Why Start an LLC in Washington State?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements for forming an LLC varies slightly from state to state.
In this article, we will be looking at how to set up an LLC in the state of Washington. Every year, another 32,000 LCCs are added into Washington’s ever expanding portfolio. The United States Chamber of Commerce had rated Washington as the seventh best nationally in terms of business tax environment. It had also been ranked as the 6th when considering what are the future “boom states”.
How To Start an LLC in Washington State?
STEP 1: Name of the LLC
First and foremost, you would have to pick a unique name for your LLC that complies with Washington’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC”, “L.L.C.”, “Limited Liability Co.” or “Limited Liability Company”.
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words listed out by state statutes, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC. You may contact the Washington Secretary of State through a call (360-725-0377) if you are unsure if the words you have picked are forbidden.
- The name must be unique, distinguishable from the names of pre-existing business entities in Washington. The distinguishing of names is very strict within Washington, if you have submitted a name that is not available your filing would be rejected, its fees are non-refundable.
You may reserve the name you have envisioned for 180 days by filing a Reservation of Name to the Washington Secretary of State. The form must be mailed to them.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “Trade Name” for your LLC in Washington, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name. To do so you must register your Trade Name with the Washington Department of Revenue. You could do so by completing the Business License Application Form which shall be further discussed below.
STEP 2: Appointment of Registered Agent
Prior to filing the Certificate of Formation, you are required by the Washington Secretary of State to nominate a designated Registered Agent for your LLC.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the LLC any tax forms, notices from the Washington Secretary of State and even legal documents from lawsuits. The Registered Agent also keeps the LLC afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in Washington is that the agent must either be a resident of Washington or a corporation present within the state with authorised Commercial Registered Agent services.
The Registered Agent must have a physical street address within Washington, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the Registered Agent must always be available during business hours to receive Service of Process when necessary.
Anyone within the LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the Registered Agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateur individual would make, avoiding the accumulation of even more expenses over time.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours. Moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your Registered Agent via the Washington Secretary of State website while you are filing your formation documents or by mailing a physical copy of the Certificate of Formation with your Registered Agent’s information to the Washington Secretary of State’s postal address.
It is also possible to change your nominated Registered Agent, simply change it on the Washington Secretary of State website or file a physical copy of the Statement of Change of Registered Agent form to its postal address instead.
Registered Agent services in Washington includes:
- Northwest registered agent
- Washington Registered Agent, LLC
STEP 3: Filing the formation documents
An LLC in Washington may be formed once a Certificate of Formation & Initial Report is filed and either mailed or submitted personally to the Washington Secretary of State.
Alternatively, you could also form an LLC in Washington by opting for the more convenient route of filing online through the Washington Corporations and Charities Filing system.
Regardless of the available routes chosen, the filing must include these necessary details of the LLC:
- Effective Date of Formation;
- Period of Duration;
- Principal Office Address;
- Registered Agent Name;
- Registered Agent Signature;
- Registered Agent Address, and;
- The signature of the executor.
The filing fee through the online route would be $200 while the Filing Fee for submitting it personally or mailing it would be $180.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 2 to 3 days if transacted through the virtual route, you would receive a “Certificate of Formation” and a “Certificate of Formation with Initial Report”. Now your LLC in Washington is officially formed.
STEP 4: Register the Business for Tax and Regulatory Requirements
Once you have formed your LLC, you would almost certainly have to apply for a state business license as the state of Washington demands that of almost all businesses within it. In order to ascertain the requirements for your LLC based on the industry and the location it is in, you could browse through the Washington Department of Revenue Business Licensing Wizard.
You may obtain your state business license by either applying for it through the Washington Department of Revenue website or by mailing in the Business Application License Application form.
It should be noted that completing the Business License Application, the LLC would be bulk-registered for a number of other perks like:
- Both a City and Specialty Business License;
- A Trade Name if it is desired;
- Registration for taxes with the Department of Revenue; and
- Registration with both the Department of Labor & Industries and Employment Security Department if the LLC possesses any employees.
The filing fee for all routes will be $90.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of Washington in order for an LLC to function, it still highly suggested that you prepare one for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and member terms. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. Washington’s LLC Law would only affect the internal affairs of the LLC in the absence of an Operating Agreement.
