Should I include my spouse as a owner of my LLC?

Zachary Copp, Esq. LLC 18 Comments

What are the pros and cons to including my spouse as an owner of my new LLC? Since Texas is a community property state, won’t my spouse own 50% of my new LLC anyway?

You are essentially deciding between a single-member LLC and a multi-member LLC. Whether or not to include your spouse as a owner of your new LLC depends on his/her desired involvement. A single-member LLC (SMLLC) is much less complicated.

From a tax perspective, a SMLLC is considered a disregarded entity meaning the SMLLC’s profits are simply included on the owner’s tax return (federal tax return for the LLC is not required). A multi-member LLC is taxed like a partnership and thus a federal tax return (IRS Form 1065) is required. In Texas, an LLC that is owned by only a husband and wife, can elect to be taxed like a SMLLC. If for some reason partnership taxation is your desire, you can accomplish this by adding your spouse to your SMLLC.

From a liability perspective, a Texas LLC provides a liability barrier (between the business liabilities and owner’s assets) whether it is a single- or multi-member LLC.

From a management perspective, a multi-member LLC requires input from both owners. When the LLC takes an action, it should be documented that the owners authorized the action. With a multi-member LLC, the documentation becomes even more important. In addition to consent/authorizations, both members in a multi-member LLC are entitled to distributions of cash in the event a distribution is made.

Disclaimer: Do not take anything contained in this post to be legal advice about your specific situation. This post is not a substitute for legal advice.

Comments 18

  1. So, if I set up the LLC in the name of both husband and wife, I will have the option of electing tax treatment (as disregarded entity or partnership) in Texas?

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      Correct. We normally include a resolution in the organizational meeting of a husband and wife owned LLC that authorizes single-member (disregarded entity) taxation, if that is the desired route. When applying for the federal tax ID (aka EIN) online via the IRS website, you will be asked which option you wish to to go with.

  2. There is a lot of confusion of this topic by CPAs and bank. And especially me..
    My husband and I filed our LLC certificate of formation with both of our names knowing we would select SMLLC when electing our tax option, which we did select when choosing our EIN. But now CPAs we’ve contacted and our Bank is telling us were a partnership not a SMLLC because there is two of us and it doesn’t matter that were in a community property state (Texas) and married. Are they correct and were wrong? If we are right, how is the best way to explain this election?

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      A husband and wife LLC is allowed to elect a single-member (aka disregarded entity) tax classification. In the EIN Assignment Letter it should say “Sole Mbr” after the responsible party’s name at the top left corner. Please let us know if your banker and CPA ever came around.

  3. How would you go about a multi-member LLC, that is currently husband and wife, but you want to add an additional member? So ideally 3 members: two are husband and wife, the other is an investor. Thanks.

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      From a tax standpoint, disregarded entity status (aka single-member LLC taxation) would no longer be an option if you added a third member. If you are dead set on adding a third member (rather than structuring the investment as a loan), you will need to do all kinds of things. One task, as an example, would be to have all three members sign an amended Company Agreement (or have the new member ratify the existing Company Agreement). Read more about transferring a portion of an LLC. interest.

  4. So what if the wife is the only member and the husband is a manager? Is he now considered a contractor or employee?

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  5. When I applied for the EIN # I put that there were 2 members even though it is just my husband and me; we want to be classified as a SMLLC. So would I file a 8832 form to classify as a disregarded entity but say there is only one member, my husband, since he is the first one listed on out joint tax return?

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      If there are only two owners, the online EIN Application will ask if the two owners are married to each other and then give you an option to select single-member or multi-member taxation. So, before filing IRS Form 8832, take a look at your EIN Assignment Letter and see if it says “Sole Mbr” or just “Mbr” after the responsible party’s name. If it says “Sole Mbr” you would not need to file Form 8832 to change to SMLLC taxation. If it says “Mbr” after the responsible party’s name, you’ll want to speak with a tax professional to see if IRS Form 8832 (or SMLLC taxation) would be the best option.

  6. In have a question. My fiance and I want to start an LLC soon. Once we file the LLC, will we need to go back and change it once we’re married? Also, I have the certificate of formation – LLC, under governing authority, what should I check regarding managers? There are only 2 members of our business. Should I check that the company initially has managers or it doesn’t? This confuses me. Thank you for sharing the information by the way. I’m trying to learn so much in such a short amount of time.

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      You don’t have to go back and change anything once you are married. If one of the members changes their last name, you can update the state when you file the public information report (PIR) that is due each year by May 15th.

