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Department of Finance: Division of Revenue

FAQS: Limited Liability Company



Q.  What is a Limited Liability Company (LLC)?

A.  A limited liability company combines certain characteristics of both a corporation and also a partnership or sole proprietorship (depending on how many owners there are).

Members of a limited liability company are given the same advantage of "limited liability" as shareholders in a corporation, but are generally taxed only at the member level like a partner in a partnership. LLC members are the owners of the LLC as much as shareholders are the owners of a corporation or partners are the owners of a partnership.




Q.  How does Delaware classify a Limited Liability Company for income tax purposes?

A.  A Limited Liability Company doing business in Delaware is classified as a partnership for Delaware income tax purposes, unless it has otherwise been classified for federal income tax purposes.

A LLC is always classified in the same manner for Delaware income tax as it is for federal income tax purposes. NOTE: A separate state election is not allowed on a LLC.

Limited Liability Companies classified as partnerships must file Delaware Form 300.

Limited Liability Companies classified as corporations must file either Delaware Form 1100 or Form 1100S.




Q.  What is a single-member Limited Liability Company (LLC)?

A.   A single-member LLC can be either a corporation or a single-member “disregarded entity”. To be treated as a corporation, the single-member LLC has to file IRS Form 8832 and elect to be classified as a corporation. A single-member LLC that does not elect to be treated as a corporation will be classified as a “disregarded entity,” which is taxed as a sole proprietorship for income tax purposes.

Note: A single-member “disregarded entity” that is owned by a corporation is treated as a “branch” or “division” of its owner.




Q.  What type of return should a single-member LLC “disregarded entity” file with Delaware?

A.  Delaware treats a single-member “disregarded entity” as a sole proprietorship for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the State of Delaware.

As the sole member of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your Delaware personal income tax return (Form 200). (LINK) Even if you leave profits in the company’s bank account at the end of the year – for instance, to cover future expenses or expand the business – you must pay income tax on that money.

Note: A single-member “disregarded entity” that is owned by a corporation is treated as a “branch” or “division” of its owner.




Q.  What is a multi-member Limited Liability Company (LLC)?

A.  A multi-member LLC can be either a partnership or a corporation, including an S-corporation. To be treated as a corporation, an LLC has to file IRS Form 8832 and elect to be treated as a corporation. A multi-member LLC that does not elect to be treated as a corporation will be classified as a partnership.
Last Updated: Tuesday, 18-Jan-2011 11:53:50 EST
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