Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

What is a Limited Liability Company?

A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs include benefits of partnership treatment, providing management flexibility and pass-through taxation, including the ability to make special allocations of income and losses among members.

Owners of an LLC are called “members”. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members in an LLC. Most states also permit single member LLCs (those having only one owner).

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A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information.

Classifications 

The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return.

An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least two members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner – otherwise known as a disregarded entity.

Your tax professional at Henry+Horne can help you decide which classification is best for you.

 

Scott W. Clouse, CPA