How To Start An LLC In Washington State
If you’re searching for states to start your next business venture in the US, why not go with the capital itself? With its economic prosperity and thriving innovation, Washington snags one of the top spots for starting an LLC for several reasons. Featuring abundant resources and a skilled workforce for entrepreneurs to benefit from, opening a limited liability company in Washington is a safe way to experiment with business options.
However, starting an LLC can seem daunting if you lack the proper guidelines per state laws. We’re here to sort that out for you. Stick with us till the end, and you’ll find out why Washington, with its positive business policy environment, is a popular choice to complement the benefits of an LLC among other business entities.
What is an LLC?
LLC is a legal business structure that functions as a hybrid model after registering with the state. As the name indicates, LLCs are unique in limiting the owner’s liability to their investment in the company, which yields huge benefits in case of a lawsuit. Thus, limited liability companies combine the positive characteristics of a corporation, partnership, or sole proprietorship for the owner’s benefit.
An LLC’s owners, whether individuals, corporations, or bigger firms, are individually termed members. Each member has a particular investment in the company and consequently receives their share. Another remarkable feature that sets LLCs apart is their taxation advantage. This follows the simple principle that taxes only apply once the members distribute profits. It is unlike corporations, where profits are taxed twice, once on the business and once on a personal level.
Most LLC business owners resort to Washington for its high economic growth and prosperity. Entrepreneurs can find a home within the diverse community offering refined ideas, a talent pool, and local uniqueness. You can tap into their educated population and gain massive recognition for your creativity and impact-driven small business ideas.
But it’s not just that. LLCs in Washington are relieved from the tax burden compared to other states. The tax structure is straightforward and attractive from an employment perspective. You can make the most out of your LLC with the low cost of energy, supply chain, and well-developed transportation system to build a great future for your business.
Advantages Of an LLC In Washington State
Although the process might be time-consuming, LLCs will help you appreciate the liability protections of your business. And once you realize the benefits Washington offers, you’re sure to stick around and settle your business in this state. Here we’ve described some potential advantages of running an LLC in Washington.
Personal asset protection
One of the biggest attractions of an LLC is the safe way out during lawsuits or court orders. By differentiating your business entity from personal assets, you can protect your house, property, car, and other valuable items if the company defaults. Hence, lawyers can easily defend the members who are not accountable for the LLC’s actions, nor do they face any risk from creditors or client claims. The major benefit remains that the loss of the LLC owners will always be within the investment, even if there is a claim against your company.
Flexible tax structure
LLCs get the best of all worlds in their taxation options which perfectly complements the low taxes reported by Washington entrepreneurs. Taxation can be tricky, particularly for new business holders, so LLCs are a surefire way to save up on additional expenses. The owners have the upper hand in deciding the types of tax options, whether C-Corp, S-Corp or as partnerships.
For LLCs of single members, you can even file your taxes as a disregarded entity to reduce compliance costs and cut down on expenses. Moreover, LLCs avoid paying taxes twice as corporate and individual tax returns; owners only have to pay taxes on their share of profit or losses.
Better economic landscape
With considerable growth potential, Washington always ranks among the top states for businesses. Tech industries have considerably dominated the market, but other LLC services, including real estate, computers, etc., also find massive local support. Washington encourages and facilitates emerging businesses in many ways.
In addition, entrepreneurial resources and incentives provided by the state are also a heads-up for someone with no prior experience as an LLC owner. The educated population and thought leaders inspire creativity and tap into a skilled workforce to escalate your business.
Flexibility and compliance
Many people hesitate to start a business because of the complex procedural requirements and difficult compliance. However, LLCs offer all the benefits to give your startup a solid foundation to make it easy to maintain over the years. LLC formation in Washington is easy; you do not require minute recordings, forms, meetings, or a board of directors, which saves the hassle of maintaining a record.
Moreover, the members can choose management options based on rights, powers, and decision-making. Even better, LLCs in Washington have no particular emphasis on equal profit distribution; rather, members can decide on the shares based on investment and labor.
Disadvantages Of an LLC In Washington
As with every business entity, LLCs also have their fair share of disadvantages. Being fully versed in these can help you make an informed decision so that you know exactly what entity you are investing in. LLCs also come with a few downsides, which are listed below; still, we must add that their benefits often outweigh the cons.
