Business Formation Glossary
Clear definitions of LLC and business formation terms. Click any term to learn more about how it applies to your business.
A
- Annual Report
-
A periodic filing required by most states to keep your LLC information current with the Secretary of State. Despite the name, some states require reports every two years (biennial).
Related: Good Standing , Franchise Tax
- Articles of Organization
-
The official document filed with the state to create an LLC. Also called Certificate of Formation in some states like Delaware and Texas. Contains the LLC's name, registered agent, and basic structure.
Related: Certificate of Formation , Operating Agreement
C
- C-Corporation
-
A type of corporation taxed separately from its owners. Profits are taxed at the corporate level, then dividends are taxed again when distributed to shareholders (double taxation).
Related: S-Corporation , Double Taxation , Pass-Through Taxation
- Capital Contribution
-
Money, property, or services contributed by a member to an LLC in exchange for ownership interest. Contributions establish initial ownership percentages and are documented in the Operating Agreement.
Related: Member , Operating Agreement
- Certificate of Formation
-
The formation document for an LLC in states like Delaware and Texas. Equivalent to Articles of Organization used in most other states.
Related: Articles of Organization
- Certificate of Good Standing
-
An official document from the state confirming your LLC has met all filing and fee requirements. Also called Certificate of Status or Certificate of Existence. Often required for banking, loans, and registering in other states.
Related: Good Standing , Foreign Qualification
D
- Disregarded Entity
-
An IRS term for a single-member LLC that is not recognized as separate from its owner for federal tax purposes. The owner reports LLC income and expenses on their personal return (Schedule C). The LLC still exists as a separate legal entity for liability purposes.
Related: Single-Member LLC , Pass-Through Taxation
- Distribution
-
A payment of profits from the LLC to its members. Unlike salaries, distributions are not subject to self-employment tax for S-corp elected LLCs. Distributions must be made according to the Operating Agreement's distribution provisions.
Related: Member , S-Corporation , Self-Employment Tax
- Domestic LLC
-
An LLC operating in the state where it was formed. For example, a Wyoming LLC doing business in Wyoming is a domestic LLC in Wyoming.
Related: Foreign LLC , Foreign Qualification
- Double Taxation
-
When the same income is taxed twice. Occurs with C-corporations where profits are taxed at the corporate level, then dividends are taxed again on shareholders personal returns. LLCs avoid this through pass-through taxation.
Related: C-Corporation , Pass-Through Taxation
E
- Economic Nexus
-
A sales threshold that, when exceeded, requires you to collect and remit sales tax in that state. Typically triggered by $100,000 in sales or 200 transactions. Established by the 2018 Supreme Court Wayfair decision.
Related: Nexus , Physical Nexus , Sales Tax
- EIN (Employer Identification Number)
-
A 9-digit number assigned by the IRS to identify your business for tax purposes. Also called Tax ID or Federal Tax ID. Required to open business bank accounts, hire employees, and file certain tax returns.
Related: ITIN (Individual Taxpayer Identification Number) , SSN (Social Security Number)
- Estimated Taxes
-
Quarterly tax payments made by self-employed individuals and business owners to pay income and self-employment taxes throughout the year. Due April 15, June 15, September 15, and January 15.
Related: Self-Employment Tax , quarterly-taxes
F
- Foreign LLC
-
An LLC doing business in a state other than where it was formed. A Wyoming LLC doing business in California is a foreign LLC in California and must foreign qualify there.
Related: Domestic LLC , Foreign Qualification
- Foreign Qualification
-
The process of registering your LLC to conduct business in a state other than where it was formed. Required when you have physical presence, employees, or conduct substantial business in another state.
Related: Foreign LLC , Nexus
- Form 1065
-
The federal tax return for partnerships and multi-member LLCs. An informational return that reports the LLCs income and expenses. Individual members receive Schedule K-1s showing their share.
