAW SUITS?
LAST QUESTION, MIGHT IT BE BETTER IF I ADDED A 2ND MEMBER IN ORDER TO BE CLASSIFIED AS A PARNERSHIP BY DEFAULT? IF SO, IS IT MORE OF AN ADVANTAGE FOR TAX PURPOSES WITH THE FEDERAL GOV'T.
THANKS A MILLION!
BRUCE!
Having a separate EIN for your LLC does not afford your business any greater protection from a lawsuit. If you are the single-member manager of an LLC, a partner in a partnership, or an officer in a corporation, your business entity may still get sued, and in addition you personally may still be named in the lawsuit.
By the way, your name is on record as an officer when you registered your LLC with the state. So having a separate EIN for your LLC does not provide you any anonymity.
What the LLC does do, is shield your personal assets from attack from a lawsuit arising out of your business activity. The primary benefit of the LLC is to limit your liability exposure to the extent of the assets owned by the LLC, shielding you from personal liability (and thus shielding your personal assets).
Actually, your question is a legal question (and not really a tax question) and is probably already well discussed in the Legal Forum.
If taxjunkie does not jump in here with his legal perspective, perhaps you could post your question on the legal forum if it has not already been answered there.
Bruce:
is disregarded for FEDERAL TAX PURPOSES. However, some states will not disregard it for STATE TAX PURPOSES (e.g., Texas). Rather, states like Texas will tax it like a C corporation.
. You do not want to use an EIN ("employer identification number"
since if you do you will likely get a nice little letter from the IRS after your first tax return is filed since the IRS right now has no way of matching the EIN with your SSN on your personal 1040 tax return.
Dave is correct. Your question is more of a state liability law question rather than a federal tax law question.
However, I have noticed many posters confuse the two, so I will respond here as an aid to other readers thinking this is a tax question.
First, to address some things that are tax related. If you have a domestically formed (meaning a LLC formed in one of the 50 states), a single member LLC ("SMLLC"
Second, if you as an individual own all of the LLC membership interests, then you can use your social security number ("SSN"
Third, there is one situation where you will be required to obtain an EIN for your SMLLC though. That is if you have employees (other than yourself). The EIN is used to file the withholding and social security tax returns of employers (i.e., IRS Form 940, etc.).
Now to the legal aspects of your question.
Fourth, an EIN or SSN for that matter has nothing to do with state liability protection. You see, an LLC is a state law created creature, not federal law. Even though the EIN or SSN to the LLC for tax purposes, it does not tie it directly to you for state law (liability) purposes. Under state law, an LLC is a separate legal entity apart for yourself. It will only be disregarded for liability purposes in some narrow circumstances; e.g., if a creditor can "pierce the LLC veil," or if you don't pay your payroll taxes, etc. For example, if you commingle your personal bank account funds with your LLC funds (use the same bank account), a state court will likely disregard your LLC for state liability purposes. In that case, LOOK OUT BECAUSE THE JUDGMENT WILL BE AGAINST YOU PERSONALLY!
Fifth, for liability protection purposes, it is often better to have as many persons or entities owning membership interests in the LLC rather than having a SMLLC. A judge is more likely to disregard an SMLLC than if there is many members. In fact, a recent bankruptcy judge disregarded a SMLLC and allowed a creditor to reach the assets in the LLC as if the LLC did not exist. You need to discuss these business issues with your attorney because the way you operate your business can have a big effect on the level of liability risk you have personally (even if the LLC owns the property).
Sixth, not every state requires public disclosure of the officers of the LLC. In fact most do not require it. However, all states require an incorporator or director to sign the LLC articles of organization (the articles of organization is the legal filing which creates the LLC with the Secretary of State in your State). The incorporator or director do not have to be a member.
This is where people that use an attorney aas an incorporator and are concerned about privacy will have an advantage. Since the attorney will be signing and filing as the incorporator, his or her name is the only one that is publicly disclosed. In fact, you can probably have your attorney serve as the registered agent and his or her law firm address serve as the registered office if you want. In that case, depending on the state's LLC laws, there is no public disclosure of where the LLC is located. However, that does not mean you cannot be served and sued. A person that serves your attorney will still be deemed to have served you. The advantage is the attorney will know what to do and contact you ASAP so that you can defend the action against yourself.
Hope that helps,
Taxjunkie