A limited liability company, often referred to as just an LLC is a hybrid business entity created by state law which allows the owners of the LLC (who are called “members”) to take advantage of both the corporate and partnership form of business. To create an LLC, articles of organization are filed with the Idaho secretary of state, or other state where the LLC wants to register to do business, filing fees for the LLC are paid, a taxpayer identification number for the LLC is obtained along with any required licenses and permits and annual reports for the business of the LLC are filed with the secretary of state in Idaho, or other state(s) where the LLC conducts its business.
While an operating agreement for an LLC is not required by law, it is advisable to have an operating agreement to delineate the members’ of the LLC’s rights and obligations. An LLC can have a single member, or multiple members. An LLC can also have voting and non-voting units.
Note that because an LLC is a creature of state law, an LLC is not recognized as a business entity for tax purposes. Therefore, an LLC must pick its tax classification (disregarded entity, partnership, S corporation or sub chapter C corporation). To elect or change its tax classification, an LLC must file Tax Form 8832 with the IRS. In order to have the LLC taxed as an S corporation, Tax Form 2553 must be filed with the IRS. Note that if a tax election is not filed with the IRS, the default election for an LLC owned by multiple members will be a tax partnership, and for a sole member LLC, will be a disregarded entity. By using an LLC, profits and losses of the LLC may be passed through to the members of the LLC without an initial level of tax for the LLC while shielding members of the LLC from personal liability.
