An LLC, or limited liability company, is a business entity created by filing with a state under that state's LLC law. Its owners, called members, are generally not personally liable for the company's debts, and it is taxed flexibly: by default the IRS treats a one-member LLC as part of its owner's tax return and an LLC with two or more members as a partnership, and an LLC can elect to be taxed as a corporation or an S corporation instead (IRS: LLCs).
How an LLC compares
| Sole proprietorship | LLC | Corporation | |
|---|---|---|---|
| Formation | None | Articles of organization with the state | Articles of incorporation with the state |
| Liability | Owner personally liable | Owners generally not personally liable | Owners generally not personally liable |
| Default federal tax | Owner's return | Owner's return, or a partnership with two or more members | Corporate tax, then tax on dividends |
| Paperwork | Least | Moderate: yearly state report where required, registered agent | Most: bylaws, board, officers, records |
| Cost | No state formation fee | State filing fee, and yearly fees in some states | State filing fee and yearly fees |
More detail: LLC vs sole proprietorship, LLC vs corporation, partnership vs LLC.
What does "limited liability" mean?
The LLC is a separate legal person, so its debts and lawsuits are its own. The SBA says an LLC protects you from personal liability "in most instances": your personal assets "like your vehicle, house, and savings accounts" are not at risk if the LLC faces bankruptcy or lawsuits (SBA: choose a business structure). The protection does not cover your own wrongful acts or debts you personally guarantee, and a court can set it aside when owners do not keep the LLC's money and affairs separate from their own.
Who can own an LLC?
The IRS says "Owners of an LLC are called members," that most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities, and that "There is no maximum number of members." Most states also allow an LLC with a single owner; see single-member LLC. A few kinds of business, such as banks and insurance companies, generally cannot be LLCs.
How is an LLC taxed?
| The LLC | Federal tax treatment | How |
|---|---|---|
| One member, no election | Disregarded: income on the owner's return (Schedule C, E or F for an individual) | Default |
| Two or more members, no election | Partnership: files Form 1065, owners taxed on their share | Default |
| Elects corporate tax | C corporation: files Form 1120 | Form 8832 |
| Elects S corporation status | S corporation: files Form 1120-S | Form 2553 |
Without an election, members who work in the business pay self-employment tax on their share of the profit; the SBA notes LLC members "are considered self-employed." The trade-offs of each election are in LLC vs S corp. States tax LLCs in their own ways, and some charge a yearly LLC tax or fee; see LLC cost by state.
Member-managed or manager-managed?
An LLC is run either by its members directly or by managers the members appoint, who may or may not be members themselves. The choice is usually stated when the LLC is formed and set out in its operating agreement, the private contract among the members about ownership, voting and money.
How do you form an LLC?
- Choose a name the state will accept; check it is available.
- Name a registered agent in the state.
- File articles of organization with the state and pay its fee.
- Get an EIN from the IRS, write an operating agreement, and keep up the state's yearly filings.
The full steps are in how to start an LLC, with a guide per state, for example Texas, Florida or California.
Pros and cons of an LLC
- Pros: owners' personal assets protected in most cases; profit taxed once by default; a choice of tax treatment; fewer formalities than a corporation; any number and kind of owners.
- Cons: a state filing fee and, in some states, yearly fees; working owners pay self-employment tax on all their share of the profit by default; no stock to sell to investors. The SBA also notes that in some states a member joining or leaving can require the LLC to be dissolved and re-formed, unless an agreement already covers buying, selling and transferring ownership.
How to look up an LLC
Every LLC is on the public record of the state where it was formed, with its status, formation date and registered agent. Pick a state to search, for example the Delaware or Florida lookup, or see who owns an LLC.
General information, not legal or tax advice. Facts checked 2026-10-26 against the official sources linked above; confirm with the state or the IRS before you file. How we check our facts · Report an error