How to Start an LLC in Washington? (11 Steps Needed)

Entrepreneurs and small business owners may want to establish a business entity in Washington State for several reasons

Forming an LLC in the state is relatively simple if you follow the necessary steps and comply with the requirements set forth by the state.

With years of practice as a business consultant specializing in limited liability companies, I’ll share my insights on how to establish an LLC in Washington State.

I will cover all aspects of forming a limited liability company, including the process of filing a certificate of formation with the Secretary of State and paying taxes.

If you're leaning towards having a professional manage the creation of your LLC, we advise you to take a look at these expert Washington LLC formation services.

Quick Summary:

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How to Form an LLC in Washington LLC

To form a Washington LLC, all you need to do is file the documents required by the Washington Secretary of State and pay the corresponding filing fee.

You can do all of that in just a couple of days, and once you're done, proceed with the steps you need to accomplish after forming an LLC.

1. Choose the Type of Your Washington LLC (Mandatory)

Based on my first-hand experience in LLC formation, I've advised numerous clients on selecting the right LLC structure.

Washington boasts 91,902 minority entrepreneurs who are self-employed, representing 14.6% of the state's small business ownership. This diversity highlights the state's inclusive approach to business, offering various structures to suit the unique needs of its entrepreneurs.

For instance, I helped a single-member LLC opt for a Sole Proprietorship structure for its simplicity, while for a client with a growing business, I recommended an S-Corp LLC due to its tax benefits.

You should consider the following structures:

1. Sole Proprietorship LLC: This is suitable for single-member LLCs. It's simple to set up and operate. However, it doesn't offer the tax benefits of an S-Corp and may result in higher self-employment taxes.
2. Partnership LLC: Ideal for multi-member LLCs, it allows for shared management and profits. The downside is that partners are taxed individually on their share of the profits, potentially leading to higher personal tax rates.
3. S-Corp LLC: Offers tax benefits by allowing income to be split between salary and dividends, potentially reducing self-employment taxes. The complexity of setup and payroll management can be a disadvantage.
4. C-Corp LLC: Best for those planning to reinvest profits back into the company or seeking venture capital. It faces double taxation (corporate and personal) but offers benefits like lower corporate tax rates and easier transfer of ownership.

Each structure has unique implications for taxation, ownership, and management, making it crucial to choose one aligned with your business goals and financial strategy.

"If your LLC is a single-member entity, meaning it only has you as a member, it is by default considered a sole proprietorship when it comes to taxes. However, you can change this classification by allocating a minor percentage of ownership to a trusted friend or family member, effectively establishing a partnership."

- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter

2. Choose a Name for Your Washington LLC (Mandatory)

You need to choose an LLC name.

This is the official title of your business, and it can't be used by any other company operating in Washington. You should check its availability online.

Your preferred business name can only be approved if you follow Washington’s state naming guidelines:

• The terms “Limited Liability Company,” “LLC’ or “L.L.C” should be included in the name.
• The business name must be unique and distinguishable from other companies registered in the state.
• The state does not allow the words “Incorporated,” “Cooperative,” “Partnership” or “Corporation” and their corresponding abbreviations in the LLC name [1].

If you want to reserve your business name with the Washington Secretary of State, you can do so by filing a reservation fee of $30 ($50 for an expedited process).

The name will be reserved for 180 business days.

Keep in mind that all business names must be registered with the Washington Secretary of State, so if your business name has already been taken by another business, you won't be able to use it.

It's also possible to get a DBA, which is a business name that you might use when conducting business.

Read More: Washington LLC Business Search

3. Select a Registered Agent (Mandatory)

Choosing a registered agent is a decision I navigate with my clients, emphasizing its importance for legal compliance. I assist them in selecting a reliable agent or service within their county, ensuring they have someone trustworthy to handle important legal documents.

These can include lawsuits, tax notices, and other official notifications from the state.

It can be an individual or a business entity. All that matters is that it's registered in the state.

In Washington, a registered agent must be located in the same county where your company's principal office address is listed.

A Washington-registered agent is easy to find. You can look for an agent by asking your personal attorney or using a registered agent service.

4. File Washington Articles of Organization (Mandatory)

Washington LLC's articles of organization should be filed with the Washington Secretary of State.

In order to file the certificate, you must have a business name that is distinguishable from other names on record in Washington.

The certificate needs to contain all necessary information, such as:

• LLC name and physical street address
• Registered agent's name and address
• LLC purpose - it could be simply "to engage in any lawful act or activity for which LLCs may be organized under the laws of Washington."
• Termination date, if applicable

You need a certificate of formation to establish an LLC in Washington.

