Companies . . .
What is a Limited Liability
A Limited Liability Company (LLC) is
a relatively new business structure
allowed by state statute.
LLCs are popular because, similar to
a corporation, owners have limited
personal liability for the debts and
actions of the LLC. Other features
of LLCs are more like a partnership,
providing management flexibility and the
benefit of pass-through taxation.
Owners of an LLC are called members.
Since most states do not restrict
ownership, members may include
individuals, corporations, other LLCs
and foreign entities. There is no
maximum number of members. Most
states also permit “single member”
LLCs, those having only one owner.
A few types of businesses generally
cannot be LLCs, such as banks,
insurance companies and nonprofit
organizations. Check your state’s
requirements and the federal tax
regulations for further information.1
There are special rules for foreign
LLCs, which are not covered in this
����������� ��� ���� ��������
��������� �������� �������
�������� ������� ������
Publication 3402 (Rev. 3-2008)
Catalog Number 27940D
General information on EINs is provided
in Publication 1635.
Are there any Pitfalls?
There are two common situations where
unintentional errors may occur:
1. If you convert an existing business, such as
a corporation, into an LLC there may be tax
implications, such as:
The conversion may result in a taxable
Employment tax wage bases may be
2. Special rules may apply when your LLC
has an operating loss:
The amount of loss you can deduct may
be limited because of your limited liability
for LLC debts.3
Passive Activity Loss limitation may
restrict the amount of loss you can
If either of these situations applies to you,
professional advice may be needed.
How do I hand