Jargon Item of the Month

“Pass-through Entity”

The U.S. federal income tax falls on pretty much every person and legal entity in the Country. So people, corporations, trusts and estates* and similar things are all subject to the income tax system.

But certain legal entities, mainly partnerships, S-corporations, and certain limited liability companies, are treated as “pass-through entities” for federal income tax purposes. This means those entities generally are not themselves subject to income tax (even though they file a tax return). Instead, all the various tax return items — income, gain, loss, deduction and credit — “pass through” the entity and are taxed only to the owners. For more about taxation of these pass-through entities, See ‘Business Entities’.

In a future Article, we’ll look at some of the changes made to pass-through entities under the 2017 tax bill.

^{* “…And my advice to those who’ve died; declare the pennies on your eyes.” – Lennon, McCartney}

Jargon Item of the Month: March

“Registered Agent/Registered Office.”

This is the official “contact point” for a corporation, limited liability company and certain partnerships. As such, the agent will receive official correspondence from the Secretary of State and other state agencies. In some states, the “registered agent” may be called “resident agent” or "agent for service of process."

A registered agent can be an individual who is a resident of the state where the corporation or LLC is formed. It can also be another legal entity like a corporation or LLC that was formed or is qualified in that state.

The "registered office" is the physical address of the registered agent. It can be the personal or business street address, in the case of an individual registered agent, or the business street address for an entity registered agent.

All corporations and LLCs (and certain partnerships) are required to maintain a registered agent. The reason for this is that, if a lawsuit is filed against the corporation or LLC, there will always be someone available to receive the complaint and summons (aka service of process).

For most domestic entities (i.e. those formed within the state in question), there is no reason why the principal of the entity cannot serve as the registered agent. On the other hand, if a foreign entity (i.e. one formed outside of the state) wants to qualify to do business in the state, they will have to find an in-state person or organization to be the registered agent.

For a few additional details, see our glossary of terms.