Form a Washington LLC

INTRODUCTION

A Washington state LLC is a legal entity that protects your personal assets from business assets. Many business owners choose to form an LLC to protect themselves from personal liability in the event of a business lawsuit. An LLC can also help ensure that individual owners or members are not personally responsible for business debt. You can start an LLC in Washington state in order a run a business or to buy and hold assets under a business name.

Washington State LLC Benefits

There are distinct benefits to forming an LLC in Washington state. In comparison to other types of entities, an LLC is straightforward to set up. It is also more flexible for owners to operate and has easier reporting requirements.

Key Washington LLC Benefits

  • Limiting personal liability for business debts – When you protect your business with an LLC, a business creditor or lawsuit can only cite the assets of the LLC. This prevents creditors from staking a claim on personal assets (including homes and property) for use in judgments to satisfy business debts.
  • Raising capital from investors – If you eventually plan to raise capital from investors, you will need to demonstrate a properly organized business. An approved Washington LLC will have Certificate of Formation and other ways to document business records from the state. The LLC also allows you to bring in additional members to contribute funds or services to the business.
  • Tax Advantages – An LLC often works as a “pass-through” tax entity. Pass-through entities allow owners or members report profits and losses on individual Form 1040 tax returns (thereby avoiding a “double-tax” that you may encounter with other types of business entities).

A look at the following guide to setting up an LLC in Washington state can provide a detailed overview for your business. You can also use our references for professional assistance in properly creating your LLC.

1. Washington LLC NAME

Prior to filing an LLC with the Washington Office of the Secretary of State, you must check the availability of your potential business name within the state database. The easier way to check this is to perform a Washington State LLC search on the official website. For more information check out our main resource page.

Business Entity Name Advanced Search - Washington Secretary of State LLC Official Website:

https://ccfs.sos.wa.gov/#/AdvancedSearch

The purpose of this advanced search is to ensure that your business name is distinguishable from other entities that operate within the state. Washington is one of the strictest states in terms of this distinct business name requirement. Attempts to file LLCs without distinguishable and unique LLC names warrant an automatic rejection from the state. This rejection also means losing all non-refundable filing fees.

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LLC Designator Rule for Washington State LLCs

Washington state law (known as Title 23 of the Business Corporation Act – see Section 23.95.300 and Section 23.95.305) requires that all LLCs must end with an appropriate designator. The purpose of this is to distinguish an LLC from other types business or legal entities.
Washington state permits your LLC name to end with one of the following designators:

1.  LLC (by far the most common designator)
2. L.L.C.
3. Limited Liability Company
4. Limited Liability Co.

Prohibited Designators for Washington State LLCs

In the state of Washington, your LLC cannotuse a designator from a different type of organizational entity. For example, your LLC name should notend with any of the following designators:

  • -Corporation
  • -Corp.
  • -Inc.
  • -Incorporated
  • -Partnership
  • -Cooperative
  • -LP or L.P.
  • -Ltd.
  • -LLP or L.L.P.
  • -LLLP or L.L.L.P

2. Washington LLC REGISTERED AGENT

In the state of Washington, each LLC must list a registered agent for the business. A registered agent is a person or representative who receives legal documents (known as “Service of Process”) for the LLC. Because such documents are usually certified, a registered agent must have a physical street address in the state. The state of Washington does not permit registered agents to use P.O. boxes. A registered agent must also be available to receive documents during standard business-day hours (Monday-Friday, 9am-5pm). The individual starting an LLC must list proof of a registered agent in the Certificate of Formation.

Washington state allows three ways in which you can fulfill the registered agent requirement:

1. Self. You can serve as your own registered agent. To do so, you must be a legal resident of Washington and at least 18 years old, maintain a street address in the state, and be available during standard business hours.

2. Friend or family member. This person must consent to serving as your registered agent and be available to receive service of process during standard business hours. They must be at least 18 years old, live as a resident of Washington, and have a street address in the state (no P.O. boxes).

3. Commercial registered agent. You can hire a company to serve as your registered agent. Many business owners enlist the help of a registered-agent service for privacy purposes or if they do not have a street address in the state. A commercial registered agent can serve as your official representative to receive all legal documents related to your business. This service then scans and forwards these documents directly to you. A reliable commercial agent can save time and help keep your business logistics organized and stress-free.

3. WASHINGTON LLC CERTIFICATE OF FORMATION & INITIAL REPORT

The next step in starting an LLC in Washington state is to file a Certificate of Formation and Initial Report. You will also need to pay the one-time filing fee of $200 for the state to process your Certificate of Formation.

