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Dubuar, Lirhus & Engel LLP
206-728-5858
BUSINESS ENTITIES FOR MULTIPLE OWNERS
A limited liability company will be the most likely business entity of choice where there will be multiple owners joining together to operate a business or own property.
Liability Protection.
A primary concern of multiple owners is the liability protection. One owner does not want to be personally responsible or liable for the mistakes of another owner. Also, the owner does not want his or her personal assets available to creditors of the business. A corporation has been the traditional method of liability protection. Now, with the enactment of the limited liability company statutes, an LLC gives the same degree of protection as a corporation.
Flexibility.
Multiple owners will also benefit from the greater flexibility of an LLC over a corporation. LLC owners can custom tailor their economic arrangements, shares of profits and losses, the amounts and timing of distributions of cash or property, and the compensation paid to partners who render services to the company. Owners may have priority returns to the owners who invested differing amounts of capital, or who perform differing amounts of services. It is much more difficult, and sometimes not possible, to accomplish this in a corporate entity, because of the federal tax code limitations.
Federal Taxes.
For federal income tax purposes, the LLC entity is a "pass though" entity. The income (or loss) of the LLC is passed through to the owners. The LLC pays no tax. The double tax of the C corporation is avoided. The S corporation is also a "pass though" entity, but the S corporation is hobbled with restrictions as to the number and nature of owners, and as to the way income, cash, property are distributed out of the corporation.
Other Considerations.
An LLC is not the only entity to think about when multiple owners are involved. For example, if a business expects to have no losses and expects to go public rather quickly, a C corporation may be the way to start. A small percentage of businesses fit into this category. There are other situations where a different entity is appropriate for multiple owners. The new business should be thoroughly discussed among the owners, attorney, and CPA, to decide on the most appropriate business entity for the particular circumstances.
This information is general in nature and should not be relied upon for your specific circumstances. For information, questions, or comments, please contact Douglas J. Engel at 206-728-5858 or engel@dle-law.com.
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The information in this web site is all general information. The information is applicable only to the state of Washington, unless otherwise stated. This general information is not legal advice for your particular circumstances. If you have legal questions you should consult your lawyer.