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Types of Business Entities (Part 1)

Updated: Jun 16, 2023

Starting your own business is a challenge! And it can be confusing before even opening your doors. In this series, I will look at some of the common business organizations offered in Washington state and explain the benefits of each.

One of the most common business structures people use is the limited liability company (LLC). It is relatively easy to form and provides the owners of the LLC (called members) a decent amount of flexibility in how they want to run the business. LLCs can consist of one member or multiple members. Members form the LLC by sending a certificate of formation to the Washington Secretary of State.

The IRS does not tax LLCs directly. Instead, profits and losses flow directly from an LLC to its members. Each member pays the IRS taxes on the profits or losses distributed to that member. For tax purposes, the LLC cannot be considered to hold onto profits or losses, even if extra cash remains in the business account. Although the IRS taxes members individually, members are usually not debt incurred by the LLC. This is an important shield for members if they get sued. As a note, LLCs do pay excise tax in Washington state.

Governing and managing LLCs is relatively straightforward too. In Washington state, governing law provides a minimum set of rules to govern any LLC. However, many people choose to write their own set of rules (called operating agreements) to help guide the governance of their LLCs.

Do not hesitate to reach out to me for more information and to help set up or grow your business!

The information provided on my blog is not legal advice and should not be relied on as legal advice.

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