Washington State offers different types of structures to consider when starting a business. The risk of not having a business structure in place can be devastating causing unnecessary hardship if the business takes a while to get on its feet. An LLC, or Limited Liability Corporation, is the best choice for some small businesses. This is due in great part to the fact that the benefits may outweigh the possible consequences of other types of structures such as a sole proprietorship or partnership.
Why an LLC, Limited Liability Corporation?
The most important reason for forming an LLC for your small business is to protect personal assets. With sole proprietorships or partnerships, you could potentially lose your personal assets such as your home or other properties. LLCs do not have this same risk. While personal assets can be used to settle debts that your business has incurred while in operation, this does not happen without your permission.
Differences in Business Structures
Sole Proprietorships, partnerships, and LLCs each have their own set of requirements under the state and federal government. Understanding what these differences are helps you, the small business owner, to make the best informed decision for your business. The reasoning behind a small businesses going under the structure of a sole proprietorship or partnership tends to be that it seems like the best option at the time. It may also seem as if there are less hoops to jump through; however, a lack of hoops can also mean a lack of safety nets as well. Keep in mind that there are requirements that must be met for each type.
Owned by one individual who makes all the decisions for the day to day operations of the business. Is required to have a business license. Does not have to file a “certificate of formation” with the secretary of state office, thus no other requirements to operate the business. Debt for business operations can be recovered from the business plus from personal assets such as home, car, and more. A sole proprietorship also incurs what is known as a pass-through taxation.
There is no major difference in the requirements between a partnership and a sole proprietorship. There are simply two or more individuals or groups owning the business. Each owner is responsible for the debt incurred. Debt for business operations can come from all of the partners’ personal assets if problems occur. Partnerships also incur pass-through taxation.
A corporation is required to not only file “a certificate of formation” with the secretary of state but must hold regular meetings in which they will elect a board of directors. There are no pass-through taxes for a corporation. Instead, the corporation pays taxes as a separate entity. Personal taxes and shareholders’ taxes must be paid by the individuals.
Limited Liability Corporation
This type of business structure may offer you the best of the four structures listed. A Limited Liability Corporation must file “a certificate of formation” with the secretary of state’s office. This is a basic requirement for any corporation. They are not required to have bylaws or other operating structures in place as corporations do.
There are good and bad points to how you decide to form your business. All things must be taken into consideration prior to making this decision, and getting help to understand what is required is important. Due diligence is a must when making a decision on how you want to operate your small business. Please feel free to contact us today for more information on whether an LLC is the right choice for your business.