[Video & Enhanced Transcript]:
Today’s topic: How to form an LLC, or limited liability company, in Washington State. This is part of an ongoing series of videos and articles, so if you want more information on related subjects, please go to our website.
Stated more accurately, today’s topic is how to form a limited liability business entity structure, which is just one of the legal steps involved in starting a business. Almost everyone should operate his business through a limited liability entity, whether in Washington or elsewhere. Examples of limited liability business entities include LLCs, corporations (S corporations and C corporations), limited liability partnerships, and limited partnerships. There are many choices available.
Today, we’re not going to discuss which entity type is best. The answer to that question would be complicated and depend on what you want to do with your business. Nor are we going to address the reasons you should form a limited liability business entity. Instead, today I assume you want an LLC—the most popular entity type available—and I take you through the formation process.
Step 1: Name Available?
Let’s look at the 1st step in that process, which would be determination of whether the business name you want is available. You can do a very simple search using engines like Google or Bing to see whether someone’s online presence could be confused with your anticipated business name.
While using your search engine, it’s also a good idea to check whether the web domain you want is available. If, for example, you want to name your business “Genesis Law firm”, you might search for www.genesislawfirm.com. If that website is taken, you might see if a derivative of that web address is available. So perhaps type in “genesis.com” or “genesislaw.com” instead of “genesislawfirm.com”.
After using a generic search engine, I highly recommend looking up your desired business name on the State of Washington’s Department of Licensing website and the Washington Secretary of State’s Corporation Search. This will tell you if any other businesses are operating in Washington under the name you are thinking of, or have reserved the name.
If you are only going to do one of the searches I’ve described above (as is the case for many people), it should be on the Washington Department of Licensing website.
Step 2: Drafting the LLC Agreement
The next step in the process of forming an LLC: drafting an LLC agreement, the operating agreement for the business. It’s akin to a government’s constitution. That is, it relates the entity’s core operating principles, which typically cannot be changed without at least a super-majority vote (a 2/3 majority vote).
An LLC agreement usually contains some of the following core decisions, among others:
- Whether either a manager or the members (owners) of the business make daily decisions. Larger businesses often run more smoothly if a manager can make simple decisions, as it reduces the need for frequent owners’ meetings. By the way, the manager doesn’t need to be an owner.
- What decisions require an ownership (members) vote, and how the voting process will take place.
- Who makes tax decisions.
- How profits and losses are divided among owners.
You don’t need a LLC agreement; it is not a requirement under the law. If you don’t have one, statutes and case law provide the unstated terms of the LLC agreement.
But you will want an LLC agreement if any of the following apply:
- You prefer to determine your own outcomes rather than operating under default rules.
- The business has or might have multiple owners.
- You anticipate buying real estate through the business. Some real estate closing agents want to see an LLC’s operating agreement as part of the closing process.
We have a sample of LLC agreement for you to download and review by clicking here: [LLC Agreement–profits on ownership %, manager managed].
And of course, make sure all the owners sign the LLC agreement before progressing to the next step.
Step 3: Registering with Washington State
The 3rd step in the process of creating your LLC would be to register with the Washington Secretary of State. The easiest way is online. The Secretary of State has a checkbox online registration system.
You can also register by means of paper and mail, but that takes longer and costs more money. Almost everybody does it online instead.
The registration process entails some basic questions, the answers to which are probably in your LLC agreement. For example , you’ll need to indicate:
- Whether your LLC is “manager managed or member managed”. That is, whether a manager makes everyday decisions or whether nearly all decisions require a more democratic vote of the owners.
- Who the members (owners) of the business are.
- Who will act as your LLC’s registered agent. You must select a registered agent—the person who can be served with any legal process. If you don’t have a registered agent, you can’t form an LLC.
For more information on this and related legal topics, our firm encourages you to click on the resources tab of our website. Or call us to speak directly with one of our knowledgeable attorneys.