The limited liability company is popular among the business community, especially closely held companies and family-owned businesses. An estimated 1.2 million LLCs operate throughout the United States today. Considered a hybrid entity, the LLC appeals to many businesses because it combines the positive corporate characteristic of limited liability, which is afforded to all LLC members, with the passthrough tax treatment of partnerships. In addition to numerous tax benefits, LLCs offer owners substantial management and operational flexibility.

The formation and operation of LLCs are governed by state law; however, despite the popularity of LLCs and the fact that they originated in the United States more than 30 years ago, there is still no provision in the IRC specifically governing the federal tax treatment of LLCs. An LLC is not a federal tax entity but can elect how to be treated for federal tax purposes under the check-the-box regulations. The federal tax treatment of LLCs is governed by a patchwork of IRS guidance and regulations.

Following is a brief list of definitions and characteristics of Limited Liability Companies:

A Domestic LLC is a legal business entity created under state law. Like a corporation, members of the LLC are not personally liable for the debts and obligations of the company. At the same time, LLCs possess the passthrough characteristics of partnerships or sole proprietorships for federal income tax purposes. All income, profits, losses, credits and deductions pass through to LLC members according to the LLC's operating agreement and are reported on members' individual tax returns.

LLCs are generally formed by filing Articles of Formation or comparable state documents. Archer Legal Services is well versed in business start up, specializing in LLCs and the various forms of corporations. For more information on forming your LLC and/or the documentation required by the State of Washington, please contact us; we are happy to help make the process more smooth.