How to Form a LLC in Washington

A Limited Liability Company, or LLC, is a corporate structure that, like a corporation, gives limited liability to its members (owners) and the structural and tax flexibility of a partnership.

The limited liability element of the LLC protects its members’ personal assets from creditors and litigation that may arise from the firm. In addition, the incorporators can choose whether the business will be taxed as a corporation or a pass-through organization, such as a partnership.

This means that the corporation’s owners are not personally liable for the corporation’s obligations or damages awarded in a lawsuit.

One disadvantage of forming a corporation is what is known as “double taxes,” meaning that corporate profits are taxed as soon as they are earned. When shareholders get dividends, these profits are taxed as capital gains income.

A limited liability company, like a corporation, protects the owners’ personal assets from creditors and legal claims brought against the LLC.

Partnerships and LLCs are not taxed at the “entity level.” Unlike corporations, an LLC does not pay taxes. Individual members who have achieved a profit are the only ones who pay taxes.

There are some disadvantages to forming an LLC. Such arrangements are liable in a way that owners might be sued for their negligence.

What Distinguishes a Limited Liability Company From Other Business Structures?

LLCs are distinct from other types of company entities. Unlike corporate revenue, LLC income is taxed just once. In other words, the revenue “passes through” the LLC and is taxed only at the member level.

This tax structure also applies to partnerships, sole proprietorships, and limited partnerships. In terms of ownership structure, limited liability businesses differ from corporations.

Individuals own LLCs, whereas shareholders own corporations.

In terms of liability, these differ from both partnerships and sole proprietorships. Partners are personally accountable for the entire debt incurred by another partner.

This means that if a partnership owes money to a creditor, the creditor has the right to “come after” the members’ individual real and personal property to satisfy the debt. LLC owners are generally not individually accountable for the LLC’s liabilities or debts. This enables LLC owners to manage the firm without fear of losing their personal assets.

What Types of People Should Form a Limited Liability Company?

Individuals wanting to start a small business should think about organizing an LLC.

Forming a limited liability company (LLC) protects individual assets by confining liability to the LLC’s resources.

If a small business owner forms an LLC, they will not have to pay out of personal assets if sued. Individuals who want to start a business with minimal paperwork and fees might consider incorporating an LLC.

The state requires the submission of “articles of organization” and an establishment fee. This charge is often less than that necessary to incorporate a corporation.

In most cases, LLC formation requires less documentation to be filed with the state than corporation formation.

Keeping track of income and expenses is simple. Separate tax returns are not required for an LLC. Members and management instead file individual tax returns to reflect their income and expenses.

LLC management can also be pretty straightforward. An LLC can create an operating agreement with two or more members. The members specify how the LLC is governed in this agreement, such as how earnings will be divided and what members’ votes are required for specific acts.

The operating agreement might also specify how the company will be dissolved or closed down. The operating agreement may also include guidelines for resolving disputes among partnership members. If an LLC member dies or becomes incapacitated, the operating agreement may address what happens next.

What Are The Requirements for a Limited Liability Company?

A limited liability company can only be founded under state law. As a result, the regulations and safeguards for LLCs might differ greatly amongst states. While there is much leeway in founding and constructing LLCs in Washington, there are a few conditions that must be met:

• Select a name for the LLC: This name must be distinct from all existing business names on file with the Washington Secretary of State and include the phrase “limited liability corporation,” “Limited Liability Company,” “LLC,” or “LLC”;
• Find a registered agent: Every business entity in Washington must have a registered agent to ensure that any critical information or legal issues reach the LLC. Any individual or business with a physical address in Washington may serve as the registered agent;
• Formation Certificate: For all business enterprises, the Secretary of State provides PDF fillable Certificates of Formation. This document requires the name of the LLC, its principal address (where business records are stored), a start date for the LLC, the registered agent’s identity, and whether the LLC will be governed by members (owners) or hired management; and
• Report on the Year: All Washington LLCs must file an annual report. The first annual report is required 120 days after being formed and can be filed online. The registered agent shall be notified 45 days before any future annual reports are due by the Secretary of State.

What Documents Do I Need to Form an LLC?

The forms needed to establish your company as an LLC can be found on the Secretary of State’s website. The Certificate of Formation can be filed online or sent to the Secretary of State, along with a processing fee.

What Advantages Does Washington Offer to LLCs?

There are various reasons why you would wish to form your company as an LLC:

• Limitation of Liability: LLCs, like corporations, protect their members’ personal assets from the company’s obligations and legal liability;
• Taxation: LLCs have the option of being taxed as a pass-through entity or as a corporation under federal law. Most LLCs elect to be taxed as a pass-through business to avoid double taxation associated with corporations. If the LLC elects to be treated as a pass-through entity, company profits are taxed only when received by the LLC’s members and are taxed in accordance with their personal income bracket;
• Organizational Flexibility: By drafting an Operational Agreement, LLCs can choose whether they will be run by members (owners) or other managers, giving the LLC the freedom to operate as needed; and
• Distribution of Profits: Members of an LLC can distribute profits in whatever way they want and are not restricted by typical partnership arrangements. The only restriction is that it must be part of the Operational Agreement.

What Are the Disadvantages of an LLC in Washington?

While the limited liability and tax flexibility of an LLC can be enticing, there are a few drawbacks to forming your company as an LLC:

• Fees and Filing: Unlike a general partnership or sole proprietorship, LLCs must file formation documents and pay some administrative costs, which can cost up to $200 and may necessitate the services of a lawyer
• Business and Occupation Tax: There is no company or personal income tax in Washington. Instead, it taxes all firms on their gross receipts, regardless of whether they are a corporation, LLC, partnership, or other entity. The type of goods or services provided determines Washington’s business and profession tax rates.

Where Can You Find a Good Lawyer?

Contact a local Washington corporate lawyer now if you are seeking an attorney to assist you with business structuring.