Limited Liability Company (LLC)
A hybrid structure that gives you the liability protection of a corporation with the tax simplicity of a partnership. The most popular small business structure in the US for good reason.
Ownership
One or more (called 'members'). Members can be individuals, corporations, or other LLCs.
Pass-Through Taxation
Yes
State Filing Required
Yes
Self-Employment Tax
Yes
Strong. Members' personal assets are generally protected from business debts and lawsuits. This protection can be pierced if you commingle personal and business funds or commit fraud.
By default, a single-member LLC is taxed as a sole proprietorship (Schedule C) and a multi-member LLC is taxed as a partnership (Form 1065). An LLC can also elect to be taxed as an S-Corp or C-Corp by filing Form 8832 or Form 2553.
Self-Employment Tax
Yes by default. Members pay self-employment tax on their share of net income. If the LLC elects S-Corp taxation, only the 'reasonable salary' portion is subject to employment tax, distributions are not.
How to Form
File Articles of Organization with the state (usually the Secretary of State), pay a filing fee ($50-$500 depending on state), and appoint a registered agent. An Operating Agreement is recommended but not always required to be filed.
Ongoing Compliance
File annual or biennial reports in most states. Pay franchise taxes or fees (varies widely, $0 in some states, $800/year in California). Keep business and personal finances strictly separate to maintain liability protection.
- Personal liability protection for members
- Flexible tax treatment (default pass-through, can elect S-Corp or C-Corp)
- Less paperwork and formality than a corporation
- No ownership restrictions (foreigners, corporations can own LLCs)
- Profits can be distributed unequally among members
- More expensive to form than sole prop or partnership
- State filing fees and ongoing franchise taxes
- Self-employment tax by default (S-Corp election may help)
- Some states (California) charge high annual fees
- Harder to raise venture capital than a C-Corp
Most small businesses, real estate investors, freelancers with significant income or liability, and side hustles that have grown beyond hobby status. The default choice for new businesses in most situations.
- •Single-member: Schedule C (Form 1040)
- •Multi-member: Form 1065 + Schedule K-1
- •S-Corp election: Form 2553
- •C-Corp election: Form 8832
See our Tax Forms reference for details on each form.