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Company Structures for Small Businesses in Washington State

Posted Wednesday, March 21, 2012 by Brian Edwards

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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