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A limited liability company (LLC) is a US business structure, created under state law, that protects its owners’ personal assets from the company’s debts while letting profits pass through to the owners’ own tax returns. LLC stands for “limited liability company,” and its owners are called members.
The LLC combines the liability protection of a corporation with the simple taxes and paperwork of a sole proprietorship. That mix makes it one of the most popular ways to start a small business in the United States.
Below, you will learn how an LLC works, its main features and types, how it compares with other business structures, how LLCs are taxed, how to form one, what it costs, and what non-US residents need to know.
This article is for education only and is not legal or tax advice. Rules vary by state, so check with your state’s filing office or a licensed professional before you form a business.
Key Takeaways
- An LLC is a US business structure formed under state law that shields owners’ personal assets from business debts.
- By default, the IRS taxes a single-member LLC like a sole proprietorship and a multi-member LLC like a partnership.
- An LLC can choose to be taxed as an S corporation or C corporation by filing a form with the IRS.
- Forming an LLC means filing articles of organization with a state, naming a registered agent, and paying a state fee.
- Non-US residents can own a US LLC, but they need a registered agent, an EIN, and extra IRS filings.
What Are the Main Features of an LLC?
Separate Legal Entity
An LLC exists separately from its members. It can open a bank account, sign contracts, own property, and sue or be sued in its own name.
Limited Liability Protection
If the LLC cannot pay its debts or loses a lawsuit, creditors generally cannot take members’ personal homes, cars, or savings. Members usually risk only what they invested in the business.
Can you be sued personally if you have an LLC? Yes, in some cases. Members can still be personally liable for their own wrongful acts, for loans they personally guarantee, and when they mix personal and business money. Courts can “pierce the corporate veil” when owners treat the LLC as a personal bank account.
Flexible Taxation
An LLC does not have one fixed tax treatment. The IRS applies default rules based on the number of members, and the LLC can elect a different treatment if it saves money. The tax section below explains each option.
Flexible Management
Members decide how the LLC runs. A member-managed LLC is run by its owners, while a manager-managed LLC appoints managers, much like a board appoints executives. These rules usually go into an operating agreement
What Are the Types of LLCs?
The three most common types are single-member, multi-member, and professional LLCs.
Single-Member LLC
A single-member LLC has one owner. It is the most common choice for freelancers, consultants, and solo online businesses that want liability protection without corporate paperwork.
Multi-Member LLC
A multi-member LLC has two or more owners. Partners, family members, and co-founders often use it, and the operating agreement sets out each member’s share of profits and decision-making power.
Professional LLC (PLLC)
A PLLC is for licensed professionals such as doctors, lawyers, accountants, and architects. All members usually must hold the relevant state license. Some states, such as California, do not allow certain licensed professionals to form LLCs at all and require a professional corporation instead.
Series LLC
A series LLC lets one parent LLC create separate “series,” each with its own assets and liabilities. Delaware introduced the series LLC in 1996, and real estate investors often use it to separate properties. Only some states allow it.
Nonprofit LLC
A nonprofit LLC is rare. The IRS generally recognizes an LLC as tax-exempt only when all of its members are themselves tax-exempt organizations, so most US charities form nonprofit corporations instead.
What Are Examples of Well-Known US LLCs?
Google LLC is the main operating company under Alphabet Inc., Blue Origin, LLC is Jeff Bezos’s space company, and FCA US LLC runs Chrysler, Jeep, Dodge, and Ram in the United States
How Does an LLC Compare to Other Business Structures?
| Feature | Sole Proprietorship | Partnership | LLC | S Corporation | C Corporation |
|---|---|---|---|---|---|
| Personal liability protection | No | No (general partners) | Yes | Yes | Yes |
| Default federal tax | Owner’s return | Partners’ returns | Pass-through | Pass-through | Corporate tax, then tax on dividends |
| Number of owners | 1 | 2 or more | 1 or more | Up to 100, US owners only | Unlimited |
| Paperwork | Very low | Low | Low to medium | Medium | High |
| Formation filing | None (license may apply) | Optional | Required with state | Corporation plus IRS election | Required with state |
| Best for | Testing a side business | Simple co-owned business | Most small businesses | Profitable small firms saving payroll tax | Companies raising investor money |
The LLC sits in the middle. It gives you the liability protection of a corporation without board meetings, shareholder votes, or annual minutes. For more on how these structures differ, see our guide to types of companies.
How Is an LLC Taxed in the US?
The Internal Revenue Service (IRS) does not treat an LLC as its own tax category. Instead, it uses these rules:
- Single-member LLC: taxed by default as a “disregarded entity.” The owner reports business income on their personal return, usually on Schedule C, just like a sole proprietor.
- Multi-member LLC: taxed by default as a partnership. The LLC files Form 1065, and each member gets a Schedule K-1 to report their share of profit.
- S corporation election: an LLC can file Form 2553 to be taxed as an S corporation. Owners who work in the business then take a salary, which can reduce self-employment tax once profits are high enough.
- C corporation election: an LLC can file Form 8832 to be taxed as a corporation. This is less common for small businesses because profits can be taxed twice.
What is self-employment tax? By default, LLC members pay self-employment tax of 15.3% on their share of profits, which covers Social Security and Medicare. This is the main reason growing LLCs consider the S corporation election.
You can read the official rules on the IRS LLC page. States also tax LLCs in different ways, and some charge an annual franchise tax.
How Do You Form an LLC in the US?