Filing Online vs. Filing by Mail

Filing online is the preferred method for obtaining a Certificate of Formation from the state of Washington. When you file online, the state begins processing your application right away and includes the Initial Report at no extra cost. This means that your one-time fee will cover both the Certificate of Formation and the Initial Report when you file online. If you file by mail, however, you must to submit a separate application for the Certificate of Formation and the Initial Report. You also have to pay a separate fee for each document. For this reason, the state highly recommends completing the formation step online.

How to File the Certificate of Formation & Initial Report Online:

  • Create a user account with the Corporations & Charities Filing System (CCFS). All first-time users must create a new account. (Once you have an LLC in place, however, there are express options for downloading and filing forms in the future.)
  • Fill out business name, applicable owner information, and registered agent information.
  • Pay the one-time $200 fee and file.
  • The Washington State Office of the Secretary of State will begin processing your application immediately. Approval takes approximately 2-3 business days.

Washington LLC Approval Documents

Once the state approves your filing, you should receive three documents for confirmation. The Office of the Secretary of State emails the documents directly and mails a print copy to your listed registered agent.

The approval documents include the following:

1. Letter of Congratulations from the Office of the Secretary of State
2. Certificate of Formation
3. Copy of Stamped “Certificate of Formation and Initial Report – Fulfilled”

4. WASHINGTON LLC OPERATING AGREEMENT

The LLC Operating Agreement is a document that details the owners (a.k.a. “members”) of the LLC as well as each member’s percentage of ownership. For example, an LLC can consist of one member who has 100 percent ownership of the company. An LLC can also have more than one member with ownership percentages divided into any number of ways.

  • Single-Member LLC – An LLC with only one owner or member should still keep an LLC operating agreement Washington state on file. This helps keep a clear line between business assets and personal assets in the event of a lawsuit. It also demonstrates professionalism and shows that you are operating the business properly in the event of an audit or proposed sale of your business.
  • Multi-Member LLC – It is up to the members to decide how to divide the ownership percentages. (For example, you can split the ownership in equal percentages or have a majority owner.) Upon deciding, each member should sign the agreement and keep it on file.

The Operating Agreement also outlines the LLC’s tax policies, business management policies, and division of profits. Since the state considers the agreement to be an “internal document,” you do not have to mail it to the IRS or to the secretary of state. You should simply keep it on file for your official business records.

5. FEDERAL TAX ID NUMBER (EIN)

After creating an LLC in Washington state, you must obtain a Federal Tax ID Number (EIN) from the Internal Revenue Service. This EIN number is a unique identifier (similar to a social security number) used primarily for federal tax purposes. Although EIN is the most common name of this identifier, you may also see the number described in the following ways:

-Employer Identification Number
-Federal Tax Number
-Federal Employer ID Number
-FEIN
Internal Revenue Service Tax ID

Importance of State Approval

In the state of Washington, it is important to receive the state’s approval of your LLC BEFORE obtaining an EIN. Since this differs from a number of other states, some individuals make the mistake of getting an EIN before receiving LLC Washington state approval. Once you receive approval documents, you can proceed to obtain your EIN. You can then use this EIN to open a business bank account, apply for state licenses and permits (if applicable), and process employee payroll taxes.

How to Apply for an EIN

It is free to obtain a Federal Tax ID Number (EIN). Beware of scams that claim you have to pay a fee to apply for a business EIN from the IRS. You can apply for an EIN in one of three ways:

  • Apply Online – This is the recommended method for immediate approval.
  • Apply by Fax – You can fax Form SS-4 to receive approval in around four business days.
  • Apply by Mail – You can mail in Form SS-4 to receive approval in approximately four weeks.

If you are applying for an EIN online, you will need to submit the application in one session at irs.gov. When applying online, you must also indicate the EIN Responsible Party that serves as the contact person for any applicable IRS documents. If obtaining an EIN for a single-member LLC, the sole owner is the responsible party. An LLC with more than one member can select any partner as the “responsible party.” Once you enter all of the business and contact information correctly, the IRS generally approves these applications immediately.

Those applying by mail or fax must download and complete IRS Form SS-4. Either fax the completed form to (855) 641-6935 or mail to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, Ohio 45999

Individuals Without Social Security Numbers

Anyone attempting to apply for an EIN online must have a valid U.S. social security number (SSN) or taxpayer ID number. Foreigners without U.S. social security numbers cannot use the online system to obtain an EIN. These individuals need to fill out Form SS-4 and file by fax or mail. While filling out Form SS-4, be sure to enter the word “foreign” on Line 7b so that the processor understands that you do not have a SSN.

