Choosing a business entity: Limited Liability Companies increasingly popular in Utah.

• Author: Pace, Ryan
• Position: LegalBriefs - Limited Liability Company Act

ONE of the most important decisions a business owner makes when organizing a new business is which legal entity to form. Utah law provides several alternative business structures to choose from, including general partnerships, limited partnerships, limited liability partnerships, corporations and limited liability companies (LLCs). Each type has its benefits, but for several reasons, LLCs are increasingly becoming the entity of choice in Utah.

Issues to consider when selecting a business entity are liability protection, management structure, and federal and state income tax law. Under state law, LLC owners, called "members," benefit from limited liability protection similar to that of shareholders of corporations. LLCs also offer flexibility with management structures and allocation of profits and losses among members. Further, LLCs are "pass-through" entities for federal and Utah income tax purposes and are not subject to the double-tax structure that applies to corporations.

LLCs became an available business entity in Utah in 1991 with the Utah Limited Liability Company Act. Since then, the popularity of LLCs in Utah has grown significantly. Kathy Berg, director of the Division of Corporations and Commercial Code at the Utah Department of Commerce, has seen this growth firsthand. "People have become more comfortable with the limited liability company form of doing business. In fact, the Division has seen such an increase in new LLC filings that LLC filings are now beginning to exceed the number of new filings for corporations," she explains. Statistics on the Division's web site, www.commerce.utah.gov/cor/, indicate that for calendar year 2002, over 12,000 new filings were made for domestic LLCs compared to fewer than 10,000 new filings for domestic for-profit corporations. Moreover, the number of new filings for LLCs increased by over 3,000 from calendar year 2001. Other governmental agencies have noticed the increase in LLCs as well. "The number of LLCs in Utah has risen significantly over the past few years, and we have seen a corresponding increase in the number of loan applications being submitted from businesses organized as LLCs," says...