What is a Limited Liability Company? Basically, a limited liability company (LLC) is a legal entity that became available under Washington law. An LLC is an unincorporated association that provides its members with the beneficial tax aspects of a partnership and the limited liability shareholders of a corporation enjoy.
For tax purposes, an LLC is a “pass-through” entity, meaning that all items of gain and loss pass directly through to the owners, rather than being taxed at both the entity and owner levels. The benefit of “limited liability” means that a business owner is liable only for the obligations of the business to the extent of his or her investment in the company. Absent the business owner’s own wrongdoing or negligence, creditors and those bringing lawsuits against a company may only look to business assets for relief.
- Who are the Owners of an LLC? Owners of an LLC are called “members.” Each member’s interest is expressed in terms of the number of “units” owned by that member. A member’s ownership interest is further expressed in terms of his or her “economic rights” and “management rights.” Management rights include the right to control and manage the property of the LLC. A member’s economic rights represent that individual’s allocable share of the LLC’s profits, losses and property.
- Procedure for Forming an LLC. You must first file a Certificate of Formation with the Washington Secretary of State. The document that governs the relationship between the members of an LLC is called an “Operating Agreement.” That document specifies who has the right to manage the company and who is entitled to the economic benefits received from the company. Finally, initial assets (initial contributions) must be conveyed to the LLC. Any transfers of ownership interests in the LLC should be documented and included with the records for the LLC.
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