LLC With Existing Company Ownership

An LLC that is already under the ownership of an existing company cannot apply for an EIN online. Since the parent company already has an EIN in the database, the online system will return an error and your application will not be approved. Individuals with LLCs under the ownership of existing companies should submit an application via fax or mail instead.

How the IRS Taxes Washington LLCs

Since the IRS does not have a specific tax classification for the LLC, the type of taxation depends on the number of members in the LLC and whether the members have chosen the default or special election route.

Default Pass-Through Taxation

  • Single-Member LLC – The LLC consists of one owner/member, and the IRS taxes the LLC similarly to a sole proprietorship. This means that the owner reports any profits or losses (and especially any deductions or credits) on a personal income tax return.
  • Multiple-Member LLC – The LLC consists of two or more owners/members, and the IRS taxes the LLC similarly to a partnership. For tax purposes, the LLC in this case works as a “pass through entity.” This means that any profit or loss from the business “pass along” and are simply reflected on personal income tax returns. For example, members of the LLC may receive each receive a Schedule K-1. Profits, losses, or credits from the LLC go onto a Schedule C form. This form becomes part of an overall personal Form 1040 for federal income taxes. The LLC submits a separate Form 1065 to show that all profits and losses have already been accounted for and to eliminate the need for double-taxation.

Special-Election Taxation

  • An LLC can also elect to taxed similarly to an S-Corp or C-Corp. It is best to consult with a tax professional to discuss filing the paperwork if you elect to go this route.

Husband and Wife LLC

A married couple in Washington state can elect a unique type of taxation called a Qualified Joint Venture. This means that the married couple can start a two-person LLC that the IRS will tax like a single-unit sole proprietorship (instead of a partnership).

To better illustrate the point, some states refer to a Qualified Joint Venture as a “Married Couple Single-Member LLC.” With this type of taxation, the spouses only need to file one return. This method can reduce accounting fees and paperwork while increasing savings. In addition, the couple can earn extra credit for social security and Medicare without the additional fees.

It is important to understand that only community property states allow this type of Husband and Wife LLC. This means that you must form the Husband and Wife LLC in a community-property state (such as Washington, Texas, or Nevada) to be eligible for Qualified Joint Venture taxation and benefits.

6. WASHINGTON LLC ANNUAL REPORT

The state of Washington requires each LLC to file an annual report. This is a yearly requirement as long as your LLC is a registered entity with the state. Washington requires you to submit this report on time regardless of whether or not you have business activity, revenue, or profits for the year.

In the past, the state required LLCs to submit the annual report to its Business Licensing Service. Starting in 2018, however, all LLCs must file the annual report with the Office of the Secretary of State.

Annual Report Fees and Due Dates

The Washington annual fee is $60. Most businesses must submit this fee along with the annual report. In Washington state, the report is due on the last day of your LLC formation month. (A “formation month” simply means the month that the secretary of state first approved your LLC application.) If it helps, you can also think of the formation month as your LLC’s “anniversary month.”

While the annual report is not required during the first year you form LLC in Washington, the state requires that you file an annual report on your LLC anniversary for every year thereafter (due on the last day of the formation month). For example, a Washington state LLC approved on January 10, 2018 must submit an annual report before January 31, 2019. January is the formation month for this business. Although the business did not have to file a report during the founding year, the business must file an annual report by the first day of the formation month for every year thereafter.

How to File a Washington State Annual Report

To file a Washington state annual report, you must visit the same website used to file the Certificate of Formation and Initial Report (Corporations & Charities Filing System (CCFS)). From here, log in with your user account information and select “Business Maintenance Filings” (on the left of the page). Click “Annual Report” to complete the process and pay the annual fee. After completing the process, the annual report should be approved immediately and visible in your CCFS user dashboard. Download and print the report for your business records.

Failure to File Annual Report

It is important to file your annual report in a timely manner. If you fail to file by the due date, the secretary of state reserves the right to dissolve your LLC without notice.

7. WASHINGTON STATE BUSINESS LICENSE AND/OR BUSINESS PERMIT

Any LLC in Washington state must obtain a business license by completing a business license application with the state’s Business Licensing Service. Although called a “business license,” it is best to think of this process as a registration. It is a required way to register your business with the following state entities:
-Department of Revenue
-Department of Labor and Industries
-Employment Security Department

How to Apply for a Washington Business License

Although you can apply by mail, the state highly recommends completing the process entirely online for much faster processing. If you chose to file by mail, you should know that it takes a minimum six weeks to obtain your business license. You can file by mail by visiting https://bls.dor.wa.gov/file.aspx. Scroll to the bottom to print and complete the application. Enclose a payment and submit it to the mailing address on the form.