You can either send it by mail or file it online. The online filing fee for a Washington LLC is $200 while filing by mail is $180. There's a $60 annual renewal fee.

Steps to Take After Forming an LLC in Washington

5. Create a Washington LLC Operating Agreement (Optional, but Recommended)

Drafting an Operating Agreement is where I bring my expertise to the table, helping clients outline the operational and financial structure of their LLC. This document serves as a foundation for managing business operations and resolving future disputes.

You should consult with an attorney to help form one if necessary.

Although Washington State does not mandate business owners to file the document, it is highly advisable to draft one to clearly define how the LLC will operate.

In the absence of an operating agreement, state laws apply.

The operating agreement should include information such as:

• What the LLC will do
• How much money each member is putting into their initial contribution
• Roles and responsibilities of all members
• Restrictions on the transfer of interest
• Dissolution or buyout provisions in case a member wants to leave the business.

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

Obtaining an EIN is a straightforward process where I assist clients in filling out and submitting the SS-4 form to the IRS.

This step is crucial for tax purposes and for facilitating other business activities like opening bank accounts.

A federal employer identification number is a nine-digit number that identifies your business for tax purposes. It will also be needed when you open bank accounts and apply for loans.

Also, employer identification numbers are not required by law if the LLC has no employees, i.e., it's registered as a sole proprietorship.

However, it's still beneficial to have an EIN if you don't plan to hire employees, so visit the IRS website for more information.

Related Articles:

• How To Close an LLC in Washington
• Best LLC Formation Services in Washington
• How Long It Takes to Get Your LLC Approved in Washington

7. Open an LLC Bank Account (Optional, but Recommended)

Opening an LLC bank account is highly recommended. You can open business bank accounts at banks or credit unions, and you'll need the following documents:

• Certificate of formation of your LLC
• Operating Agreement (optional)
• The tax ID number for your LLC (EIN).

Separating personal assets from business ones is important to reduce the risk of liabilities and losses in case your LLC gets sued.

It's also beneficial for tax purposes since you will have different filing requirements depending on whether you are operating as a sole proprietor or an LLC with employees.

Having two bank accounts makes it easier to keep track of business funds, helps separate business expenses, and maintains the personal asset protection of the members.

8. File your Washington LLC Annual Report (Mandatory)

Filing the Annual Report is a compliance step I ensure all my clients adhere to. I assist them in preparing and submitting the report, emphasizing its role in maintaining the LLC's good standing and reflecting on their business progress.

In Washington State, unlike some states where annual reports are not required or have different frequencies, all LLCs must file an annual report every year.

This report is due each year on the anniversary of your LLC’s formation. To file the report, you must submit it along with the required fee to the Washington Secretary of State.

The report includes basic information about your LLC, such as the business address, the names of members or managers, and any changes that have occurred in the past year.

It’s important to note that failure to file the annual report can result in penalties, including the potential dissolution of your LLC. Therefore, timely submission is essential.

You can file the report online through the Washington Secretary of State’s website, which is a convenient option to ensure compliance and avoid any late fees or penalties.

9. Obtain business licenses and permits

To start a business in Washington State, obtaining the right licenses and permits is crucial. The specific licenses required depend on the type of business, its physical location, and local regulations.

For instance, a restaurant in Seattle needs several specific licenses and permits. A Seattle-based business must obtain a City of Seattle Business License and a Washington State Business License, which are available through the Business Licensing Service.

Additionally, it requires a King County Health Department food permit. If it plans to serve alcohol, a liquor license is also necessary.

For different businesses, like a construction company, the requirements vary. Such a business needs a Washington State Contractor’s License. It may also require local permits for individual projects.

The Washington Department of Revenue provides an online "Business Licensing Wizard." This tool helps entrepreneurs determine the specific licenses and permits needed for their business type and location. This is an invaluable resource for ensuring legal compliance for business operations in Washington State.

10. Unified Business Identifier (UBI) Registration (Mandatory)

In addition to the standard procedures for forming an LLC, Washington State has its own specific requirements that must be fulfilled.

One such requirement is obtaining a Unified Business Identifier (UBI) number.

This unique number is assigned by the state and is essential for tax purposes as well as for registering with various state agencies.

11. Choosing Your Tax Structure

In Washington State, LLCs are taxed based on their classification status: sole proprietor, partnership, S-Corp, or C-Corp.

