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An LLC is a legal form for a business. The IRS says on its LLC page that a limited liability company is a business structure allowed by state statute. The state creates it, so the rules start with the state where you file.
Who are the members?
Owners of an LLC are called members. The IRS notes that most states do not restrict ownership, so members can be individuals, corporations, other LLCs and foreign entities. One member is enough in most places. Maine's statute, for instance, says an LLC needs one or more members.
Members agree how the company runs in an operating agreement. Check your state on whether it asks for one.
What does "limited liability" mean?
The SBA business structure page says an LLC lets you take advantage of the benefits of both the corporation and partnership structures, and that LLCs protect you from personal liability in most instances. In plain terms, the company's debts are usually the company's, not yours.
Two cautions. Protection is not total, and it can be weakened if you mix personal and business money. Keep a separate account and sign in the company's name.
How is an LLC taxed?
The LLC is a state label. The IRS decides tax treatment by how many members it has. From the IRS LLC page:
- One member: treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.
- Two or more members: classified as a partnership unless it files Form 8832 and elects corporate treatment.
For employment tax and certain excise taxes, the IRS says an LLC with one member is still considered a separate entity. Details are on our LLC taxes page, and the S corporation route is explained on Form 2553.
What does it cost to run?
The cost is mostly state fees. Each state sets its own formation fee, and many ask for an annual or biennial report. Some also charge a franchise or privilege tax. Alabama, for example, has no annual report with the Secretary of State but a business privilege tax return with the Department of Revenue. Our state fee comparison lists the figures from official pages.
How do you form one?
- Pick a name that meets your state's rules. Start with LLC name rules.
- Name a registered agent in the state.
- File the formation document and pay the state fee.
- Write an operating agreement.
- Get an EIN if you need one.
- Open a bank account and file annual reports where the state requires them.
Fees and forms differ widely. Our state pages, such as Texas, show them from official sources.
LLC or something else?
An LLC is one of several choices. The SBA also describes sole proprietorships, partnerships, corporations and cooperatives. See business entity types for the full list, and compare the LLC with a sole proprietorship or a corporation.
This page is general information, not legal or tax advice.
When you are ready, begin at /start-an-llc/.