What is an L.L.C.?
A limited liability company (L.L.C.) is a business structure in the United States that protects its owners from being personally liable for the company's debts or obligations. If you own a business and several assets, you may want to consider forming an L.L.C. Each state has different laws on creating an L.L.C. The following will describe the steps necessary to establish an L.L.C. in Washington.
What are some benefits of an L.L.C.?
If you open up a business without filing for an L.L.C., you can personally be liable for any business costs. Applying for an L.L.C. can protect you if someone were to sue your business. It recognizes the business as a separate entity from you in the state. There are other benefits as well, shown below.
Is an L.L.C. business structure right for me?
This is an excellent option for anyone with a growing business who wants to separate their personal assets from their company. L.L.C.s can be used to run and own almost any type of business.
Certain businesses in specific industries are restricted from operating as L.L.C.s, including insurance agencies, financial trust companies, and banks. Washington statutes restrict licensed health care providers, architects, and accountants from forming L.L.C.s. If your business lies under any of these categories, you will have to find an alternative structure to operate your business under. If you would like further information on whether an L.L.C. is right for you, you should contact a business lawyer to determine the best business structure for your company.
Who is an L.L.C. best for?
An L.L.C. is best for those who desire the following asset protection, don't need to raise capital for business, and desire flexibility for taxes and business management.
As mentioned above, an L.L.C. limits your liability as a business owner. If, for instance, the L.L.C. business were to become bankrupt, only the assets belonging to that L.L.C. can be taken. Your personal assets are not at risk.
Flexible Tax Management
L.L.C.s have several options for filing for taxes. L.L.C.s, by default, go through pass-through taxation. This is similar to sole proprietorships, where the business's net income passes through individual owners' tax returns. However, if the business grows to above $10,000 in distributions each year, other options open up for tax filing, including obtaining S corporation tax status. This can reduce the overall tax burden under the right circumstances. We recommend using an accounting service to determine the best fit for your business for questions about tax solutions.
It is relatively easy to file for an L.L.C. in Washington. There is little paperwork and expense associated with maintenance as well.
Forming a Washington business as an L.L.C. brings credibility. L.L.C.s are generally seen as more formal business structures than sole proprietorships or partnerships.
There are limited restrictions on how to structure the ownership and management of a Washington L.L.C. You can have a single or multi-member L.L.C. It can be managed either by its members or by an appointed manager.
Unique name registration
When you register for an L.L.C. in Washington, you reserve the name, and no other business can take it for their use. This offers more flexibility with naming and is in contrast to sole proprietorships where they must use the owners' names or file for doing business as (D.B.A.) if they would like to operate under something besides their name.
What are some of the disadvantages of forming an L.L.C. in Washington?
In Washington, you are not required to list LLC members when you file the certificate of formation, an important document used in establishing your LLC. However, you will need to designate a registered agent. If you intend to be your registered agent, you will have to list your name and address. You also need to provide information about your executor, who prepares and submits your LLC paperwork. If it is yourself, your name will be publicly available on the Office of the Secretary site. Initial reports and annual renewals also need you to list at least one LLC member’s name and address. So a traditional LLC is not private in Washington. To ensure privacy, you must form two LLCs that act as each other’s owners. Speak to an anonymous LLC business attorney to understand more.
How to form an L.L.C. in Washington?
Step 1: Choose your business name
Requirements for your L.L.C. name vary from state to state. In Washington, some guidelines for naming your LLC include the following:
- Include “limited liability company” in your name or any of its abbreviations such as LLC or L.L.C.
- You cannot include certain words in your name that may confuse your LLC with a government agency such as the FBI, state department, or treasury.
- Other restricted words may need further paperwork and a licensed individual, such as a lawyer or doctor, to be a part of your LLC.
You can check whether your desired business name is still available before you submit your articles of organization with the state. Click here to search the Corporations and Charities Division to check if your proposed business name is in use. You can also file an Application for Reservation of Name with the Office of the Secretary of State to ensure no one takes it during the review process for articles of organization. You can access the Application of Reservation of Name form here.
Step 2: Choose a registered agent
Washington requires you to choose a registered agent for your LLC. Registered agents have several duties that include maintaining your street address in Washington, receiving service of process for the business, receiving other official paperwork on behalf of the business, and forwarding legal papers promptly to the owners.
Your registered agent must be a resident of Washington or a corporation, such as a registered agent service allowed to conduct business in Washington. You can select an individual within the company, including yourself.
Registered agents are an affordable way to help manage your filings for your LLC. Utilizing a professional registered agent service can outweigh the annual costs.
Step 3: Operating Agreement
You are NOT required to create an operating agreement to form an LLC in Washington, but having one is still a good idea. This legal document outlines the ownership and operating procedures for your company and can help ensure that members and owners are on the same page before forming your LLC. This can prevent conflict later on. The following are some things that you may want to consider including in your operating agreement:
- Percent of member interests in the L.L.C.
- Responsibilities and rights of all owners/ members
- Voting powers of all members
- Profit and loss share
- Meeting rules
- Next steps if a member wants to sell his/ her interest, dies, or becomes unable to continue their participation in the L.L.C.
Step 4: File LLC Certificate of Formation
When you file your LLC in Washington, you must complete the Certificate of Formation with the Secretary of State. You can apply via mail or online. To file online, click here to access the link. To file your LLC by mail, you can download the form here. The filing fee for submitting the Certificate of Formation of an LLC is $180 by mail and $200 online. Make your checks or money orders payable to the Secretary of State. This filing fee is nonrefundable, so it is important to ensure your paperwork is correctly filled out and legible if you are filing by mail. An initial report is due within 120 days of the effective date of formation. If the report is not included with the certificate of formation, you will need to also include an extra $10 fee.
- Entity Name
- L.L.C. address
- Service of Process Address
- Registered Agent
- Management Design
- Effective and Dissolution Dates
If you have any questions about the form, you may contact the secretary of state at 360-725-0377.
Submit the filing fee and all documents of the certificate of formation to this address:
P.O. Box 40234
You may also submit the form in person to the following address:
801 Capitol Way S
Olympia, WA 98501
Once the form is submitted online, the processing time is around 5 to 7 days. It may take longer with in-person or by-mail filings.
Step 6: Request a Washington LLC E.I.N
An E.I.N is an Employer Identification Number assigned by the IRS. This helps identify your business for tax purposes and is like a social security number for your newly minted L.L.C. An E.I.N. must open a business bank account, file and manage federal and state taxes, and hire employees. If you previously operated under a sole proprietorship and already have an E.I.N., you will need to reapply for a new one. The IRS requires you to file for a new E.I.N. when converting to an L.L.C.
You can get an E.I.N. for free from the IRS. Click here for additional information. You can apply either online or through the mail.
Is an L.L.C. necessary?
You don't need an L.L.C. to start a business. However, for many businesses, the L.L.C. benefits may outweigh the costs and hassle of filing for one. To determine whether you may benefit from one, consult your C.P.A., an L.L.C. filing agency, or your business attorney.
What is the purpose of forming an L.L.C.?
Establishing an L.L.C. shields business owners from being personally liable for business debts and expenses. This doesn't provide absolute protection as if an owner commits fraud, they will still be held accountable. However, it protects members' personal assets if the business were to be sued or undergo bankruptcy.
Do I need a lawyer?
No, you do not require a lawyer when forming your L.L.C. However, anyone forming an L.L.C. should consider contacting a business lawyer to help navigate the process.
If you have additional questions, contact your business attorney for assistance.