Related: K-1 (Schedule K-1) , Multi-Member LLC , Partnership
- Form 5472
-
A required annual filing for single-member LLCs with foreign owners. Reports transactions between the LLC and its foreign owner. Filed with a pro forma Form 1120. Penalty for non-filing is $25,000.
Related: foreign-owner, Disregarded Entity
- Franchise Tax
-
A state tax charged for the privilege of doing business or being organized in that state. Not a tax on income. California charges $800 minimum; Delaware charges $300 annually for LLCs.
Related: Annual Report , state-tax
G
- Good Standing
-
The status of an LLC that has met all state requirements including annual reports, franchise taxes, and maintaining a registered agent. Required for banking, contracts, and registering in other states.
Related: Certificate of Good Standing , Annual Report
I
- ITIN (Individual Taxpayer Identification Number)
-
A tax processing number issued by the IRS for individuals who are required to have a US taxpayer identification number but are not eligible for an SSN. Used by non-resident aliens for tax filing.
Related: EIN (Employer Identification Number) , SSN (Social Security Number)
K
- K-1 (Schedule K-1)
-
A tax document provided to LLC members showing their share of the LLCs income, deductions, and credits for the year. Used to report LLC income on personal tax returns.
Related: Form 1065 , Multi-Member LLC , Pass-Through Taxation
L
- Limited Liability
-
Protection that prevents LLC owners' personal assets from being used to pay business debts and liabilities. Owners can only lose what they invested in the business, not their personal property.
Related: Piercing the Corporate Veil , Member
- LLC (Limited Liability Company)
-
A business structure that combines the liability protection of a corporation with the tax flexibility and simplicity of a partnership. Owners are called members.
Related: Member , Limited Liability , Pass-Through Taxation
M
- Manager
-
A person or entity appointed to handle day-to-day operations of a manager-managed LLC. Can be a member or an outside party. In member-managed LLCs, all members act as managers.
Related: Member , Manager-Managed LLC , Member-Managed LLC
- Manager-Managed LLC
-
An LLC structure where designated managers (not all members) have authority to make business decisions. Useful when some members are passive investors or when professional management is needed.
Related: Member-Managed LLC , Manager , Operating Agreement
- Member
-
An owner of an LLC. Can be individuals, corporations, other LLCs, or trusts. Members share in profits and losses according to the Operating Agreement.
Related: LLC (Limited Liability Company) , Operating Agreement , Capital Contribution
- Member-Managed LLC
-
An LLC structure where all members participate in management decisions. This is the default structure in most states and is common for small businesses with active owners.
Related: Manager-Managed LLC , Member
- Multi-Member LLC
-
An LLC with two or more owners (members). Taxed as a partnership by default, filing Form 1065 and issuing K-1s to members.
Related: Single-Member LLC , Partnership , K-1 (Schedule K-1)
N
- Nexus
-
A connection to a state that creates tax obligations. Physical nexus comes from having a location, employees, or property. Economic nexus is based on sales volume or transaction count.
Related: Physical Nexus , Economic Nexus , Sales Tax
O
- Operating Agreement
-
A legal document that outlines how an LLC will be run, including ownership percentages, profit distribution, management structure, and member rights. Essential for every LLC even if not legally required.
Related: Articles of Organization , Member
- Organizer
-
The person who files the Articles of Organization to form an LLC. Does not have to be a member of the LLC. A formation service can act as organizer on your behalf.
Related: Articles of Organization , Member
P
- Partnership
-
A business relationship between two or more parties. Multi-member LLCs are taxed as partnerships by default. Partnerships file Form 1065 and issue K-1s.
Related: Multi-Member LLC , Form 1065 , K-1 (Schedule K-1)
- Pass-Through Taxation
-
A tax structure where business profits pass through to owners' personal tax returns and are taxed only once. Default taxation for LLCs and S-corporations. Avoids double taxation.
