The LLC as an optional entity for your new Pacific Northwest business

Limited liability companies are attractive options for new business owners in Oregon, Washington and California.

The limited liability company, popularly called the LLC, is a relatively recent legal creation as a business entity that has quickly gained widespread acceptance and use, if you look at the numbers. Combining favorable features from corporations and partnerships into a new kind of legal entity within which to do business, the LLC for many is the logical choice in establishing a business.

Probably the biggest draw for entrepreneurs is the limited personal liability that LLCs offer, similar to a corporation. Owners of LLCs are called members, and members are generally not personally liable for business debts and contractual liabilities, so they do not expose their personal assets.

The riskier the business venture, the more attractive limited personal liability probably may be to the founders, making the LLC an attractive choice of business entity.

Another appealing aspect of an LLC is that it enjoys fewer formalities in its management, operation, and regulation than a corporation, making it a popular choice for small or family businesses.

Drawing from the partnership entity model, LLCs are usually taxed as pass-through entities, meaning that profits and losses are reported by the members individually and not by the LLC as a separate taxable entity. By contrast, some corporations undergo double taxation in a sense because business earnings are taxed to the corporation first as a separate taxable entity, and then to shareholders individually on corporate distributions paid to them personally.

By the numbers

Rodney D. Chrisman in the Fordham Journal of Corporate and Financial Law has declared the LLC the new "king of the hill" in business entity choice. He analyzed national and state data that looked at the numbers of LLCs formed compared with new corporations and limited partnerships from 2004 through 2007. He found that on a national level, the number of new LLCs was double that of new corporations.

In the Pacific Northwest, the rates for those four years were roughly:

  • Oregon: 72 percent LLC; 28 percent corporations
  • Washington: 68.5 percent LLC; 31 percent corporations
  • California: 37.5 percent LLC; 60 percent corporations (this state was one of a handful of states showing a different outcome, but the rate of LLC choice was on an upward trend)

Seek informed legal counsel

Formation and operation of an LLC is controlled by state law, so it is important for a Pacific Northwest entrepreneur to secure legal counsel familiar with business entity formation in the state of choice. An experienced business lawyer can help the entrepreneur analyze the pros and cons of each type of business entity available, including the LLC, in light of the goals of the business to determine the logical choice. The attorney will then help draft necessary legal documents to establish the entity, as well as assist with necessary government filings.

With office in Portland, Oregon the attorneys of Chenoweth Law Group, P.C., help commercial clients in Oregon, Washington and California set up new businesses.