A Washington LLC is a pass-through entity, meaning it doesn't pay income tax directly. Instead, profits or losses are reported on the members' personal tax returns.

If an LLC sells goods or services to the public, it must collect and remit sales tax. For this, registering for a seller's permit through the Washington Department of Revenue is necessary.

The amount of income taxes your LLC needs to pay depends on how many members are in the company and their shares or ownership percentages.

I recommend the S-Corp classification for Washington LLCs expecting substantial income. This can offer self-employment tax savings, although it requires additional administrative tasks like payroll processing.

Despite this, the tax benefits for higher-earning LLCs can be considerable. LLCs not selling to the public don't need to pay federal and state taxes but still require a federal tax ID number.

Also, all Washington LLCs must pay the occupation and business tax through the Washington Department of Revenue, in addition to any state and federal income taxes. This is an important compliance aspect to consider in your financial planning.

Benefits and Drawbacks of an LLC in Washington

Benefits:

1. Limited Liability Protection: LLCs in Washington provide limited liability protection to their owners. This means that the personal assets of the LLC's members are typically protected from business-related lawsuits or financial difficulties​​.
2. Tax Flexibility: Washington LLCs benefit from pass-through taxation, where business income is taxed only once on the owner's personal tax return. This can result in significant tax savings for small business owners​​. The small business sector in Washington is a significant employer, with 1.4 million workers making up 49% of the state's total workforce, underscoring the impactful role of LLCs in the state's economy, as stated in the U.S. Small Business Administration [2].
3. No State Income Tax: Washington does not levy a state income tax, which can be financially beneficial for business owners. The pass-through taxation feature of LLCs further adds to this tax advantage​​.
4. Favorable Legal Environment: The state has well-established laws and a streamlined registration process for LLCs, making it easier for businesses to comply with legal requirements​​.
5. Strong Business Community: Washington hosts a diverse and thriving business community, providing a supportive environment for new and established businesses​. Furthermore, as noted in the 2023 American Community Survey data, racial minorities constitute 24.1% of the workforce and own 16.1 percent of businesses, highlighting the state's inclusive approach to business and the significant role these communities play in the economic landscape [3].

Drawbacks:

1. Higher Administrative Costs: Forming and maintaining an LLC in Washington may involve higher administrative costs, including filing fees for articles of organization, annual reports, and annual fees​​.
2. Limited Growth Potential: LLCs might not be suitable for companies planning significant expansion or public offerings, as LLC ownership is restricted to a specific group of people, which can limit outside investment opportunities​​.
3. Fundraising Limitations: Unlike corporations, LLCs cannot issue stocks or shares, which may limit their fundraising options compared to other business structures​​.
4. Complexity in Conversion for Expansion: If an LLC in Washington wants to go public or raise capital through an IPO, it would likely need to convert to a corporation, which can be a complex and costly process​​.

DIY vs. Professional LLC Formation

DIY LLC Formation

Pros:

1. Cost-Effective: DIY formation is generally less expensive since it avoids professional fees.
2. Control and Learning: Handling the process personally offers a deeper understanding of your business's legal framework.

Cons:

1. Time-Consuming: DIY requires a significant time investment, especially for those unfamiliar with legal processes.
2. Risk of Errors: Without legal expertise, there's a higher risk of making mistakes in documentation or missing critical compliance details.
3. Limited Customization: DIY options may not offer the same level of customization for specific business needs compared to professional services.

Professional LLC Formation Services

Pros:

1. Expertise and Accuracy: Professionals are knowledgeable about legal requirements, reducing the risk of errors.
2. Time-Saving: Delegating the formation process saves time, allowing you to focus on other aspects of your business.
3. Compliance and Customization: Professionals can offer tailored advice and ensure ongoing compliance with state regulations.
4. Peace of Mind: Knowing that experts are handling the formation can be reassuring.

Cons:

1. Higher Costs: Professional services come with fees, making this option more expensive than DIY.
2. Less Personal Involvement: You may have less hands-on involvement in the process, which could impact your understanding of your business's legal structure.

Choosing between DIY and professional LLC formation in Washington depends on individual needs and circumstances.

If cost-saving is crucial and you have the time and confidence to navigate legal processes, DIY might be suitable.

However, if you value time efficiency, require specific customization, or lack legal expertise, professional services could be more beneficial, despite the higher cost.

FAQs

References:

1. https://app.leg.wa.gov/RCW/default.aspx?cite=23.95.305
2. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-WA.pdf
3. https://www.census.gov/programs-surveys/acs