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Changes to the Washington Limited Liability Act Clarifies the Chadwick Farms Holding

Posted Friday, March 23, 2012 by Pivotal Law Group

alt text Recent changes to the Washington Limited Liability Act (“Act”) addressed the confusion introduced by the 2009 Supreme Court Ruling in Chadwick Farms Owners Ass’n v. FHC LLC, 166 Wash.2d 178, 207 P.3d 1251 (2009). In Chadwick Farms, the court held that by filing a certificate of cancellation, the LLC no longer has the ability to sue or be sued. However, the person winding up the corporation may be liable for improperly winding up the company.

The recent amendments to the Act (effective June 10, 2010) substantially changed all this. The amended Act took away the requirement of filing a certificate of cancellation upon completion of the winding up process. It removed the ability of an LLC to bar all further actions against it by filing a certificate of cancellation. Instead, a dissolved LLC may elect to file a certificate of dissolution, which would commence a 3 year statute of limitations for claims against the LLC. If no certificate of dissolution is filed, claims by or against the LLC or its managers or members are not time-limited, except by any applicable statutes of limitations. The new amendments also allow the LLC to revoke the certificate of dissolution within 120 days of the filing of the certificate of dissolution.

For more information, please contact Pivotal Law Group at 206-240-2008.

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Company Structures for Small Businesses in Washington State

Posted Wednesday, March 21, 2012 by Pivotal Law Group

alt text Partnership, sole proprietorship, limited liability company, and corporation are the four most common forms of business entity people use when starting a small business in Washington State. Although there are more structures to choose from, these four are the most popular ones, either because they are easy to form, or they offer limited liability protection. In deciding which business entity is best for you, it is always important to keep in mind the purpose, nature, and projected growth of your company (amongst many other factors). This may seem like a daunting process, but it really isn’t. With the right amount of research, consideration, and guidance, this can be done in a relatively easy and inexpensive manner.

Our experienced and award winning attorneys can help you do just that. With more than 25 years of experience under our belts working with both small and large businesses in Washington State, we have what it takes to assist you in not only choosing the right business structure, but also completing the necessary filings with the State, and drafting documents for the company. Starting a business is a challenging but rewarding experience and we look forward to being a part of it. Contact our office today for a free initial meeting.

Partnership. In Washington, a partnership generally means an association of two or more persons carrying on as co-owners a business for profit. There may or may not be a formal partnership agreement between the partners that defines the obligations and duties. If no agreement exists, then the partnership will divide the profits equally amongst the partners, and losses in the same way. The upside to a partnership is that no official filings need to be made with the Secretary of State. However, the biggest downside is that the partners do not enjoy limited liability and may be personally liable for the debts and obligations of the partnership.

Sole Proprietorship. Sole proprietorship is essentially a partnership that has only one owner. There is no legal distinction between the owner and the business. The owner receives all the profits and has unlimited responsibility for all losses and debts (no limited liability). Although there is no limited liability for the sole proprietor, we can still assist you in limiting your liability in different ways (i.e. through leases, insurance, etc.).

Corporation. A corporation is a business entity that has privileges and liabilities that are distinct and separate from its members (shareholders). One of the most important features of a corporation is the limited liability of its shareholders. A corporation is taxed as an entity, which means taxation at both the level of the corporation and shareholders.

Documents must be filed with the Secretary of State to start a corporation. The Corporate bylaws govern the operations of a corporation, and sets forth important information such as the rights and powers of shareholders, directors, and officers. Although the corporate bylaws must be formally adopted, it does not need to be filed with the Secretary of State. We can set up a corporation for you by doing the necessary filings with the State and also drafting corporate documents. Also, we can help you figure out the different tax liabilities that come with running a corporation, and if appropriate, we can help your corporation elect for S-Corp status.

LLC. A limited liability company (“LLC”) is a business entity that possesses both corporate and partnership characteristics. Like a corporation, it offers its members the protection of limited liability. However, it is taxed like a partnership, which means there is no separate entity-level tax.

Similar to a corporation, documents must be filed with the Secretary of State. Generally, the principal organizational document for Washington LLCs is referred to as an LLC Agreement, which covers formation, governance, economic, operational, and liquidation issues. This document does not need to be filed with the Secretary of State. Note that the statutes governing LLCs in Washington are more flexible than that of a corporation. If an LLC is the right structure for you, we can set up the LLC for you and draft an LLC agreement that meets all the needs of your company.

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Washington Deadline to True up Service Apportionment is October 31

Posted Thursday, October 27, 2011 by Michael A. Larson

alt text A late reminder to anyone involved in the service business in the state of Washington. With the passage of the market-based service apportionment rules in 2010, Washington formalized its procedures for businesses required to apportion their revenues. The rules allow businesses to estimate their apportionable income, but require that these businesses correct these estimates of apportionable income no later than October 31 of the following taxable year. Any businesses that reported estimates of their apportionable income for 2010 should use the Annual Reconciliation of Apportionable Income form that is available on the Washington Department of Revenue’s website, dor.wa.gov, to report the change in apportionable income by October 31, 2011.

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Protecting Portability Exclusion - Recent IRS Notice

Posted Tuesday, October 4, 2011 by Michael A. Larson

On September 29, 2011 the IRS issued Notice 2011-82 alerting executors of the estates of decedents dying after Dec. 31, 2010 to the requirement for filing a timely Form 706 (Estate Tax Return) to preserve a decedent spouse’s unused exclusion amount. A portability election can be made only on a Form 706 timely filed by the estate of a decedent dying after Dec. 31, 2010. Thus, a Form 706 must be timely filed (including valid extensions) even if the form is not otherwise required. Further, if the Form 706 is not timely filed, the ability to make a portability election is lost.

It should be noted that the filing of a timely return by itself will constitute the making of a portability election by the estate of a decedent dying after Dec. 31, 2010. Persons that do not wish make a portability election may do so by failing to file a timely Form 706 or by following the instructions for the Form 706 that will describe the necessary steps to avoid making the election.

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Independent Contractor v. Employee - IRS Program May Be Worth Considering

Posted Monday, September 26, 2011 by Michael A. Larson

alt text One of the most perplexing questions for many businesses is whether a worker is properly classifed as an employee or an indepndent contractor. Many businesses falsely believe that they have an option to treat workers as independent contrators or employees. Instead, there are rules that must be applied on a case by case basis. The rules for making this determination are difficult to apply and workers are often misclassified by businesses. Unfortunately, the cost of making the wrong call can be ruinous, with back employment taxes and penalties totalling up quickly to thousands of dollars.

The IRS is currently offering a new program, whereby business owners can reclassify independent contractors as employees and avoid significant liability for past payroll taxes. Per the IRS, businesses need only pay 10% of the past tax liability for payroll taxes without interest or penalties.

I have had experience making these critical distincitons between contractors and employees and I can help you to analyze the decisions that have been made to classify workers. Further, I can help you to navigate the process to avoid potentially significant past tax liabilities. Call me at 206-805-1490 if you are interested in discussing contractors, employees and avoiding past tax liabilities.

Here is a link to a Wall Street Jorrnal article that discusses the topic in more depth. WSJ Article

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