Entrepreneurs and business owners of San Diego may want to know more about the Limited Liability Company structure. Allowed by a state statute, an LLC is made up of members. These could be individuals, corporations, foreign entities or other LLCs.
According to the IRS, there is no requirement as to the number of members, and many states permit an LLC with a single member. The LLC may choose to be treated by the IRS as either a corporation, partnership or part of the LLC’s owner’s tax return (a “disregarded entity”). If there are only two members who are within the U.S., it may be classified as a partnership.
For income tax reasons, an LLC with just one member is handled as an entity disregarded as separate from its owner. Otherwise, Form 8832 must be filed for the LLC to be treated as a corporation.
An LLC that decides to switch its classification uses Form 8832 to hold an Entity Classification Election. The members will then elect how the LLC should be classified for federal tax purposes. A changed classification can’t take effect over 75 days before or 12 months after the filing of form 8832.
Business law can be complex. If one is thinking of forming a business, it is smart to consult an attorney who is versed in the formation of LLCs, partnerships, sole proprietorship and more. An experienced law firm may help a business navigate the requirements and benefits of a certain classification. Starting a business may involve risks, but legal counsel could help eliminate guesswork, maintain business records, help with choosing an entity type or aid with the switch from one type to another.