Business Startup

Changes to the Washington Limited Liability Company Act

Earlier this year, the Washington state legislature unanimously passed and the governor signed legislation making changes to the Washington Limited Liability Company Act—the most sweeping changes to Washington LLC law in recent history.

The Washington State Bar Association requested that the state make changes to the Washington Limited Liability Company Act. The bar association’s goal was to make the law easier to understand and more flexible by modifying provisions that the association described as creating pitfalls and unnecessary problems. The Washington state Senate and House eventually passed legislation making those changes, and Governor Inslee signed the law on May 7, 2015. The new changes will go into effect on January 1, 2016.

Some of the major changes to the Washington Limited Liability...

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Business Startup

LLC Basics: Appealing Characteristics of LLCs

Over the last 20+ years, LLCs have become one of the most popular types of business entity. Entrepreneurs find LLCs appealing because they offer limited liability, pass-through taxation, flexibility in management and operations, and have relatively simple statutory requirements. We’ve highlighted the “LLC basics” in today’s post.

Limited Liability Protection

Like corporations and other limited liability entities, limited liability companies offer owners (also referred to as “members”) protection against personal liability. If the owner of a sole proprietorship or general partnership gets sued, then their personal assets  are at risk. But if the owner of an LLC gets sued, the business assets would be at risk, but their personal assets will generally not be subject to the lawsuit.

Pass-Through Taxation

The federal government does not...

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Business Startup

Brewery Law 101: Operating Agreements

Once you’ve chosen the right entity for your brewery or distillery, you’ll need to draft some key contracts governing your business entity. Today, we will continue our Brewery Law 101 series by discussing operating agreements. As we discussed in our post on brewery entities, an LLC likely is the right choice of entity for your brewery or distillery. So we will focus on operating agreements, as operating agreements are the primary governing document for an LLC. (While we are specifically discussing operating agreements, many of these issues will carry over to the governing documents you will want for any entity type.)

One of the most appealing attributes of the limited liability company and why it has been so widely adopted is the...

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Business Startup

Can LLC Members Pay Themselves a Salary?

As we’ve discussed in previous posts, the limited liability company (LLC) entity offers a ton of flexibility when organizing the management and economic structure of the company. Because of this flexibility, the LLC has quickly become the most popular entity to form when seeking limited liability protection for new businesses. One question that often crops up is, “Can I pay myself a salary as the owner of a LLC?”

Can LLC Members Pay Themselves a Salary?

The short answer is: It depends on how the LLC is taxed.

LLC Taxed as a Partnership

For tax purposes, a LLC is by default a pass-through entity—i.e. any money that comes into the business will “pass-through” to the individual members of the company regardless of whether they receive...

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Business Startup

Getting Back to the Basics: Choosing the Best Entity For Your New Business (Part 2): LLCs and Corporations

In our first post in this series on choosing the best entity for your new business we explored sole proprietorships and partnerships. Today’s post will highlight two additional business entities: the limited liability company (LLC) and corporation.

Flexibility is Key for the LLC

An LLC is a legal entity in which one or more individuals (“members”) have limited liability for the business’ debts and obligations even if they participate in management of the company. Members of an LLC have great flexibility in structuring the operation and management of their venture through the LLC’s governing document, known as an operating agreement. If the LLC does not draft an operating agreement, its activities will be governed by state statute.

For tax purposes, an LLC is...

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Business Startup

When is a Parent Company Liable for the Acts of a Subsidiary?

Imagine you went out of your way to create a corporate structure that would minimize risk. You divided up your corporate assets into different subsidiary entities so that they could not all be reached by a single creditor. Now, one of your subsidiaries is being sued, your parent entity has also been named in the lawsuit, and you’re wondering to what extent the parent entity’s assets–including its ownership of all the other subsidiaries–are at risk.

The Basic Rule–Parent Corporation not Liable for Acts of Subsidiaries

The basic rule is that parent corporations will not be liable for acts of their subsidiaries. This default rule is the reason so many conglomerates are structured as a hierarchy of parent and subsidiary corporations. The Supreme...

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Business Startup

Attention Business Owners: Here’s Why You Need an Operating Agreement

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 for your LLC.

What is an Operating Agreement? An operating agreement is a legal contract between the members of an LLC and the LLC itself. It typically spells out terms that detail the management of the LLC, distribution of profits and losses, and...

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Business Startup

LLC Operating Agreements: Transferring Member Interests and Adding New Members

As is the case with just about every provision in an operating agreement, the rules are flexible in regards to transferring member interests and admitting new members. This latest post in our series on LLC operating agreements details the default rules and common types of provisions related to transferring member interests, rights of first refusal, and admission of a new member.

Transferring LLC Ownership Interests Most LLC statutes distinguish between membership interests and member rights. The most important difference between the two is that the member’s transferable interest usually (but not always) includes only the member’s share in profits and losses and the right to participate in distributions (i.e. financial interests), and not the right to participate in management and control. Generally, a member’s financial...

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