GlossaryUS
What is an LLC?
Limited Liability Company
Short answer
An LLC (Limited Liability Company) is a US business entity formed under state law. Its owners are called members, and as a rule they are not personally liable for the company’s debts just because they are members.
Explained
According to the IRS, most states do not restrict LLC ownership: members may be individuals, corporations, other LLCs and foreign persons or entities. There is no maximum number of members, and single-member LLCs are allowed. Formation rules and annual obligations differ from state to state.
For federal tax, the default classification depends on the number of members: a single-member LLC is a disregarded entity, and an LLC with two or more members is treated as a partnership. An LLC can elect to be taxed as a corporation by filing Form 8832.
Good to know
- Under Delaware law the company’s debts belong to the company; this changes if a member separately agrees to be personally liable.
- A single-member LLC is disregarded for income tax, but it is still a separate entity for employment tax and certain excise taxes.
- A single-member LLC wholly owned by a foreign person files Form 5472 with a pro forma Form 1120 every year, even when it has no income.
- Some businesses, such as banks and insurance companies, generally cannot be LLCs.
Official sources
- IRS — Limited liability company (LLC)
- IRS — Single member limited liability companies
- Delaware Code — Limited Liability Company Act §18-303
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This page is general information, not legal or tax advice. Rules change; check the official source for the latest position or talk to us.
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