A domestic limited liability company (LLC) is an entity that is:
- formed under state law by filing articles of organization as an LLC,
- where none of the members of an LLC are personally liable for its debts, and
- is classified for federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation. However, if the LLC has employees, for employment tax purposes the LLC will be treated as a corporation.
If a domestic LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation. (However, see Publication 555 for community property states.)
If a domestic LLC has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation.
If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election is made using the Form 8832, Entity Classification Election.
Different classification rules may apply for an LLC that is a bank, an insurance company, or a nonprofit organization.