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Business Law Today, August 2010. © The American Bar Association This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.


The power and complexity of the single member limited liability company (“SMLLC”) comes from a conceptual contradiction: the conflation of owner and organization for tax purposes and the separation of owner and entity for non-tax, state law purposes. The contraction has significant practical consequences, which this article explores and illustrates, considering: • The SMLLC in federal court (single member not permitted to represent the LLC) • The IRS’s tortuous path to determining whether an SMLLC’s sole member is liable for the SMLLC’s unpaid employment taxes (yes; yes vindicated by the courts; then no, as a matter of policy) • Transfer taxes on a single member’s contribution of land to the member’s solely-owned LLC (maybe taxable, maybe not) • Whether the membership transfer restrictions built into LLC statutes in order to prevent the separate creditors of an LLC member from intruding into the business of a multi-member LLC ought to be applied to allow a sole member to shelter assets from the claims of the sole member’s legitimate creditors (under advisement by one state supreme court for more than a year) The article concludes that “practitioners must exercise great caution when working with an SMLLC, because, depending on which legal regime applies, the SMLLC may be as visible and substantial as a stone wall, or as diaphanous and subject to disappearance as the Cheshire Cat.”


This article is co-authored by Carter G. Bishop.