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Every state has a slightly different definition of what constitutes an LLC, but in general, all LLCs must be created by individuals or corporations who are legally capable of forming a business structure. Understanding the basics can help you to decide whether you want to form an LLC for your business.

What Are the Types of LLCs?

LLCs come in a variety of forms including partnerships and corporations. If more than one person is involved in the creation of the LLC, then it is presumed to be a partnership LLC when it comes to federal tax purposes. The IRS states that this can be altered to traditional corporation taxation if the LLC owners file Form 8832. If only one person forms an LLC, then the LLC is considered a separate entity from that individual. For tax purposes, you will have to file taxes as either a corporation, sole proprietorship, or partnership, depending on the kind of LLC you choose.

How Do LLCs Compare to Other Business Entities?

LLCs offer the same protections as S and C corporations, but they are not always the best choice. If you find yourself asking, "what does an LLC mean for my investing purposes?" you may be disappointed to find that an LLC could limit some of your options. Investors may be more hesitant about backing an LLC because they might feel that it's a less stable type of business entity. You may still be able to attract investors without a problem, but you may have to work harder to demonstrate how your company is as secure as a corporation. 

If you have questions about whether an LLC is right for you, it's smart to find a lawyer. If you're ready to start a business our Guide to Starting a Business can help you get underway. If you’re interested in forming an LLC, be sure to visit our LLC Map for a state-by-state overview of what it takes to create a limited liability company.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.


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