Ownership Structure/Type of Business

You may operate your business or organization under any one of several organizational structures. Each type of structure has certain advantages and disadvantages that should be considered. The descriptions of the structures below are provided to assist applicants and are not intended to be legal definitions with the force of law. You should contact an attorney, accountant, financial advisor, banker, or other business or legal advisors to determine which form is most suitable for your business or organization.

A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorship's are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management and fewer legal controls. However, the business owner is personally liable for all debts incurred by the business.

A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, and/or skill to a business. Each partner shares the profits, losses, and management of the business and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.

A Limited Partnership* is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business. Note: A limited partnership may opt to become a Limited Liability Limited Partnership* by including a statement to that effect in its certificate of limited partnership. Status as a limited liability limited partnership provides general partners with a shield from liability for obligations of the limited liability limited partnership.

A Limited Liability Partnership* is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partner. This business structure is used most commonly by professionals such as accountants and lawyers.

The Limited Liability Company (LLC)* An LLC is formed by one or more individuals or entities through a special written agreement. The agreement details the organization of the LLC, including: provisions for management, assignability of interests, and distribution of profits or losses. Limited liability companies are permitted to engage in any lawful, for profit business or activity other than banking or insurance. Doing business as an LLC may yield tax or financial benefits.

A Corporation* is a legal entity, a corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as decreased personal control. Corporations may be formed for profit or nonprofit purpose.

A Nonprofit Corporation* A nonprofit corporation is a legal entity and is typically run to further some sort of ideal or goal, rather than in the interests of profit. Many nonprofits serve the public interest, but some do engage in private sector activities. If your nonprofit organization is or plans to fundraise from the public, it may also be required to register with the Charities Program of the Washington Secretary of State.

The Charitable Solicitations Program* registers individuals, organizations, and commercial fundraisers that solicit charitable donations from the general public. Both the benefiting charities as well as independent, for profit entities soliciting funds must, in most cases, register annually.

The Charitable Trust Program* registers individuals and organizations that are holding assets in Washington State in trust for a charitable purpose. The assets are invested for income-producing purposes. The income is then designated and distributed for a charitable purpose according to the terms and conditions of the trust agreement.

Charitable Solicitation and Charitable Trust registrations are separate from and in addition to corporate filing requirements.

Items marked with * must register with the Secretary of State, Division of Corporations and Charities.

Washington business and organization structure CONSIDERATIONS

Ownership Structures	Sole Proprietor	General Partnership	Limited Liability Company (LLC)	Corporation	Limited Partnership (LP)	Limited Liability Partnership (LLP)
Register with Secretary of State	No	No	Yes	Yes	Yes	Yes
Formation Difficulty	Low	Low	Medium	Medium/High	Low	Medium
Liability	Sole proprietor has unlimited liability	Partners have unlimited liability	Members are not typically liable for the debts of the LLC	Officers/Shareholders are not typically responsible for the debts of the corporation	At least one general partner has unlimited liability	Partners are not typically liable for the debt of the LLP
Operational Requirements	Relatively few legal requirements	Relatively few legal requirements	Some formal requirements but less formal than corporations	Board of directors, annual meetings and annual reporting required	Some formal requirements, but less formal than corporations	Some formal requirements, but less formal than corporations
Management	Sole proprietor has full control of management and operations	Typically each partner has an equal voice, unless otherwise arranged	Members have an operating agreement that outlines management	Managed by the directors, who are elected by the shareholders	Limited partners are excluded from management unless they serve on the board of directors	All partners have the right to manage the business directly
Federal Taxation	Not a taxable entity. Sole proprietor pays all taxes	Not a taxable entity. Each partner pays tax on his/her share of income & can deduct losses against other sources of income	Depending on structure there is no tax at the entity level. Income/loss is passed through to members	Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level	Files taxes as separate entity, must meet certain criteria to avoid being taxed as a corporation	Files taxes as a separate entity, must meet certain criteria to avoid being taxed as a corporation
Washington Excise Taxation and Liability (WASHINGTON Department of Revenue)	Taxes based on business entity income. Sole proprietor has unlimited liability	Taxes based on business entity income. General Partners have unlimited liability.	Taxes based on business entity income. Responsible parties may have liability for trust funds.	Taxes based on business entity income. Responsible parties may have liability for trust fund taxes	Taxes based on business entity income. General Partners have unlimited liability. Limited partners may have liability up to the amount of their investment	Taxes based on business entity income. General Partners have unlimited liability. Limited partners may have liability up to the amount of their investment

NOTE: This information is for reference only, for detailed considerations contact your trusted advisor