Setting up an LLC – aka a Limited Liability Company, is often one of the essential steps in establishing a successful business.
A Limited Liability Company refers to a type of legal business entity that has been designed to protect and shield company owners’ from personal losses incurred by the operation of a business. Among the various business entity structures from which to choose, a Limited Liability Company is considered more complicated than that of a sole proprietor but not as complex as the requirements of a corporate entity.
A Limited Liability Company can be set up to manage most business types and can include multiple owners.
Why is it Important to Form an LLC?
An LLC in Washington offers a business essential liability protections and other perks. The benefits afforded those who choose to operate as a Limited Liability Company include the following –
- Personal Asset Protection With Regard to the LLC Business’s Liabilities and Debts – An LLC separates the business (and its creditors) from each owner’s personal assets. This asset protection provided by an LLC is among the most important benefits provided.
- Tax Liability Benefits – A Limited Liability Company business’s profits go directly to each owner – without first being subject to federal taxation, which would be the case if the business operated as a corporation. The owner then pays taxes on the profit at their specific individual income tax level.
- The Simplicity of Operations – when compared to corporate entities, Limited Liability Corporations have less paperwork and organizational requirements. For instance, a corporate entity is required to elect corporate officers, determine classes of stock/shares, and create a Board of Directors that meet regularly to talk about business strategy and company objectives. These corporation mandates are not required for Limited Liability Companies.
Steps in Creating an LLC
Select Your Business Name
When deciding on a business name, which is sometimes known as a trade name, it is important to consider the marketing and branding angle of the chosen name. However, it is equally essential to make sure the name of the business complies with Washington state legal requirements. For example –
- The business name for this type of entity in Washington must conclude with one of the following –
- Limited Liability Co.
- Limited Liability Company
- LLC, or
In addition, the name of the business cannot be misleading by implying an erroneous association with a state or federal government agency. Examples of the words to avoid in the name include commission, state department, treasury, agency or municipal, etc.
The name of an LLC in Washington cannot be similar to an already existing Limited Liability Company, one that has been filed with the Secretary of State of Washington. Although, on a rare and expensive occasion, if you can get consent from the company already using that name, a similar name may be deemed acceptable.
The reality is that choosing to use a unique name is the perfect way to help customers avoid potential confusion with your competition. A unique name will also help prevent possible claims of infringement on trademarks. In the modern business world, it may also be wise to determine if a relevant domain name is available to match the business name you have chosen.
You can make sure your selected business name is not rejected after filing with the state if you take the time to check and see if the name you want for the business is available – before filing the business’s articles.
In fact, when using the Washington Secretary of State’s online business search database, determining if the name is unique is simple and fast. But note that this search of Washington records will only reveal if the name you have chosen is already registered as a Limited Liability Company in Washington – but not any other state.
If the names of businesses in other states are an important issue to your business, you can check other states for corporate and trade names with these free options –
- Thomas Register of Products and Services
Optional – Reserve a Name
If you brainstormed and have come up with a clever name (and know it is not being used) but are not ready to file, the state government in Washington has a Name Reservation system. Simply mail or hand-deliver the correct form to the Washington Secretary of State’s office. While there is a nominal fee, this will hold the name for up to 180 days – disallowing anyone else from filing organization articles under that name.
Designate a Registered Agent
Every state sets forth laws that require a Limited Liability Company to select and disclose its registered agent. A Registered Agent (RA) is an individual who is tasked with the responsibility of receiving official paperwork and legal documents on behalf of the Limited Liability Company.
Once received, a Registered Agent is responsible for forwarding these documents to the individual who manages the Limited Liability Company. The requirement to become a Registered Agent is that the RA be at least 18 years old. An owner or an employee of the business can be the Registered Agent, but the individual must be at the address disclosed (within Washington State) during regular business hours. Note that the RA can be a professional company that provides these types of services for a fee.
Obtain Washington State’s LLC Article of Organization Form
The first step to establishing a Limited Liability Corporation as a legal entity in Washington is to file the required documentation with the Washington Secretary of State – the agency responsible for administering and handling the state’s business filings.
In Washington, you can file online (with a $200 fee) or complete a paper form (with a $180 fee). There is also an available expedited service for an extra cost for those in a hurry.
Create an Operating Agreement for the Business
An operating agreement is a business document that is used to delineate the legal, managerial, and financial rights of each member of the Limited Liability Company. The operating agreement is not a required document when filing with the state, but that should not dissuade Limited Liability Company members or partners from creating an operating agreement that dictates –
- The ownership interests and financial contributions.
- The voting rights of the members.
- The allocation of profits and losses.
- The way meetings are held.
- How the business will be managed.
- The rights of members upon death or leaving the business.
- The LLC’s duration or status as an ongoing entity.
- The business’s purpose and managerial expectations.
- The disclosed registered agent for the LLC.
- The way the Limited Liability Company will be dissolved.
In other words, the operating agreement should include the most pertinent and relevant information about how the LLC will operate as a business entity.
Creating an operating agreement for an LLC with one member may be possible to do alone, although LLCs with multiple members should consult with a knowledgeable lawyer to ensure the document expresses the agreed-upon wishes of each member.
As noted above, the operating agreement isn’t typically a part of the state filing and is not required in Washington state. However, the creation of an operating agreement is an essential step for a company’s owners as it allows them to set forth their responsibilities and rights in writing, to minimize future conflict among members.
File the Certificate of Formation With Washington’s Secretary of State
A business’s Certificate of Formation (aka Articles Of Organization) is a legally binding document created and agreed upon by the Limited Liability Company’s members. It is a written blueprint (or, more accurately, a described business structure) that establishes the powers, rights, duties, obligations, and liabilities of the members of the Limited Liability Company.
The final step to establishing an LLC is to file your Certificate of Formation with the Washington Secretary of State. An LLC filing in Washington must include this information –
- The Limited Liability Company’s UBI – Unique Business Identifier, if applicable.
- The entity name and principal office address. This must be a physical address where the LLC keeps its records. Note that the physical address does not need to be in Washington State.
- The LLC’s period of duration or if it is an ongoing entity.
- The effective date, which can be a future date or the date of filing.
- The name, address, and contact information of the Registered Agent.
- Return address related to the Limited Liability Company filing if it is different from the information provided for the LLC’s Registered Agent.
The Certificate of Formation is typically required to be signed by the person forming the Limited Liability Company, known as the executor. If there happens to be more than one executor of the LLC, each must sign and provide contact information.
Obtain a Certificate from the State
When the submitted paperwork is approved, the state will issue a certificate that demonstrates that the Limited Liability Company has been formally registered and is a known entity. This certificate can be used for a number of business and professional matters that include obtaining an EIN tax ID number, a business credit card, and a business license, as well as setting up a business bank account for the Limited Liability Company.
LLC Yearly Requirements in Washington
Washington state law requires each Limited Liability Company to file a report annually. This report must be filed with the Office of the Secretary of State but can be done by mail or online.