This guide covers the most important considerations in forming an LLC in Washington state.
Starting a new business venture is exciting, and it’s your job to ensure that no legal speed bumps will interrupt your future success. Part of this process means selecting the right classification for your business.
Creating an LLC in the state of Washington is a desirable option for many companies because of the personal protection and tax benefits it offers.
But is an LLC the best move for your business?
We’ve sorted out the complexities of starting an LLC in Washington so you can make an informed decision for your business’ future.
Why Start an LLC?
Most Limited Liability Corporations (LLCs) are created to provide a liability protection “shield” between your personal assets and that of the business or rental property. That is, you are not personally responsible for any business debts or liabilities created by the LLC. Creditors are unable to pursue your personal assets, such as a house or savings account, to pay off the debt.
The unique tax benefits also make LLC status a favorable option. Many businesses do not pay taxes at the business level. Instead, earnings or losses are passed through to owners, which they report on their individual tax returns.
LLCs provide more flexibility than S corporations or C corporations. There is no board of directors overseeing business decisions, which can complicate or stall any significant changes you want to make in your business. You have control over the number of owners and your business’s management structure.
In addition, establishing an LLC can help you to boost credibility as a business. Customers, vendors, partners, and employees may be more inclined to trust a company that has gone through the legal channels of creating an LLC in Washington than they would a sole proprietorship.
The above benefits combined are hard to ignore. LLCs offer a robust suite of options to business owners that can help them achieve their goals with fewer obstacles in their way.
What to Know Before Starting an LLC in Washington state
LLC benefits are attractive, but they aren’t the only considerations. Before you establish an LLC in Washington, you should understand what the process requires to avoid any hurdles that could delay your business launch.
Who Will Be Part of the LLC?
Will you be the sole member of the LLC? If so, you will be able to account for your business taxes under a schedule C on your personal tax return. This means you will be able to deduct all business expenses on your own tax return, which can help lower your tax liability.
If there are other members in the LLC (outside of your spouse), you will need to file a separate LLC tax return. Members of the LLC will need to file K-1 forms with their taxes.
If you have multiple members, you should also spell out each other’s rights in the LLC, such as what happens to the company in the event of the death of a member, a split-up, or another major event.
There are advantages and disadvantages to each, so explore your options to see which offers your business the greatest benefit.
How to Name Your LLC
Choosing a name for your LLC can be a challenge on its own. The name of the new LLC must not be identical to an already existing entity. However, a sole proprietorship or partnership may be allowed to use the name of your LLC (they just wouldn’t be able to form their own LLC using your name).
In addition, your LLC name doesn’t have to be the same as your business’s “trade” name. For example, you could own several restaurants that each operate under a different name to the public, but they’re all legally controlled by your LLC.
You may contact the Washington Secretary of State Corporations Division to check name availability before you complete an application.
If the desired name is not already in use, you can reserve the name until you are ready to form your LLC by filing an application for Reservation of Washington (Domestic) Name. There is a small filing fee to reserve your name, which you can deduct from your taxes.
Potential Disadvantages of an LLC in Washington state
The benefits are many, but forming an LLC is not without its downsides.
To create your LLC, you will need to budget for the various filing fees and licenses that allow you to operate legally. In Washington, all LLCs are required to obtain a state business license.
There is also a $180 fee to file your application to form an LLC. If you wish to expedite the application (2-3 days), there is an additional $20 fee.
When you file your application to form an LLC, you will also receive your Unique Business Identifier (UBI), a unique number that is assigned to each business that is used with various state agencies for filing, taxes, and identification.
More information on UBIs and other business licenses can be found on the Washington Department of Licensing’s website.
Transferring ownership is more complicated in an LLC than a corporation. In a corporation, you can increase ownership through stock sales, but LLCs require the approval of all owners to add new owners or otherwise alter the allocation of ownership.
How to Start an LLC in Washington State
Establishing an LLC in Washington isn’t necessarily difficult, but there are several steps you should be aware of to do it correctly.
Start by choosing a name for your LLC and conducting the research to ensure its availability. If you want your LLC name to match your “doing business as” (DBA) name, you may also want to check domain availability for your business website (if you plan on having one).
You must also appoint a Registered Agent for your LLC to send and receive legal correspondence on behalf of your company. This person must be a resident of the state of Washington or a corporation that is legally allowed to conduct business in Washington. (You can choose to be your own Registered Agent.)
From there, you will need to complete the application to form a Limited Liability Corporation. You can file this application online or by mail, along with the required filing fee ($180 by mail, $200 online).
Once you receive all the necessary paperwork, you will need to apply for an Employer Identification Number (EIN). If you apply online, you will receive this number immediately. If you apply by fax, you can expect to receive your EIN within 2-3 weeks.
It’s also in your best interest to set up a separate banking account for your business to separate business and personal expenses. This helps you simplify taxes and accounting, as well as building your company’s credit history.
The state of Washington does not require a separate operating agreement, but it can be helpful. An operating agreement is a legal document that outlines the ownership and operating processes of your LLC.
Finally, you will need to secure workers’ compensation insurance and general liability insurance to protect your company’s assets in the event of an incident.
Establish an LLC in Washington state the Easy Way
It’s a lot to take in, especially for new businesses who haven’t completed the process before. At Brighton Jones, we work with attorneys to provide LLC formation services and take the guesswork out of establishing your business. Our approach is streamlined to give you the shortest connection between the business idea and launch day.
Contact a member of our team today to see how we can help you form your LLC and get this critical phase of your business off to an auspicious start.
Biss McCarthy, CFP® serves as an advisor at Brighton Jones.
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