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How to Incorporate in Washington vs. How to Start a Washington LLC

A Guide to Choosing the Best Business Entity in Washington

If you’re looking to start your own business in Washington, the first major decision you’ll make is which business entity is best for your company. The Limited Liability Company (LLC) and corporate entities are the most popular structures in the states, and have the most desirable elements from all the business entities, such as limited liability protection and flexible tax structuring options. This guide to Washington LLC formation and incorporation will help you learn about both business structures, down to their basic elements. We’ll explore the details of starting both a Washington LLC and a Washington corporation, what to expect with their annual maintenance, and the advantages and disadvantages of the LLC and corporation.

Once you decided which business structure best meets your needs, you can hire Active Filings and have our professionals streamline your incorporation process. We’re confident you’ll see in no time why Active Filings is America’s most reliable business incorporation service.

 

Hire us to form your LLC or Corporation in Washington!

LLCs vs. Corporations

There are basic components true of all LLCs and corporations that you can use to base your decision:

  • Maintenance
    The LLC is known for its simple maintenance and a user-friendly structure. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is your best bet if you have a small to medium-sized business and can only handle a low amount of maintenance. Conversely, a corporation needs a high level of maintenance, both on a day-to-day and annual basis. Corporations have more legal formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.
  • Tax Structure
    LLC’s are known as pass-through entities, since it’s not a separate taxable entity apart from its owners. Income and losses pass through the business and onto the members to report on their individual income tax return. LLCs are the overall simpler and less expensive option in terms of time and paperwork for business owners during tax season. Corporations are more advanced for a business owner to take care of during tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits (dividends) and losses. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
  • Prospective Investors
    Corporations are designed to take on investors, and investors are more likely to put their time and funds in a familiar and reputable business structure like a corporation. Entrepreneurs looking to expand their company in the future will most likely need investor funds, making the corporate entity the suitable choice. Investors are more comfortable investing their time and money in a traditional business structure that offers stock, like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them, unlike an LLC. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. Investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. A corporation should be considered if you are serious about gaining investors.
  • Prestige
    A business starts with its appearance, and having the “LLC” or “Inc” title in your business name will provide your company with certain a level of prestige. These endings convey permanence and encourage trust from likely investors or clients, and show that you are serious about your business. While both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. It’s important to remember that LLC’s have surpassed corporations in popularity in most states, and an LLC’s prestige is continually growing.

 

WA LLCs vs. WA Corporations

Now that we’ve covered the basic components that apply to all corporations and LLCs, next is to dig into more specific characteristics of what makes a Washington LLC or Washington corporation different from other states, bringing us to the final answer on which entity you should choose for your business. Each state has its own unique statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity.

This section will provide specifics for the Washington LLC and the Washington corporation.

  • No Corporate Income Tax in Washington
    Washington is one of six states that does not impose a corporate income tax, saving corporations in Washington a significant amount of money every year.
  • Washington Business and Occupation Tax
    The Washington business and occupation tax (also known as the B&O tax) is a gross receipts tax on corporations and LLCs doing business in the state. This tax rate varies by the business’s classification, ranging from .13% through 3.30%. There are dozens of classification levels, and the top three classifications are as follows:
    Retail: 0.471%
    Manufacturing: .484%
    Services and other activities: 1.5%The B&O tax is fairly inexpensive compared to similar taxes imposed on businesses in other states. This tax typically is not a make-or-break situation, although it’s still important to see a tax professional and learn how this tax will affect your business.
  • No Personal Income Tax in Washington
    Washington is one of seven states that does not impose a personal income tax. This is a point of interest if you’re considering starting an LLC, since business income typically passes through LLC’s and onto the members to report on their personal income taxes. In Washington, this income that passes through will not be subject to any kind of taxation, providing a great perk for businesses.
  • Washington LLC Foreclosure Vulnerability
    LLCs in Washington do not have the same level of protection as most states, and creditors (a person who is owed funds or assets by a debtor) in Washington have an extra remedy against LLCs that owe them by having the courts order a foreclosure on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. Often times, this leads to the creditor ending up with nothing, since creditors can’t order the LLC to make distributions. For Washington LLCs, this same charging order and same lien can be placed, except if a creditor can prove to a court that those distributions under the charging order will not pay off the debt, “the court may order a foreclosure upon the transferable interest subject to the charging order at any time (WA §25.15.256).”

