How to Form an LLC in Washington!

Forming an LLC in Washington can provide a number of legal benefits.

Freedom of Contract

The State of Washington LLC Act expressly endorses the freedom of contract, allowing you to strike the deal you want with your business partners without running afoul of limitations in the law.  It gives LLC members contractual freedom to customize their contributions, rights, duties, and distributions of profits and losses.  In addition, it gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, and it allows members to protect their control of an LLC.

The Washington LLC Act states “[i]t is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”  In addition, it states an LLC’s members “may agree among themselves to any otherwise lawful provision governing the company which is not in conflict with this chapter.”  For example, members may sign buy-sell agreements with other members to manage their long-term control of the LLC.

The Act enables members to create classes of membership.  An LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests.  Section 25.15.120 specifically states “voting by members may be on a per capita, number, profit share, class, group, or any other basis.”  An LLC agreement may also provide a method for creating additional classes of membership interests in the future.  These provisions facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-voting interests.

The Washington LLC Act gives members contractual freedom to customize their capital contributions and their shares of profits and losses.  It states “[t]he profits and losses of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in a limited liability company agreement.”  This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.

Privacy for Owners

The Act does not require filing of members’ names when the LLC is formed.  A “person” may form an LLC by filing its Certificate of Formation, and the definition of “person” is not just a natural person, but includes almost any kind of business or legal entity.  An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Certificate of Formation with the Washington Secretary of State.

Benefits for Business Partners

The Washington LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties.  Section 25.15.040 provides an LLC agreement may “[e]liminate or limit the personal liability of a member or manager to the limited liability company or its members for monetary damages for conduct as a member or manager,” but subject to three exceptions.  The exceptions are that an LLC agreement may not eliminate or limit liability for (1) intentional misconduct or knowing violation of law; (2) a distribution that would cause an LLC to be insolvent; or (3) “any transaction from which the member or manager will personally receive a benefit in money, property, or services to which the member or manager is not legally entitled.”  Alternatively, an LLC agreement may expand a member’s or manager’s duties and liabilities.

Protections Against Unwanted Parties

The Act allows members to protect their control of an LLC.  An LLC agreement may prohibit members from assigning their membership interests.  But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to become a member.  Instead, the assignee may only receive the allocations of profit and loss and distributions to which the assignor would have been entitled, and all the other members must consent to the assignee becoming a member.  If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee.”

In addition, the Act states that unless an LLC agreement provides otherwise or all members give written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief.  These events are considered “events of dissociation.”

If a member grants a security interest, lien, or encumbrance in or against his or her membership interest, the Act does not deem it an assignment.  But section 25.15.250 provides “a foreclosure or execution sale or exercise of similar rights with respect to all of a member’s limited liability company interest shall be deemed to be an assignment ….”  The foreclosed member therefore ceases to be a member.

Here are the steps you will need to follow to set up an LLC in Washington.

Step 1. Choose a Name

The name of a Washington LLC must satisfy a few statutory requirements. First, the name must contain “L.L.C.,” “LLC,” “limited liability company,” or “limited liability co.” The name must be distinguishable from every other business entity name in Washington, and cannot be distinguishable by virtue of having a different corporate designator, abbreviations, plurals, special characters, articles, or conjunctions.

The name cannot include any of the words “bank,” “banking,” “trust,” “cooperative,” “industrial loan,” or any other corporate designators, including “ltd.” The name also cannot include two or more of the following words: “building,” “savings,” “loan,” “home,” “association,” and “society.”

Step 2. Appoint a Registered Agent in Washington

A Washington LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a Washington registered agent.

Step 3. File a Certificate of Formation

To officially create a Washington LLC, one or more persons must submit a Certificate of Formation to the Secretary of State with a $180 filing fee. This Certificate of Formation must set forth the name of the LLC, the address of its principal office, the name and address of the Registered Agent for the LLC, a specific date of dissolution if one exists, and if the LLC will have managers or be managed by members. You can also include any additional provisions that you want to be in the Certificate of Organization.

Step 4. Prepare an LLC Operating Agreement

The internal affairs of a Washington LLC are governed by the LLC Operating Agreement. Unlike most states, Washington code does not contain specific procedures or a definition for an LLC Agreement. We usually advise a written agreement, signed by all members, to reduce the possibility of conflict.

There are some additional steps you will need to take after you form your Washington LLC to finish setting up and maintaining your business.

Get an EIN Number

Like other states, multi-member LLCs or LLCs that employ people in Washington will need an EIN for tax purposes. This can be obtained directly from the I.R.S., or an incorporation service like Incnow.

File Annual Reports

To maintain their status, Washington LLCs must file an Annual Report with the Secretary of State. This report, which includes a $50 filing fee, must state the name of the LLC, the name and address of the Registered Agent, the address of the principal office, a brief description of the business of the LLC, and the names and addresses of managers (or members if there are no managers).