A Limited Liability Company is a state‑created business structure. States set formation rules, membership rules, and operating requirements. Members may be individuals or entities, and most states allow single‑member and multi‑member LLCs. Certain industries, such as banking and insurance, generally cannot use the LLC structure.
LLCs are popular because they offer liability protection without corporate formalities. Members are typically liable only up to their investment. Unlike partnerships, all members can participate in management without losing liability protection. Unlike corporations, LLCs do not face double taxation unless they elect corporate treatment. Unlike S corporations, LLCs may have more than 100 members and may include entities as members.
Federal Tax Treatment
Federal tax classification does not affect state‑level liability protection. An LLC may be taxed as:
- A corporation
- A partnership
- A disregarded entity
Default Classification
If no election is filed:
- A multi‑member LLC is taxed as a partnership.
- A single‑member LLC is disregarded and reported on the owner’s return.
Electing a Different Classification
Under the check‑the‑box rules, an LLC may choose corporate taxation.
- File Form 8832 to elect corporate treatment.
- File Form 2553 to elect S corporation treatment if eligibility rules are met (100‑member limit, allowed member types, no nonresident alien members).
Elections must be filed within 75 days after the start of the tax year the election applies to, or anytime in the prior year.
A 60‑month limitation generally prevents repeated classification changes unless the prior election was made at formation.
Filing Requirements
The form filed depends on classification:
- Schedule C/E/F for a single‑member disregarded entity
- Form 1065 for a partnership
- Form 1120 for a corporation election
- Form 1120‑S for an S corporation election
A disregarded entity does not file its own income tax return but is treated as separate for employment and certain excise taxes.