Choice of Entity
When discussing choosing the right business entity, it’s important to understand the significant (and subtle) differences between the various choices. Today’s post details the differences between the limited liability company (LLC) and the S corporation.
State v. Federal Distinction
For state law purposes there are two primary entities that merit consideration: corporations and LLCs. Corporations and LLCs both offer limited liability to business owners, which means that absent extraordinary circumstances if the business is sued, only business assets are on the hook—i.e. your personal assets would be safe from any judgment.
For federal… Read the rest
The most popular entity to form a business today is the LLC. Many business owners form an LLC by filing their Certificate of Formation with the Secretary of State. As far as forming a business, this is the proper first step, but the problem occurs when the second step isn’t taken. That second step is drafting an operating agreement to govern the internal affairs of the LLC. Today’s post details some of the benefits of drafting an operating agreement… Read the rest
Selecting the best entity for a given venture involves a number of considerations including (1) taxation, (2) owner liability, (3) governance, (4) capital structure, and (5) potential exit strategies, to name a few.
Below is a primer on some of the various entities that are available for Washington businesses. We have highlighted some of the main features of each of the primary entity options.
Beginning tomorrow, June 7, you can form social purpose corporations in Washington.
What is a social purpose corporation?
A social purpose corporation (SPC) is a corporation organized to promote a general social purpose that is intended to positively affect certain constituencies. These constituencies must include one or more of: (1) the corporation’s employees, suppliers, or customers; (2) the local, state, national, or world community; or (3) the environment. In addition, a social purpose corporation may set forth specific social purposes for which the corporation is organized.
How are SPCs different from a non-profit?
A non profit corporation can be… Read the rest
This post continues our exploration of series LLCs and their treatment in bankruptcy proceedings.
Option Three: Enterprise Law
In some situations, an LLC will appear to be separate in its operating agreement, but in reality function in a more integrated manner. In these situations, a court would find the LLC is substantively consolidated and apply the doctrine of enterprise law.
This post continues the discussion of series LLCs and bankruptcy. There are still unanswered questions in this area of law. Today we’ll explore a second possible option for how bankruptcy court should treat series LLCs: entity law with exceptions approach.
Option Two: Entity Law with Some Exceptions
Recall that to file for bankruptcy, a series must be a “person” under the Bankruptcy Code (the “Code”). Typically, LLCs are treated as a “person” by bankruptcy courts even though they aren’t mentioned… Read the rest
To follow up last week’s post that detailed the background of series LLCs, I wanted to bring to light one of the major risks related to starting a series LLC. Today’s post takes a look at the issues presented by unanswered questions pertaining to treatment of series LLCs and bankruptcy. Over the course of the next few weeks, we’ll discuss four possible options for how bankruptcy could (and perhaps, should) handle series liability during bankruptcy proceedings. Today’s post explores option one: impenetrable boundaries between series.… Read the rest
A new type of limited liability company is beginning to gain popularity. The Series LLC provides a way to segregate liability, control, and profit-sharing within a single entity. Today’s post will provide some background behind the rise of the Series LLC. Next week’s post will highlight some of the risks and possible options for disposing of those risks.
Delaware Taking Lead
As is the case with much business-related legislation, Delaware took the lead in creating this unique limited liability entity. In 1996, Delaware passed legislation under the Read the rest
As is the case with just about every provision in a limited liability company (LLC) operating agreement, the rules are flexible in regards to transferability of membership interests and admission of new members. This latest post in our series on LLC operating agreements details the default rules and common iterations of provisions related to transferability of member interests, the right of first refusal, and admission of a new member.
Transferring Your LLC Interest
Most LLC statutes distinguish between membership interests and member rights. The most important difference between… Read the rest