Even though Washington offers a favorable economic climate, its living cost is staggering, particularly when it comes to everyday expenses and buying resources and supplies. While you may save up on taxes, the other expenses can accumulate significantly, which you must be wary of if you plan to build a future in this state. Moreover, the filing fee for an LLC in Washington is $180; pair it up with the annual reporting charges, and things get out of hand compared to other states like Arizona, Ohio, etc.
Difficulty raising capital
LLC is not always the smart option based on the type of business you plan for. Investors in Washington often seek safe options, so entrepreneurial plans need more attention. The lack of capital can make it harder to come up with potential ideas to kickstart your startup. Washington’s competitive business atmosphere can also be a challenge to many LLCs, especially if you’re not from the tech domain.
Another potential drawback of LLCs is their lifespan. Ownership transferability is a major issue with limited liability companies because they don’t have stocks like corporations. This can be quite challenging with multiple members with different ideas. If the members are incompatible, the chances of the LLC dying out are certain. In case of bankruptcy or the death of a member, the LLC dissolves instantaneously.
How to Form an LLC in Washington State
As with every state, Washington has its own set of regulations and legalities to adhere to strictly. We’ve mentioned them right here to save you time and effort. While the overall process might seem lengthy, we’ve broken it down into these seven short steps.
- Choose a unique name for your business
- Choose a registered agent in Washington
- Submit the LLC Certificate of Formation
- Create an Operating Agreement
- Apply for an EIN
- Initial and annual reports
Choose a unique name for your business
The company name and logo act as a visual representation of your company, so make sure to brainstorm a few ideas. It should be short, unique, and memorable for customers, but at the same time, the name should represent your services. The Washington Secretary of State also sets a few abbreviation and naming guidelines for selecting the LLC name for free.
- Must contain the exact words ‘limited liability company” or the abbreviations ‘LLC’ or ‘L.L.C.’ to indicate the type of business structure.
- The name must not mimic a government agency to create confusion, so words like FBI, state dept., bank, trust, cooperative, etc. are banned from usage.
- The name of the LLC cannot include specific words such as ‘loan,’ ‘savings,’ ‘association,’ etc.
- It should be clearly distinguished from other business names.
- Using restricted words like bank, lawyer, credit union, attorney, etc., requires additional paperwork.
We recommend having 2 or 3 backup options in mind in case another company has reserved the name you’ve chosen. Perform an internet search and check in with the Washington Secretary of State for the name availability. Otherwise, you can reserve your LLC’s name legally by paying $30 for 180 days so you can work on other important stuff while still holding on to your creativity. Also, look for the URL reservation to buy the domain name.
Washington DBA, or doing business as it, is a pseudonym that allows you to target specific audiences. In such cases, we advise you to create a Trade Name for your LLC by registering with the Washington Department of Revenue, which can be issued for $24 for an LLC in Washington.
Choose a Registered Agent in Washington
Every LLC in Washington will require you to have a statutory or registered agent. This person can be anyone; yourself, a family member, or a friend; you can even hire registered agent services. Washington requires the registered agent to reside inside the state and provide their complete mailing address.
Moreover, the person should be readily available to receive everything and track documents, notices, and papers from the court or state. This establishes the importance of having a registered agent because they form direct contact with the government.
Submit the LLC Certificate of Formation
This statement, sometimes known as ‘Articles of Organization’, contains all the essentials of your LLC to form a business entity legally. The Certificate of Formation must be submitted to the Washington Secretary of State through the mail for $180 or can be filed online with an additional $20 fee. By putting things into perspective, this article covers all the details of how the LLC will be managed, organized, and presided over. Here’s a brief overview of the subjects included in a Certificate of Formation for an LLC in Washington.
- LLC name
- Office address of the LLC
- Name and address of the registered agent
- The duration period of LLC
- The effective date for filing the certificate
- LLC management options
- Signature of the registered agent
Here, it is important to mention that the management of your LLC will govern all the decisions, voting rights, and power of the business. Most companies with many members prefer having an external manager who will be responsible for handling the affairs on behalf of other members, whereas, for merely two or three members, you can elect one of the members as the manager.
After the state reviews your application for a Certificate of Formation for an LLC in Washington, your company is brought into existence, and you can begin your LLC service. You will receive a congratulations letter, an approved certificate, and a certificate with an initial report followed by a duplicate copy of all three to the appointed registered agent.
