Limited Liability Company Classification

A Limited Liability Company (LLC) is a business structure allowed by state statute. Every state has its own regulations so it’s important to be aware of state requirements.

For example, in some states any business that requires special licensing may not be an LLC. Banks and insurance companies are typically prohibited from operating as an LLC. Also there are special rules for foreign LLCs.

Owners of an LLC are known as members. In most states there are no restrictions regarding ownership so members may be individuals, corporations, foreign entities and other LLCs.


Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from it’s owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.

Effective Date of Election

An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election, to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more that 75 days prior to the date the election is filed, nor can it take effect later than 12 month after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.

See form 8832 general instructions for more information.

For more information, contact Elite Bookkeeping & Tax Services at (800) 416-3820 or (775) 884-6188 Address: 123 West Nye Lane, Suite 103, Carson City, NV 89706. Visit our website at www.elitebookkeeping.biz