If you are looking to limit your liability as a business owner, it may be best to look into organizing your organization as a limited liability company (LLC). Texas law allows companies to use the LLC structure, and the same is true in most other states in the country.
LLCs can have one or more members
Anyone who has an ownership stake in an LLC is referred to as a member of the company. Generally speaking, you can create an LLC whether you own the business on your own, with a partner or a group of other people. Entities such as domestic corporations, foreign companies and other LLCs can have an ownership stake in your company.
How LLCs are classified for tax purposes
There are several different ways in which an LLC can be classified for tax purposes. If your company has only a single member, it will be referred to as a disregarded entity. In other words, the profits or losses the company incurs will simply flow to your personal tax return.
However, it will still be a separate entity for purposes of excise taxes, and you’ll still enjoy limited liability from claims made against the organization. If the company has two members, it will be classified as a partnership.
How to change the tax status of your LLC
If you would like your LLC to be taxed like a corporate entity, you can do so by filing Form 8832 with the IRS as soon as possible. Generally speaking, the change cannot take effect more than 75 days prior to making such an election. It also can’t be made more than 12 months after the election is made. The IRS may grant relief in the event that you don’t make an election in a timely manner.
If you have questions about the potential benefits of forming an LLC, it may be a good idea to speak with a business law attorney. An attorney may also be able to review any paperwork related to forming an LLC before it’s submitted to the state.