McDermottWard began forming limited liability companies for clients in 1991 as part of our business law services shortly after Virginia adopted Virginia Limited Liability Company Act. Virginia was, of course not the first state to pass an LLC act. Wyoming was the first state to recognize the need for a business entity with the ease and tax benefits of a partnership, but with the limited liability protections of a corporation. Wyoming passed its limited liability act in 1977. But it was not until an Internal Revenue ruling in 1988 that LLCs began being taxed as partnerships. That’s when the rest of the country jumped on the LLC bandwagon. Now, the number of LLCs formed in Virginia annually dwarfs the number of corporations formed.
So, what is an LLC? It is a legal entity. It can buy property and sell property. It can have employees…or not. It has the tax advantages of a partnership, such as pass-through treatment. However, unlike a partnership, it provides corporation-type liability protection for its members.
You might question why would an LLC be better for me than an S-corporation? Well, it might be, or maybe not. An S-corporation has limits on the number and identity of its shareholders. Also, a corporation must formally elect S status by filing the appropriate IRS form within a fixed time. Sadly, many small business owners fail to file the form, or fail to file it within the time limits.
If you are considering starting a business, or if you have a business and wish to discuss forming a business entity such as an LLC or a corporation, please feel free to call us. We would be happy to discuss the pluses and minuses of each sort of business entity, and how to take the initial steps to implement your decision.
Pat McDermott and Sarah Saville (757) 722-0611