Business entities
Limited liability company (LLC)
A limited liability company is a state-created business entity whose owners are called members; the IRS taxes it by default as a sole proprietorship or a partnership.
An LLC is formed under state law. The IRS does not tax it as an LLC. Instead, the IRS sorts each LLC into a federal tax class. A one-member LLC is usually ignored for income tax and reported on the owner's return. An LLC with two or more members is taxed as a partnership.
An LLC can file Form 8832 to be taxed as a corporation. It can also choose S corporation status. Texas LLCs also report to the Comptroller each year under the Texas franchise tax. See the guide to S corporations, LLCs and sole proprietors in Texas for a side by side view.
Related terms
Sources
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