A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may have different regulations, so you should check with your state if you want to establish a Limited Liability Company. The owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs, and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, meaning those having only one owner.
Certain types of businesses are often not allowed to be LLCs, such as banks and insurance companies. Check your state’s requirements and federal tax regulations for more information. There are special rules for foreign LLCs.
Depending on the number of members and the LLC’s election, the IRS will treat an LLC either as a corporation, partnership, or as part of the LLC owner’s tax return (“disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation.
For income tax purposes, a single-member LLC is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. However, for purposes of employment taxes and certain excise taxes, a single-member LLC is still treated as a separate entity.
An LLC that doesn’t want to accept its default federal tax classification, or wants to change its classification, uses Form 8832, Entity Classification Election, to choose how it will be classified for federal tax purposes. Generally, a classification election will not be effective more than 75 days prior to the date the election is filed and will not be effective more than 12 months after the date the election is filed. An LLC may qualify for relief for a late election in certain circumstances.
