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Unit 10: Tax Planning for Different Organisations

Notes

Caselet Involving Limited Liability Companies and
Registered Limited Liability Partnerships

he plaintiff sued her employer for hostile work environment and related claims.
The complaint inaccurately identified the employer as a partnership rather than an
TLLC. The LLC’s lawyer contacted the plaintiff’s lawyer informing her of the mistake
and offering to accept service of an amended complaint. The complaint was not amended,
and the court dismissed it. A year and half later, an amended complaint was filed. In the
new complaint, the plaintiff misidentified the LLC as a corporation. Two months later,
after limitations had run, the defendant moved to dismiss the complaint, and the plaintiff
moved to amend. The trial court denied the motion to amend and granted the motion to
dismiss. The plaintiff appealed, arguing the trial court abused its discretion in finding
inexcusable neglect on the part of the plaintiff. The plaintiff’s lawyer explained that her
files had been moved to off-site storage during the time the plaintiff was deciding whether
to pursue a second lawsuit, and she did not have access to the documents showing the
defendant was an LLC. The court took issue with this argument, stating that the plaintiff’s
lawyer chose not to access her files and to use the Washington Secretary of State’s web site
instead. The court acknowledged that the information in the web site is confusing in that
LLC information is contained in the corporations’ database and refers to the “state of
incorporation” and “date of incorporation.” Under “category,” the site indicated the
defendant was a “limited liability regular.” The plaintiff’s lawyer assumed that LLC meant
Limited Liability Corporation. The court stated that the plaintiff’s lawyer had no justification
for assuming that the defendant was a corporation given the notice she received in the first
lawsuit, the information obtained in the database search, and the availability of the LLC
statute. The court concluded the failure to name the defendant as an LLC was inexcusable
neglect and that the trial court’s dismissal of the suit and award of attorney’s fees to the
defendant was proper.
Source: http://apps.americanbar.org/buslaw/newsletter/0006/materials/llcllp.pdf

10.2 Tax Planning for Sole Proprietorship

The term ‘sole’ means single and ‘proprietorship’ means ownership. So, only one person is the
owner of the business organisation. This means, that a form of business organization in which
a single individual owns and manages the business, takes the profits and bears the losses, is
known as sole proprietorship form of business organisation. A sole proprietorship is the simplest
form of business ownership. A sole proprietorship has but one owner. That sole owner may
engage in any form of legal business activity anytime and anywhere. Other than the various
local and state business licenses that every business must purchase regardless of type of ownership,
no legal formalities are required to start or operate the business. The owner is responsible for
securing and investing the funds for the business. These funds may come from the owner’s
existing or borrowed financial resources.

The sole proprietorship is the oldest, simplest, and most common form of business entity. It is
a business owned by a single individual. For tax and legal liability purpose, the owner and the
business are one and the same. The proprietorship is not taxed as separate entity.

!
Caution The earnings of the business are taxed at the individual level, whether or not they
are actually in cash. There is no vehicle for sheltering income.

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