Apply for Business License Online (Preferred Method)

1. Create a Secure Access Washington (SAW) account. This will allow you to log in to MyDOR (“My Department of Revenue”)

2. Using the activation code from your SAW welcome email, log into MyDOR Services Page.

3. Under the MyDOR Account Dashboard, select “File New Business Application.”

4. Complete ownership information for your LLC. You will need names and dates of birth for each member, the LLC UBI Number (located on the Certificate of Formation) and the Federal EIN Number.

5. After entering ownership information, complete the extensive questionnaire. This allows the state to automatically register your LLC with the applicable departments for your business.

6. Pay the one-time $19 fee and file.

In around 2-3 weeks after completing your business application, you can expect each applicable department (e.g. Department of Revenue, Department of Labor and Industries, Employment Security Department, etc.) to mail your LLC a welcome packet along with any additional requirements.

Endorsements and Permits

Some industries and cities within Washington state require permits or endorsements. For example, businesses ranging from cigarette retailers to collections agencies require a specialty endorsement (with applicable fees). There is also a list of cities and counties that require a city license endorsement or addendum. In addition, some cities and counties require a reseller permit and/or a city permit. For information about the process, contact or call the Business Licensing Service at 360-705-6741. Individuals with specific questions about reseller permits or taxes should contact the Department of Revenue at 360-705-6705. You may also wish to enlist professional help from a state accountant or business license researcher.

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8. WASHINGTON STATE TAXES

State Taxes

Unlike many states, Washington does not impose a personal state income tax. Depending on your industry, however, you may be liable for the following business state taxes:

Federal Taxes

By default, Washington LLCs are “pass through” tax entities. Any profits, losses, deductions, or credits pass through the LLC, and the member(s) report this information on personal federal income tax returns instead.

  • Single-Member LLC – The sole owner lists business income on the Schedule C section of a personal Form 1040. The IRS taxes the business like a sole proprietorship.
  • Multiple-Member LLC – After filling out a Form 1065 for the LLC, each member/owner receives a schedule K-1 and reports this information on their personal Form 1040s. The IRS taxes the members similarly to a partnership.
  • Special Election – Some multi-member LLCs elect to be taxed as an S-Corp by completing Form 2553. For some businesses, this may help members lower self-employment tax rates.

Sales Taxes

Washington state requires businesses that sell retail goods or perform specific services to collect and remit sales tax back to the state. For more detailed information, you can find full sales tax information at the Washington State Department of Revenue.

Professional Guidance

It is a very important to consult with an accounting professional to verify all federal, state, local, and sales tax requirements for your industry. Failure to file or errors in filing can lead to losses, penalties, and interest that reflect poorly on your tax record.

9. WASHINGTON BUSINESS BANK ACCOUNT

Once you receive approval from the state and obtain an EIN number from the IRS, you should open a separate business bank account for your LLC.

Benefits of Opening a Separate Business Bank Account for Your LLC:

  • Simplifies accounting and bookkeeping for tax purposes, deductions, and in the event of an audit
  • Draws a clear line between personal and business assets (thereby protecting personal liability in the event of a lawsuit)
  • Many banks offer benefits and rewards exclusively for businesses

Documents Needed to Open a Business Bank Account for Your LLC:

Required:

  • Copy of Certificate of Formation
  • Federal Tax ID Number (EIN)
  • Two forms of ID

Varies by Bank:

  • Minimum Opening Deposit (call ahead to verify this amount for your chosen bank)
  • LLC Operating Agreement

Other Important Information

  • It is important to know that LLC members who wish to be signers on the bank account need to be physically present during the account opening (and submit all required forms of identification).
  • Many banks charge maintenance fees by default, but shopping around may help you identify special offers or free checking accounts. You should also
  • If you have a trade name or DBA (“doing business as” name), you will need to bring your Registration of Trade Name document from the state. In general, however, most Washington state businesses use their primary LLC name on business bank accounts.
  • Most business checking accounts automatically come with a business debit card.
  • Obtaining a business credit card (and using it responsibly) may help you build credit and earn cashback rewards for your LLC.

10. WASHINGTON BUSINESS PHONE NUMBER

Rather than using a personal phone number, general recommendation is that you obtain a virtual business phone number for your LLC. This allows you to maintain a degree of professionalism and protect your personal phone number from public records. With modern technology, you can use virtual business phone number to enable phone prompts and connect to your smartphone via mobile apps. You can also get phone records or voicemails forwarded directly to your business email. Check out the next guide on West Virginia LLCs.