Create an Operating Agreement
Without this document, things could get rough in the day-to-day operations of your LLC in Washington. An Operating Agreement in Washington outlines the company’s foundation and specifies each team member’s roles and contributions. Preparing this LLC agreement beforehand can ensure that your managers and members abide by the rules from day one so everyone enjoys a healthy relationship. Although Washington does not require the incorporation of Operating Agreements with the Formation Certificate, here’s what it should include:
- LLC name and address
- Duration of the LLC
- Registered agent details
- Purpose of the LLC
- Names of all members and their contribution
- Distribution of profit and loss
- Management hierarchy
- Procedure for admittance of new members
- Liability clauses and indemnification
This LLC operating agreement is an ‘instruction manual’ for your LLC. It is important because it separates private entities from business ones. After all, without this piece of paper, state law will have complete authority in deciding the operation of your LLC. Hence, to reap maximum benefits, it’s advisable to stick to the rulebook early on.
Apply for an EIN
Once you receive your Certificate of Formation, you are fully entitled to having a specific EIN for your LLC. This number can be used when opening a separate business bank account, submitting taxes, or paying your company’s employees. The IRS or Internal Revenue Service is responsible for issuing this nine-digit number, so contact them through mail or online. The social security number is essential when paying state fees, managing accounting tasks, getting business credit cards, and other tax payments.
Initial and annual reports
LLCs in Washington must comply with some paperwork per the state’s regulations. The responsibilities of the owners include submitting an initial report, primarily the company’s first annual report. The charges are $10 but can be increased to $50 for expedited processing. The deadline for submitting the Initial Report to the Secretary of State is within 120 days after the formation of your LLC.
Side by side, LLCs in Washington must prepare an annual report on dates finalized by the Secretary of State for which there is no compensation. The annual report filings cost $50 to maintain the status of your business organization.
Obtain A State Business License
Washington requires business permits for every LLC to operate in the region. The business licenses are based on the location of the LLC, may it be a state license, city license, or local license. Washington’s State Department of Revenue contains a complete list of all business licensing procedures and their locations, which vary in prices and processing duration. Furthermore, all LLCs with a profit exceeding $12,000 or collecting sales tax must also register with the State Department of Revenue.
Types of LLC
Which type of LLC is ideal for me?
In Washington, there are mainly two types of LLCs that you can form:
- Single-Member LLC: This type of LLC is perfect for those who plan to be the sole owner and manager of their business. With a single-member LLC, you’ll have full control of your company and its operations. This structure offers you personal liability protection, which means that your personal assets are separate from your business assets, and in case your business faces any legal issues, your personal assets will be protected.
- Multi-Member LLC: This type of LLC is ideal for businesses with multiple owners or partners. In a multi-member LLC, each member has a share of ownership in the company, as well as management responsibilities. This structure also provides personal liability protection to all its members, just like a single-member LLC. Additionally, multi-member LLCs can be managed by the members themselves or by appointed managers.
Applicable LLC taxes in Washington
To meet all tax obligations for your LLC, the business owner should talk to a few accountants who will give you accurate information based on different circumstances and answer your questions. Based on each county, accountants will also assist you regarding insurance and interest matters for your tax purposes.
Your limited liability company can be taxed as a part of an S-Corp, C-Corp, partnership, or sole proprietorship at the state’s personal income level. The overall tax structure in Washington does not consist of a corporate or personal income tax, so most of the time, LLC members will owe zero state tax on their income. The other kinds of income taxes applicable to your LLC in Washington include the following:
- Sales and Use Tax- 6.5% applicable on sales of personal goods items
- State Employer Tax- in case your LLC has employees, workers, or clients
- Business and Occupation (B&O) Tax- 1.5% of gross receipts applicable to gross income on all LLCs
- Local Tax- depends on each county in Washington
Costs Of Forming An LLC In Washington
The expenses of starting an LLC in Washington are a lot compared to other states in the US. Money can be a sensitive topic, so depending on the scale of your business and your investment, it can make all the difference. However, being the capital and a thriving economic hub, Washington gets an edge in this regard. The overall cost workup can be simplified as follows:
Washington State Filing Fee (online)
Name Reservation (optional)
Registered Agent Service (optional)
Operating Agreement (optional)
Business Licenses and Permits (optional)
Washington State Annual Report
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.