One type of business structure accepted in all 50 states is a limited liability company, more commonly referred to as an LLC. Rules for forming an LLC in Texas may differ from other states, so owners should check with their specified secretary of state for formation requirements.

The owners of an LLC can be individuals, foreign companies, corporations or other LLCs. There is no limit to the number of owners an LLC can have, and the owners are designated as members of the company. Most states do not allow insurance companies and banks to be designated as LLCs, and there are some restrictions on foreign companies becoming LLCs. These rules will differ by state.

LLcs are unique in that they can be classified in several different ways. An LLC can be a disregarded entity and taxed as a sole proprietorship, or it can be classified as a partnership, an S Corporation or a C Corporation. The way an LLC is classified will determine how it is taxed and what type of return will need to be filed with the Internal Revenue Service. If an LLC only has one member, it is considered an entity separate from an individual and can be filed on an independent schedule on an individual’s income tax return. An LLC with two or more members is designated as a partnership unless it files an election with the IRS to be classified as a corporation.

If the method of taxation of an LLC ever needs to be changed, members or designated representatives can file form 8832, Entity Classification Election, to change the way it is taxed. Form 8832 can also be used to change the LLC’s classification. However, there are rules concerning when the form can be filed. The election to change classification cannot take effect more than 75 days before it is filed or 12 months after it is filed.

When two or more people come together to form an LLC partnership, the venture will typically have a better chance of running smoothly with a comprehensive partnership agreement. A vague agreement could result in partner disputes and legal entanglements. Retaining an experienced LLC attorney to help reduce liability and protect assets may be an important step to ensuring a successful business operation.