# What is LLC (Limited Liability Company)?

Country: United States

An LLC is a US business entity that combines limited liability with flexible tax treatment. Single-member LLCs default to disregarded entity status (taxed as sole proprietor on Schedule C). Multi-member LLCs default to partnership taxation (Form 1065). LLCs can elect S-corp or C-corp tax treatment via Form 8832/2553.

## Current rate (Calendar year (default))

Default pass-through; can elect S-corp (15.3% SE saving) or C-corp (21% flat)

## Example

A single-member LLC earning $100,000 profit defaults to Schedule C taxation: 15.3% SE tax on net SE earnings + federal income tax at marginal rate. Electing S-corp treatment can save ~$6,000–$10,000 of FICA at this income level.

## How LLC (Limited Liability Company) works in United States

The LLC is the most popular US business structure for small businesses. It combines the limited liability of a corporation with the flexibility of a partnership, and crucially, the IRS lets you choose how you want it taxed.

**Default taxation by member count**

**Single-member LLC:** Treated as a 'disregarded entity' by default. All profit flows directly to the owner's Form 1040 Schedule C, subject to self-employment tax (15.3%) and income tax. Exactly like a sole proprietor from a tax standpoint, but with liability protection.

**Multi-member LLC:** Treated as a partnership by default. Files Form 1065, issues K-1s to each member. Each member pays income tax on their share, and managing members pay self-employment tax on their distributive share.

**Tax elections available**

**S-corp election (Form 2553):** The most popular tax optimization. The LLC pays the owner W-2 wages (subject to FICA) and distributes the remaining profit as a K-1 distribution (not subject to self-employment tax). Net saving: 15.3% SE tax on distributions, offset by added payroll costs. Typically worthwhile above $80,000-$100,000 net profit.

**C-corp election (Form 8832):** Rarely chosen due to double taxation, but may be used when venture funding requires C-corp status or for QSBS eligibility.

**State LLC fees**

Formation and annual fees vary dramatically by state:
- Delaware: $90 formation + $300/year franchise tax
- California: $70 formation + $800/year minimum franchise tax (highest in the US)
- Wyoming: $102 formation + $62/year, popular for low cost and privacy
- Florida: $125 formation + $138.75/year

An LLC does not need to be formed in the state where you do business: many founders use Delaware or Wyoming for favorable laws, then 'foreign qualify' in their home state.

**Operating agreement**

Even in states where it is not legally required, an operating agreement is strongly recommended. It documents ownership percentages, voting rights, profit distribution rules, what happens if a member wants to leave, and manager vs. member-managed structure. Without one, state default rules apply.

Source: https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc

## Related terms

- [S-Corporation](https://accounts-os.com/us/glossary/s-corp-us)
- [C-Corporation](https://accounts-os.com/us/glossary/c-corp)
- [Form 1065 (Partnership Return)](https://accounts-os.com/us/glossary/form-1065)