QUESTION ON Election of LLC as an S Corporation or C Corporation?
How do you find out if your LLC is either “S” status or “C”? Also, I would like to remove one of the members from my LLC. Do you provide this service and at what cost? Thank you.
– Kathy Foussadier, Destiny Galleria
A limited liability company with two or more members is taxed as a partnership by default (and a single-member LLC is a disregarded entity for tax purposes and treated like a sole proprietorship). Your LLC would not be taxed differently unless a special election was made with (and accepted by) the Internal Revenue Service.
LLCs have the option of making a special election to be taxed as either a corporation (“C” corporation) or an S corp. The election for tax classification as a corporation is made on IRS Form 8832. The election to be taxed as an S corp is made on IRS Form 2553. To verify the tax classification of your LLC, you can contact the IRS toll-free at 800-829-4933.
How a member can resign from an LLC–or whether a member can even resign from an LLC at all–depends in part on state laws governing limited liability companies and the LLC’s governing documents. Laws vary from state to state but usually allow the resignation of a member only to the extent that it is so provided in the LLC’s articles of organization or operating agreement. An operating agreement may also have provisions outlining certain “triggering” events (e.g. bankruptcy, disability, divorce)–events that could trigger the removal of a member from the LLC. Barring that, there may be special circumstances in which the removal of a member may require a court order; you should consult an attorney for advice in this area.
In any case, articles of amendment may be filed with the secretary of state amending the LLC’s articles of organization to reflect current membership. Also, many states require LLCs to file an annual report listing the current members as of the time of filing; and some states may offer a prescribed form on which to file a statement of disassociation of a member. Contact the secretary of state’s office in your LLC’s state of organization for information on filing options and reporting requirements.
Recommended Resources on LLC, S or C Business Structure:
- LLC or Corporation?: How to Choose the Right Form for Your Business
- Surprisingly Simple: LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less
- S-Corporation: Small Business Start-Up Kit
- LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less
- What is a Limited Liability Company (LLC)?
- How a Corporation Can Elect to be an S Corporation
- Choosing an LLC Structure for Your Business
- Forming an LLC and Electing to be Taxed as an “S” Corp
- Can a Subsidiary LLC be a Managing Member of Its Parent LLC ?