The Washington limited liability act (the “Act”) took effect July 1, 1995. The Act provides a form of business organization that offers its owners the flow-through tax benefits of a partnership with the limitation of liability previously reserved for corporations. The ease of organization and flexibility of operation are what make LLC business-entities so popular.

An LLC is like a partnership or S-corporation in that it is a flow-through entity not subject to federal income taxation. The LLC, however, is free of limitations such as restrictions on the number and identity of shareholders, limitations on membership classes and strict allocation of income and losses under Federal tax rules that are imposed on S-corporations. Further, LLC business owners are free to establish membership classes, assign class membership contribution requirements and disproportionately allocate risk, income, loss and cash flow distributions annually. While partnerships offer certain of these benefits, they do not offer their owners the liability shield available to LLC owners.

Considering the ease of establishment, flexibility of operation and other benefits of the limited liability company it is clear why the LLC is a favored form of organization for many Washington State small businesses and real estate investors.