 

Washington LLC or Washington Corporation? Final Answer.
Deciding on either an LLC or a corporation as the structure for your company means considering the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

Forming an LLC in Washington will be your best choice if you have a small to medium-sized business. LLCs in Washington stay true to design in terms of easy formation and maintenance, simple management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and you’re just needing limited liability protection for your business, the LLC is your answer.

Incorporating in Washington will be your best choice if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. a Washington corporation remains true to character in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

How to Incorporate in Washington

If a Washington corporation is the best choice for you, you’ll need to file the Articles of Incorporation with the Washington Secretary of State to become officially incorporated. You can download the Articles of Incorporation online at the Washington Secretary of State website. Once your Articles of Incorporation are approved, your corporation is officially formed.

You can file the Articles of Incorporation in a few ways:

  • Online at the Washington Secretary of State website
  • By postal mail
  • In person at the Washington Secretary of State office

We recommend filing your Washington Articles of Incorporation on the website since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs $180. The state of Washington processes business formation documents in about 3 business days.

To complete your Washington Articles of Incorporation, include the following information:

You may already have a UBI number if your entity has previously filed with another state agency, like the Department of Revenue or the Employment Security Department. If so, enter that number in this section.

Enter your corporation’s name exactly as you would like it to appear. Your corporation name must include one of the following designations: “Incorporated,” “Corporation,” “Company,” “Limited,” or an abbreviation of one of those words. If you don’t list a designation, it will be defaulted to “INC.”

Your corporation name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Incorporation. The name can’t already be in use, and can’t sound similar to the name of any other company in Washington.

Check the appropriate box depending on whether you’d like your corporation to be perpetual (continuous until voluntarily dissolved), have a duration of a specific number of years, or have an exact expiration date. If no selection is made, your corporation will be defaulted to perpetual.

If you would like your official formation date to be different than the filing date, enter that date here. This date must be within 90 days following the receiving day.

A registered agent is a person or entity who resides in the state at their registered office and receives service of process from the government on behalf of a business.

Check the appropriate box depending on whether or not your registered agent is a commercial registered agent (an individual or entity that has filed a commercial registered agent listing statement with the Washington Secretary of State). If yes, list the commercial registered agent name here. If no, check the appropriate box depending on whether your registered agent is an individual, entity, or an office or position. Be sure to include the name and street address, and mailing address if needed. Phone number and email address are optional.

Your registered agent must personally consent on this form by signing, dating, and printing their name of title.

State the number and type of shares your corporation is authorized to issue (most corporations start out with between 100 – 1,500). You have the option of either common or preferred stock, and you must issue at least one share.

If you’d like to receive documents regarding this specific filing, enter that address here. Your registered agent will be receiving these documents as well.

Enter the name and address of the incorporator of these articles. A signature, printed name/title, and date is required at the end of this section.

How to Form an LLC in Washington

If forming a Washington LLC is the best choice for you, you’ll need to file the Certificate of Formation with the Washington Secretary of State to make it official. You can download the Certificate of Formation online at the Secretary of State website. When your Certificate of Formation is approved, your LLC is officially formed.

You can file the Certificate of Formation in the following ways:

  • Online at the Washington Secretary of State website (recommended)
  • By postal mail
  • In person at the Washington Secretary of State office

We recommend filing your Washington Certificate of Formation online since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Certificate of Formation costs $180. The state of Washington processes business formation documents in about 3 business days.

To complete the Washington Certificate of Formation, include the following information:

You may already have a UBI number if your entity has previously filed with another state agency, like the Department of Revenue or the Employment Security Department. If so, enter that number in this section.

