by: Shaina Case
There exist multiple business entities to choose from but deciding which one you need or want may depend on how you plan to operate your business and the advice you receive from your accountant and attorney. This article examines the limited liability company (“LLC”) and the close LLC.
Wyoming is the trailblazer of the LLC, being the first state to pass legislation allowing the formation of this entity in 1977. LLCs are the most popular business entities formed in Wyoming. They offer liability protection similar to that of a corporation without the double taxation of a “C” corporation. That is, the LLC combines the liability shield of a corporation (the individual members, or owners, are not subject to potential personal liability that a general partner otherwise would be in a general partnership) with the federal tax classification of a partnership (the LLC is taxed as a partnership with each member treated as a partner). Once established under Wyoming law, the LLC exists independently from its members and, if properly organized and operated, can shield them from vicarious liability for the entity’s obligations and governs the LLC’s management and operations (usually through the creation of an operating agreement). In forming the LLC, decisions can also be made as to whether the LLC should be a classified as a close LLC (affording additional restrictions on asset transfers and lessened statutory formalities such as holding annual meetings).
Federal entity classification election also affords LLC business owners the option to choose a tax election other than the default partnership tax status (S-corp or C-corp election).
Despite online sources making it increasingly simple to form an LLC without hiring or consulting an attorney or CPA, investing in a knowledgeable attorney or CPA today will very likely save money, time, and stress later should lawsuits, claims, or internal owner disagreements arise. Protect yourself and your business by seeking legal advice prior to formation.