The single-member limited liability company is a powerful tool in structuring both simple and complex business relationships. In its simplest form, a sole proprietorship can be structured as a single-member limited liability company to protect the proprietor from liability while maintaining the simple tax and operational flexibility inherent in a sole proprietorship. In more complex business structures, assets or business operations can be segregated into separate, single-member LLCs to compartmentalize risk and build liability firewalls.
Despite its great flexibility and usefulness, the single-member LLC can be a trap for the unwary. A single-member LLC is disregarded as a separate entity for tax purposes, but recognized as a separate legal entity for liability purposes. In some respects, those concepts are at odds.