Should You Include Your Spouse as an LLC Member?
Deciding whether or not to incorporate your spouse into your Limited Liability Company's ownership is a significant decision. This choice influences a myriad of factors from taxation methods to how profits are distributed and even the degree of complexity in your company's governing agreement.
Management & Taxation
The choice to include your spouse as a member of your LLC can slightly alter your business’ management process when it comes to big decisions. A single-owner approach simplifies decision-making since you have the final say. However, when your spouse joins as a co-owner, the LLC usually requires consensus for significant decisions, adding an extra layer to your decision-making process. Nevertheless, in situations where only one spouse wishes to take the helm of decision-making, the LLC can opt to be “manager-managed” and appoint the decision-making spouse the manager to make things a little more expedient.
Incorporating your spouse into your LLC ownership also impacts how your company is taxed. As a single-member LLC, the entity is disregarded for tax purposes, meaning you'll report your business income and losses on your personal tax return. However, if your spouse joins as an owner, your LLC transforms into a multi-member entity and is taxed like a partnership, necessitating a separate federal tax return (IRS Form 1065). However, it's worth noting that an LLC can choose to be taxed like an S-Corp or C-Corp irrespective of the number of owners.
Fortunately, for residents of community property states, like Texas, a married couple that exclusively owns an LLC can opt for taxation akin to a single-member LLC.
Liability Considerations
The number of owners in your LLC doesn't alter the entity's capacity to provide a protective layer between your personal assets and any business-related liabilities. Whether it's a single-member or multi-member LLC, this liability shield remains steadfast.
Choosing the Best Fit for You
In summary, deciding between a single-member and multi-member LLC requires a holistic review of your personal preferences, business needs, and potential future plans. If you aspire to maintain sole control over decision-making, foresee a move to a non-community property state, or prefer simpler taxation and operating agreement, a single-member LLC might be a better fit. The addition of your spouse as a co-owner introduces a different dynamic, which, while it might complicate some aspects, can also introduce new opportunities for partnership and growth.
