An entity that, for tax purposes, is treated as if it doesn’t exist, with all gain and loss flowing to the owner’s tax return. This is generally a single-member LLC that has not elected to be treated as an S Corp or a C Corp. The entity exists as a distinct legal entity for liability purposes, but not for tax purposes. This is distinct from a sole proprietorship, which is a single individual owning a business without having formed an entity.

Note that the entity is disregarded only for tax purposes; an LLC that is a disregarded entity will still receive the benefits of limited liability.