The Washington LLC Act has explicitly declared that the principle of the freedom of contract between the members should be upheld through the Operating Agreement. Members are allowed to modify their capital contributions and shares of profits and losses if the necessary provisions are engraved within the Operating Agreement. Even different classes of members could be created if the Operating Agreement wills it.
Amongst the most important structural support it provides to an LLC that you should have within your own Operating Agreement are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes.
The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the function of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity, it also strengthens your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN.
There are no filing fees necessitated for obtaining an EIN.
STEP 7: Annual Report for Annual Renewal
Finally, once you have done all the groundworks to set up an LLC, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
Like many other states, Washington dictates that all LLCs within it must file an annual report to the Secretary of State as a means to renew their applications and remain in compliance and good standing with the state laws. As indicated by the name, this report must be filed once every year – without fail.
The annual report must be filed by the anniversary month of your LLC’s formation, no later than the last day of the month itself. If you have forgotten what was the month your LLC was formed, the exact date could be found in the approved Certificate of Formation.
In order to file an annual report simply do it online through the Washington Corporations and Charities Filing System. This would be the only route available. Once you have filed your annual report, you would receive a filed copy from the confirmation page that you could download. The filing fee shall be $60, it is non-refundable.
The content of an annual report must include just a few details, namely:
- The name and address of the LLC;
- The name and address of the registered agent; and
- The name and address of either the managing members or the sole manager, whichever the case may be.
The state of Washington charges a penalty fee of $25 for every failure of filing. The LLC may also be dissolved for the failure to file the annual report, there is no guaranteed warning period. Failure to file the annual report is the most common reason why the Secretary of State closes down LLCs in Washington. As such, it is imperative that you remember to file the annual reports on time every year.
Additional Information on Starting LLC in Washington
With all the above carried out, your LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As an LLC you could choose to be taxed as a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure. If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
Washington Secretary of State’s Postal Address:
Secretary of State
P.O. Box 40234
Washington Secretary of State’s Office Address:
Secretary of State
801 Capitol Way S
Olympia, WA 98501
Washington Department of Revenue’s Postal Address:
Department of Revenue
PO Box 47478
Olympia, WA 98504-7478
Internal Revenue Service’s Postal Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions (FAQs)
How much does it cost to form an LLC in Washington?
In order to first form your LLC, you would have to fork out $180 or $200 to file the all so necessary Certificate of Formation physically or digitally, without doing so, your LLC cannot be formed. Furthermore, you are also mandated to pay for its upkeep, a $60 fee every year so as to keep the LLC compliant with state laws. Without these payments, your LLC would not be allowed to operate.
Can a foreign LLC conduct its business in Alaska?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the Washington Secretary of State prior to doing so. The registration could be done through filing a Foreign Limited Liability Company Registration through its website or by mailing it to the postal address. Do keep in mind that you would also need a Registered Agent present within the state of Washington itself and that you must obtain a certificate of good standing not older than 60 days from the LLC’s home state.
What is the minimum wage for workers in Alaska and are there any regulations on how often I would have to pay them?
The minimum wage in Alaska is $13.69 per hour and state laws dictate that you must pay your employees on a monthly basis.
There are special requirements in Washington’s largest city, Seattle. If the Seattle LLC has more than 500 employees, the minimum wage would be $16.69 per hour. If the Seattle LLC has 500 or lesser employees, the minimum wage would be $16.69 per hour without benefits or $15 per hour with benefits.
How do I dissolve my LLC in Washington?
You would need to submit a Certificate of Dissolution form to the Washington Secretary of State. There are no virtual means offered to dissolve your LLC, as such you would have to physically mail the form to its postal address. It is free of charge to dissolve your LLC in Washington, however, if you intend on expediting the process you could pay a sum of $50 to do so.
What is the difference between a domestic Washington State LLC and foreign LLC?
Limited liability company LLC is referred to as a “domestic LLC” when it conducts business in the state where it was formed. For instance, a domestically formed business Washington State is a form of LLC. Meanwhile, a foreign limited liability company LLC is commonly formed when an existing LLC looking forward to form an LLC elsewhere in another state which requires business licenses and permits.
Ready To Set Up An LLC in Washington State?
We wish you the best of luck with setting up your LLC in Washington and we hope that this guide has helped!
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.