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Which Business Structure Should I Choose? (Part 1)

Updated: May 20

Part 1 - the Limited Liability Company

Starting your own business is a challenge. And it can be confusing before you even open your doors. That's why in this series, I will discuss some of the common business structures offered in Washington state and explain the benefits of each.

I'd like to begin the series by delving into Limited Liability Companies ("LLC"). The LLC is one of the most common business structures people use.

How to Form an LLC?

Choosing an LLC as a Business Entity

The LLC is relatively easy to form and provides the owners of the business entity (aka members) great flexibility when it comes to running their business. The LLC can consist of one member or multiple members. Members form the LLC by sending a certificate of formation to the Washington Secretary of State.

How is an LLC Taxed?

The IRS does not tax LLCs directly. Instead, profits and losses flow directly from this business entity 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 responsible for debt incurred by the LLC. This is an important shield for members if they get sued. As a note, however, LLCs do pay excise tax in Washington state.

How to Govern and Manage an LLC?

Governing and managing this business structure is relatively straightforward. In Washington state, we have governing law that provides a minimum set of rules to govern any LLC. However, many people choose to write their own set of rules in an operating agreements to help guide the governance of their LLCs.

If you have further questions, please do not hesitate to contact me.

Which Business Structure Should I Choose Series:

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


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