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What to know about LLCs

Businesses that are formed in California are likely able to structure themselves as a limited liability company, or LLC. This may be possible whether the company has a single member or multiple members. Members can include individuals, other LLCs and corporations in both the United States and throughout the world. By default, single-member LLCs are considered disregarded entities while those with two members are classified as partnerships. However, an LLC can choose how it would like to be taxed by filing Form 8832.

Generally speaking, any election to be taxed as a corporation must take effect no more than 75 days before the declaration is made. Furthermore, it cannot take effect more than 12 months after it has been made. Companies may be able to ask the IRS for additional flexibility if there is a need for it. The process for doing so is laid out within Form 8832.

Those who are seeking to start a business should account for any liability issues that their companies may face. By forming a limited liability company, the business becomes an entity that is separate from its owner or owners. If the LLC elects to be taxed as a corporation, it may be given favorable tax rules or the ability to sell shares of stock to raise capital.

Prior to seeking corporate tax treatment for an LLC, it may be a good idea to talk with an accountant or an attorney. Doing so may make it possible to submit paperwork such as articles of incorporation to the state or other relevant government agencies. An attorney might also advise a company of its obligation to shareholders and other parties, which could make it easier to determine if being treated as a corporation is the best option from a financial standpoint.

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