      The governing authority article of the Certificate of Formation is where you decide if the LLC will be governed by its members (owners) or by managers. The managers of an LLC are a lot like directors of a corporation. If the LLC is member-managed, you would list all of the initial members in the governing authority article of the Certificate of Formation. If the LLC is manager-managed, you would list only the managers. So, if both of you are going to be decision makers, you can be either member-managed or managed-managed and you would list both of you as governing persons. If only one of you will govern/control the business, you will likely want to be manager-managed and list the controlling spouse and the sole manager.

  7. So, in Texas, should we list both husband and wife as an “Initial Governing Person”, then check the “Sole Member” box when applying or our EIN? I want to be CERTAIN that we are filing correctly and will be considered a SMLLC.
    OR, should I only list my husband, but I can still run the business for him???? This is all so confusing, and we need to file asap. Thank you.

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      There are really two issues that need to be resolved. The first relates to the way you report LLC profits to the IRS and the second is how the LLC will be governed.

      An LLC owned by more than one person is traditionally taxed like a partnership and thus a separate partnership tax return (IRS Form 1065) is filed before March 15th each year for the business. The partnership will issue a K-1 to each partner informing them how much of the business profits they need include on their personal tax return.

      An LLC owned by just one person (a single-member LLC) is considered a “disregarded entity” by the IRS and the LLC’s profits are reported on a schedule of the owner’s personal federal tax return (similar to how a sole proprietorship would report profits to the IRS).

      A husband and wife owned LLC has the option to be taxed like a single-member LLC (aka disregarded entity) rather than a partnership if the spouses live in a community property state (like Texas) and they file taxes jointly.

      So, if you meet the requirements above, you and your husband can both be members (owners) of the LLC and you can still be treated as a SMLLC. In other words, your desire to be taxed like a SMLLC is viable under either scenario and thus should not be a driving factor. If you wanted the LLC to be taxed like a partnership, then including both spouses as members would be necessary.

      As for governance of the LLC, an LLC can be governed by (a) owners/members or (b) one or more “managers” (who often are, but do not need to be members). So, you and/or your husband could be the owners and then you could be the sole manager (i.e. decision maker). In a manager-managed LLC, you only list managers in the Certificate of Formation under the Article about the Initial Governing Persons. Alternatively, your husband could be the sole member/manager and then appoint you as an officer (i.e., president) to run the day-to-day affairs of the business.

  8. I have an LLC with me being the only member that is treated as disregarded entity (the EIN letter says Sole MBR too). Now, I want to add my wife and change the name of the LLC. I will file the certificate of amendment to the secretary of state (Texas) to modify these two things. Do I need to do anything to retain the disregarded entity status? If I don’t need to do anything else to retain, can I just keep reporting on our individual joint returns, rather than a separate partnership tax return (IRS Form 1065)?

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      I would double check with a CPA, but I do not believe you need to do anything to retain the disregarded entity status with the IRS. I would recommend drafting a resolution (with an effective date after the membership transfer to your spouse) for your and your spouse’s signature that essentially confirms the desire to continue to be treated as a disregard entity. Something like:

      RESOLVED, that because the Company is wholly owned by a husband and wife as community property under the laws of Texas, the Company be and hereby is authorized to elect to be classified as a “disregarded entity” for federal tax purposes rather than a partnership.

  9. In August, my husband and I created an LLC in Texas and named him as member 1 and myself as member 2. He’s retired and started the LLC in order to do some contract work for his former employer. Anyway, we named myself as a second member primarily so that when we opened our bank account where we would be placing the income from the LLC, I would also be able to access it and view it in our online banking system. If it had been in his name only we were told I couldn’t access it. Our EIN letter names my husband and “sole MBR.” My questions are this:
    1) Does naming me as a member mean that it appears to the IRS that I am also working and earning money? (I ask because I’m retired and this may impact my Social Security benefit), and
    2) Would it be more logical, since I’m not doing the work, that I revise the form and have him listed as the only member? I guess we’d just have to work around the fact that I wouldn’t have access to it for banking purposes…
    3) For taxing purposes, I’m prepared to make the voucher payments quarterly. Is there any other tax form I need to be aware of? Thank you so much…

    1. Post

      Hello Carla, thanks for the comments. You should not need to be a member to have access to the bank account. Many businesses give bank account access to their bookkeeper. Here are my responses to your specific questions:
      1. Generally speaking, as a member of an LLC you will realize income if the LLC has profits. You’ll want to talk with a tax professional on the ramifications on your taxes and social security.
      2. You can transfer your LLC membership interest to your husband and make this LLC a true single member LLC. You should be able to retain your access to the bank account.
      3. This is a question for a tax professional.

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