Choosing the Right Business Structure

Posted Friday, July 14, 2023 by Kim Sandher

One of the crucial decisions new business owners must make is selecting the right legal structure for their company. The business structure you choose will have a profound impact on various aspects, including liability, taxation, and management.

Here is a general overview of the common business structures available in Washington State, highlighting their key features and potential implications:

1. Sole Proprietorship

A sole proprietorship is the simplest and most common business structure, ideal for single-owner ventures. It offers complete control and ease of formation since there is no legal distinction between the owner and the business and does not require filing with the Secretary of State. However, it also means that the owner is personally liable for all business debts and obligations.

2. Limited Liability Company (LLC)

An LLC is a popular choice for small businesses as it combines elements of both corporations and partnerships, but without all of the corporate formalities. Owners, referred to as "members," enjoy limited liability, protecting their personal assets from business debts. Forming an LLC in Washington State involves filing a Certificate of Formation with the Secretary of State.

3. Corporation

Corporations are separate legal entities that provide strong liability protection for their shareholders. Owners, known as shareholders, are generally not personally liable for corporate debts. Washington State offers various types of corporations, including C Corporations and S Corporations, each with distinct tax implications and governance structures.

4. Partnership

Partnerships are formed when two or more individuals decide to co-own and operate a business together. Like sole proprietorships, general partnerships don't have separate legal identities, making partners personally liable for business debts. Limited partnerships (LP) and limited liability partnerships (LLP) offer limited liability for some partners while others maintain general liability.

5. Nonprofit Corporation

For those aiming to create a business with a social or charitable purpose, a nonprofit corporation might be suitable. These entities are exempt from certain taxes, but they must comply with specific regulations and maintain a clear focus on their mission.

Choosing the Right Structure

Selecting the appropriate business structure depends on various factors, including the type of business, its growth potential, funding requirements, and the level of personal liability you're comfortable with. Each structure has its pros and cons, so it's crucial to evaluate your specific needs and seek professional advice.

Choosing the right business structure is a critical step in establishing a successful venture in Washington. By understanding the key features and potential implications of different structures, you can set a solid foundation for your business' future growth and protection. Remember, seeking professional legal advice is essential to ensure compliance with state laws and regulations, and to make the best choice for your specific business needs.

DISCLAIMER: this blog post is purely informational and not legal advice. When deciding on a business structure, it is highly recommended YOU consult with an experienced business attorney. An attorney can provide personalized guidance tailored to your unique circumstances, ensuring you understand the legal implications and make an informed decision. Please contact Kim Sandher at 206-340-2008 with questions.