Business owners have many options for creating different legal entities to own their business.

There are different legal entities you can create to own a business. Sole proprietorships and partnerships are the simplest, but owners expose themselves to potential personal liability if things go wrong. A limited liability company (LLC) may be able to shield you from that liability, depending on the situation. Business owners have many options.

WHAT IS A LIMITED LIABILITY COMPANY? An LLC is a type of business entity that provides many of the advantages of a corporation, combined with the tax advantages and flexibility of a partnership.

WHAT CAN AN LLC DO? LLCs can engage in any lawful, for-profit business or activity other than banking or insurance.

WHO MANAGES AN LLC? DOES IT NEED A BOARD OF DIRECTORS An LLC can choose a member to be the manager or hire an employee. A benefit of an LLC in Washington or Idaho is that it doesn’t need a board of directors like a corporation.

WHO CAN BE PART OF AN LLC? An LLC can be one or more members, including individuals, trusts, estates, partnerships, limited partnerships, corporations, other LLCs, or other business entities.

CAN AN LLC MEMBER BE A FOREIGN NATIONAL? Yes, but the person must have a U.S. Taxpayer ID Number if the business is engaged in a U.S. trade or business. If the person is working in the U.S. for the LLC, they will need the proper visa or be a permanent resident (have a “green card”) to do so legally.

ARE THERE RESTRICTIONS ON THE NUMBER OF MEMBERS? There needs to be at least one, but, otherwise, the number isn’t restricted.

HOW IS MEMBER COMPENSATION DETERMINED? That’s up to the members to decide. It need not be linked to how much ownership the member has.

ARE LLCS EASY TO CHANGE? After the LLC structure is created, it’s easy to add new members or sell interests to someone else. LLC paperwork requirements are more relaxed than the C-Corp business structure. Generally, LLCs have fewer restrictions on many administrative issues compared to other business entities.

WHICH BUSINESSES MIGHT BE A BETTER FIT FOR AN LLC? LLCs may be a good option for medium- or higher-risk businesses, owners with significant personal assets to protect, and owners who want to pay a lower tax rate than they would with a corporation.

HOW LONG DOES IT TAKE TO MAKE AN LLC? It’s not a long process. Most of the time is spent discussing with the client whether an LLC is the best fit for the business. It’s a matter of creating legal documents. Filing an LLC with the Secretary of State can be done online.

WHAT ARE THE BENEFITS OF AN LLC? Under an LLC structure, personal assets (e.g., a home, personal vehicle, etc.) are not subject to the debts and liabilities of the company. This liability shield is not foolproof, however. As with corporations, under limited circumstances, a person can “pierce the corporate veil” and can reach an individual’s personal assets. An LLC may be the right choice for short-term projects or joint ventures. Multiple businesses or individuals can work together, and there would be a specific dissolution date or term—the number of years the LLC is expected to exist.

HOW ARE LLC MEMBERS TAXED? Double taxation usually occurs with a corporate business structure. The corporation and the owners are taxed separately. An LLC prevents this because the LLC isn’t taxed (unless you want it to be taxed like a corporation), but members’ income is taxed as if they’re partners.

WHAT ARE THE DISADVANTAGES OF AN LLC? LLC profits are subject to self-employment taxes, including Medicare and Social Security. LLCs must retain more than one member or be subject to federal taxes as a sole proprietorship or corporation. LLC filing papers and regulatory requirements differ from state to state.

WASHINGTON LLCS. LLCs in Washington must file an annual report with the Secretary of State, and if they have more than one member, obtain an IRS Employee Identification Number. Washington LLCs must also appoint a registered agent with a physical address in the state of Washington, to receive service of process. Out-of-state LLCs doing business in the state of Washington must also appoint a Washington-based registered agent and register with the Secretary of State.

Although Washington does not require LLCs to have operating agreements, a solid operating agreement can address a variety of issues that may arise during the course of business. We can help draw up an operating agreement that will grow with your new company.

WHY HIRE A LAW FIRM TO FORM AN LLC? LLCs have specific requirements which must be met in order to obtain tax advantages. Setting up your business properly in the startup phase can save you significant money in the long run. An experienced lawyer can help you understand whether it’s the best choice of business entity for you, as well as help you navigate complicated regulatory requirements and keep up with mandatory filings.

We have provided legal services to small and large companies for decades. We can discuss the benefits of an LLC and whether it’s the right choice for your business. Give us a call at 253.858.5434 to set up an appointment today.