Related: Double Taxation , Disregarded Entity , S-Corporation
- Physical Nexus
-
Tax obligation based on physical presence in a state, such as having an office, employees, warehouse, or inventory there.
Related: Nexus , Economic Nexus
- Piercing the Corporate Veil
-
When a court ignores LLC liability protection and holds owners personally liable. Can occur if owners mix personal and business finances, undercapitalize the business, or fail to maintain proper records.
Related: Limited Liability , Operating Agreement
- Principal Address
-
The main business address of an LLC, used for official correspondence and public records. Can be a home address, office, or virtual office in most cases.
Related: Registered Agent , Registered Office
- Pro Forma
-
A document filed for formality or procedural purposes rather than containing actual financial data. Foreign-owned single-member LLCs file a pro forma Form 1120 with their Form 5472.
Related: Form 5472
R
- Registered Agent
-
A person or company designated to receive legal documents and official government notices on behalf of an LLC. Must have a physical address in the state (not a PO Box) and be available during business hours.
Related: Registered Office , Service of Process
- Registered Office
-
The physical address of your registered agent in the state of formation. Must be a street address (not PO Box) where legal documents can be delivered.
Related: Registered Agent , Principal Address
- Reinstatement
-
The process of restoring an LLC to good standing after it has been administratively dissolved or had its status revoked due to non-compliance.
Related: Good Standing , administrative-dissolution
S
- S-Corporation
-
A tax election (Form 2553) that allows business income to pass through to owners while potentially reducing self-employment taxes. LLCs can elect S-corp taxation while remaining LLCs legally.
Related: Pass-Through Taxation , Self-Employment Tax
- Sales Tax
-
A consumption tax collected from customers on taxable goods and services. Sellers collect tax and remit to states where they have nexus. Rates and taxable items vary by state.
Related: Nexus , Economic Nexus
- Schedule C
-
The IRS form used by single-member LLC owners to report business income and expenses on their personal tax return. Attached to Form 1040.
Related: Disregarded Entity , Single-Member LLC
- Self-Employment Tax
-
Social Security and Medicare taxes for self-employed individuals. Combined rate is 15.3% on net self-employment earnings. LLC members pay SE tax on their share of LLC income.
Related: S-Corporation , Estimated Taxes
- Series LLC
-
A type of LLC that allows creation of separate series, each with its own assets, members, and liability protection. Available in some states including Delaware and Texas.
Related: LLC (Limited Liability Company)
- Service of Process
-
The formal delivery of legal documents such as lawsuits, subpoenas, or government notices. Your registered agent receives service of process on your LLC's behalf.
Related: Registered Agent
- Single-Member LLC
-
An LLC with one owner. Treated as a disregarded entity for federal taxes (reported on Schedule C) while providing liability protection as a separate legal entity.
Related: Disregarded Entity , Multi-Member LLC , Schedule C
- SSN (Social Security Number)
-
A 9-digit number issued to US citizens and eligible residents for tax and identification purposes. Used to apply for an EIN online. Non-residents can use ITIN instead.
Related: EIN (Employer Identification Number) , ITIN (Individual Taxpayer Identification Number)
- Statement of Information
-
California's version of an annual report for LLCs. Must be filed within 90 days of formation and every two years thereafter. Fee is $20.
Related: Annual Report
- Statutory Agent
-
Another term for registered agent used in some states like Ohio. The person or company designated to receive legal documents on behalf of an LLC.
Related: Registered Agent
T
- Tax Treaty
-
An agreement between two countries to avoid double taxation of the same income. Can reduce or eliminate withholding taxes on payments to foreign LLC owners.
Related: Withholding Tax , Double Taxation
W
- Withholding Tax
-
Tax withheld at the source of payment. For foreign LLC owners, certain US-source income may be subject to 30% withholding (reduced by tax treaties).
Related: Tax Treaty , fdap
Ready to Form Your LLC?
StartGlobal makes it simple. Get your LLC, EIN, and business bank account set up in days, not weeks.
Get Started