Forming an LLC usually takes five steps. The US Small Business Administration explains business structures in more detail.
- Choose a state. Most small businesses form in the state where they operate. Delaware and Wyoming are popular for their business laws, but forming elsewhere usually means registering in your home state too.
- Choose a name. The name must be unique in that state and usually must end with “LLC” or “Limited Liability Company.”
- Appoint a registered agent. This person or company has a physical address in the state and accepts legal papers for the LLC.
- File articles of organization. Some states call this a certificate of formation. You file it with the Secretary of State and pay the filing fee.
- Create an operating agreement and get an EIN. The operating agreement sets ownership and rules. The Employer Identification Number (EIN) comes free from the IRS and works like a Social Security number for the business.
After formation, most states require an annual or biennial report to keep the LLC in good standing.
How Much Does It Cost to Form an LLC?
State filing fees range from under $50 to about $500. For example, Kentucky charges about $40, while Massachusetts charges about $500.
Ongoing costs matter too. Delaware charges a $300 annual LLC tax, and California charges a minimum $800 annual franchise tax. Add a registered agent service if you use one, which often costs $50 to $300 per year.
Do you need a lawyer to form an LLC? Not usually. Many owners file online themselves. A lawyer is worth it for complex ownership, investors, or a custom operating agreement.
Can Non-US Residents Form an LLC in the US?
Yes. You do not need to be a US citizen or resident to own a US LLC. Many international entrepreneurs use LLCs to sell to American customers or accept payments through US platforms.
Non-US owners should plan for four extra steps:
- Registered agent: required in the state of formation, since the owner has no US address.
- EIN: owners without a Social Security number or ITIN can still get an EIN by applying to the IRS with Form SS-4 by fax or mail.
- US bank account: some banks require an in-person visit, so many foreign owners use online banking providers that accept non-resident LLCs.
- IRS Form 5472: a single-member LLC owned by a foreign person must file Form 5472 with a pro forma Form 1120 each year, even with no income. Penalties for missing it are steep. See the IRS Form 5472 page.
Owning a US LLC does not give its owner a visa or the right to work in the United States. Tax obligations also depend on where the income is earned and on the owner’s home country, so a cross-border tax professional is worth consulting.
What about beneficial ownership reporting? Under a FinCEN rule issued in March 2025, companies formed in the US are exempt from beneficial ownership information (BOI) reporting. Check fincen.gov/boi for the current rule before you file.
What Are the Advantages of an LLC?
- Personal asset protection: members’ homes and savings are generally safe from business debts.
- Tax flexibility: choose pass-through taxation or an S or C corporation election.
- Flexible ownership: no limit on the number of members, and owners can be individuals, companies, or non-US residents.
- Fewer formalities: no required board of directors, shareholder meetings, or annual minutes.
What Are the Disadvantages of an LLC?
- Formation and annual costs: state fees, franchise taxes, and annual reports add up, especially in states like California.
- Self-employment tax: by default, members pay self-employment tax on all profits.
- Harder to raise investment: venture capital firms usually prefer to invest in C corporations.
- Ownership transfer: selling or adding members usually requires approval from other members under the operating agreement.
- Rules vary by state: an LLC operating in several states may need to register and pay fees in each one.
Bottom Line
Over the past years, I have seen many people delay launching because they think forming a company is complicated. For most small businesses in the US, the LLC removes that excuse. It protects your personal assets, keeps paperwork light, and gives you tax options as you grow. Start with a single-member LLC in your home state, keep business and personal money separate, and revisit the S corporation election once your profits grow
Frequently Asked Questions
LLC stands for limited liability company. It is a US business structure formed under state law that protects owners’ personal assets from business debts. The owners of an LLC are called members, and they can be individuals, other companies, or non-US residents. Unlike a corporation, an LLC does not need a board of directors or shareholder meetings, which keeps it simple for small businesses.
For most small businesses, the best state is the one where you actually operate. Forming in Delaware or Wyoming can make sense for investors or online businesses, but if you do business in another state, you usually must also register there as a foreign LLC. That means paying two sets of fees, which often cancels out any benefit.
Yes, in practice it does. Keeping a separate business bank account protects your limited liability, because courts can hold owners personally responsible when they mix personal and business money. A separate account also makes bookkeeping and tax filing far easier. Most banks ask for your articles of organization, EIN, and operating agreement to open one.
Yes. In the US, if you start selling without registering a business structure, you are automatically a sole proprietor, or a partnership if you have partners. You may still need local licenses and a “doing business as” (DBA) name. The downside is that you have no liability protection, so your personal assets are at risk if the business is sued or cannot pay its debts.
Yes, in most cases. States generally prohibit using “LLC” or “Limited Liability Company” in a business name unless the business is registered as one. Claiming LLC status falsely can mislead customers and lenders, lead to state penalties, and leave you personally liable for debts you thought the company would cover. If you plan to form an LLC, file the paperwork before using the name.
Legally, an LLC owner is called a member. In everyday business, you can use titles such as Owner, Founder, Managing Member, or CEO on your website, business cards, and contracts. When you sign documents for the LLC, sign with your name, your title, and the LLC’s full name, so it is clear you are acting for the company and not personally.
If an LLC misses its state annual report or fee, the state usually charges a late penalty and can mark the LLC as “not in good standing.” If the problem continues, the state may administratively dissolve the LLC. That can remove liability protection and make it hard to open bank accounts or sign contracts until the LLC is reinstated.
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