Enter your LLC name exactly as you would like it to appear. Your company name must include the words “Limited Liability Company,” “Limited Liability Co.,” or the abbreviations “L.L.C.” or “LLC.” If you don’t list a designation, it will be defaulted to “LLC.”

Your company name can’t imply it is organized for a purpose other than what is mentioned in the Certificate of Formation. The name can’t already be in use, and can’t sound similar to the name of any other company in Washington.

Check the appropriate box depending on whether you’d like your LLC to be perpetual (continuous until voluntarily dissolved), have a duration of a specific number of years, or have an exact expiration date. If no selection is made, your LLC will be defaulted to perpetual.

If you would like your official formation date to be different than the filing date, enter that date here. This date must be within 90 days following the receiving day.

A registered agent is a person or entity who resides in the state at their registered office and receives service of process from the government on behalf of a business.

Check the appropriate box depending on whether or not your registered agent is a commercial registered agent (an individual or entity that has filed a commercial registered agent listing statement with the Washington Secretary of State). If yes, list the commercial registered agent name here. If no, check the appropriate box depending on whether your registered agent is an individual, entity, or an office or position. Be sure to include the name and street address, and mailing address if needed. Phone number and email address are optional.

Your registered agent must personally consent on this form by signing, dating, and printing their name of title.

List the street address of your LLCs principle place of business. This address doesn’t need to be in Washington.

If you’d like to receive documents regarding this specific filing, enter that address here. Your registered agent will be receiving these documents as well.

Enter the name and address of the executor of these articles. A signature, printed name/title, and date is required at the end of this section.

Washington Annual Report

To keep your business in good standing with the state of Washington every year, you must take care of a few annual maintenance tasks.

  • File your annual report
  • File your Washington business tax returns

In this section, we’ll explain the basic instructions and resources you’ll need to help you take care of your tax-related upkeep and annual maintenance.

What is a Washington annual report?
A Washington annual report updates or confirms the records for your business, such as officer/member names and addresses or registered agent. This report lets your business remain in good standing with the state. Both LLCs and corporations that do business in the state are required to file annual reports with the Washington Secretary of State.

How do I file my annual report in Washington?
Corporations and LLCs in Washington need to either file their annual reports online at the Secretary of State website (recommended), or by postal mail.

How much does it cost to file an annual report in Washington?
For both LLCs and corporations, the annual report fee in Washington is $60.

When are Washington annual reports due?
Your Washington annual report is due by the end of the month you first formed your business (your anniversary month).

Washington Business Taxes

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Check out our Washington Business Tax FAQ below:

Is there a corporate income tax in Washington?
Washington is one of six states that does not impose a corporate income tax, saving corporations in Washington a significant amount of money every year.

What is the Washington Business and Occupation Tax?
The Washington business and occupation tax (also known as the B&O tax) is a gross receipts tax on corporations and LLCs doing business in the state. This tax rate varies by the business’s classification, ranging from .13% through 3.30%. There are dozens of classification levels, and the top three classifications are as follows:
Retail: 0.471%
Manufacturing: .484%
Services and other activities: 1.5%

Is there a personal income tax in Washington?
Washington is one of seven states that does not impose a personal income tax. This is a point of interest if you’re considering starting an LLC, since business income typically passes through LLC’s and onto the members to report on their personal income taxes. In Washington, this income that passes through will not be subject to any kind of taxation, providing a great perk for businesses.

What forms do you file for your Washington business taxes?
State Business Taxes:
For the Washington B&O tax, you will need to submit the Combined Excise Tax Return form.

Federal Business Taxes:
For C corporations, submit Form 1120 federal income tax return.
For S corporations, submit Form 1120S federal income tax return for an S corporation.
For single member LLCs, submit Schedule C as part of your Form 1040 individual income tax return.
For multi-member LLCs, submit Form 1065 partnership income tax return along with Schedule K-1.

When are my Washington business tax returns due?
Your Washington B&O state tax return is due on the 15th day of the 4th month after the end of the fiscal year, or April 15th for calendar year filers (on the federal tax return due date).

Hire us to form your LLC or Corporation in Washington!