- Limited Liability Company (LLC) is a structure allowed by state statute. Thus every state has the power to register a LLC for mostly its residents and other individuals looking to carry on business in the state.
- An LLC is formed by filing articles of organization with the state’s secretary of state office. Each state in the United State and the District of Columbia has a Secretary of State in who is in charge of LLC registrations.
- An LLC must be unique in its state. There can be no more than one active LLC with the same name in the same state. Thus it is imperative that a name search is carried out or a unique name used during the application.
- For federal tax purposes, an LLC may be treated as a partnership or a corporation, or be disregarded as an entity separate from its owner. A single member LLC reports their business income on their income tax return.
- An LLC can have two or more members (multi-member) or one member (single-member). LLCs with more than one member is by default treated as a partnership for federal tax purposes.
- An LLC can have an unlimited number of members. Thera are no limits on the number of members that decide to file an article of organization with the state.
- An LLC’s members may include individuals, corporations, other LLCs, or foreign entities.
What a Limited Liability Company is not…
- Limited liability company are not incorporated and do not file articles of incorporation. This is unique to a corporation. A corporation is regarded as an incorporated entity and enjoys all the rights and privileges that accrue.
Notes for tax season
- A single-member LLC, will initially be classified as a disregarded entity for the purposes of filing a federal tax return.
- If the only member of the LLC is an individual, the LLC income and expenses are reported on Form 1040 (U.S. Individual Income Tax Return), Schedule C, E, or F. Schedule to be used depends on type of business.
- If the only member of the LLC is not an individual, the LLC income and expenses are reported on the owner/member’s tax return.
- If you do not wish to accept the default classification of disregarded entity, you can:
- File Form 8832 (Entity Classification Election) to elect corporate status, or
- File Form 2553 (Election by a Small Business Corporation) to elect S corporation status.
- Single-member LLCs may not file a partnership return.
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