Forming a Limited Liability Company can be a massive undertaking for any business owner. While you don’t have to jump through as many hoops to start a new LLC as you would if you wanted to start a corporation, there’s still a lot of paperwork to file and considerations to make. And then once you’ve got all of that done, you have to wait for the Secretary of State to contact you for approval. In this guide we’ll clear up any confusion you may have about the formation process, tell you all the steps you need to take, what it’s like to do business in the state, and how long the formation process can take.
Discovering Washington
Washington is known as the Evergreen State because of the large number of trees it contains, with forests covering more than half the state.
If you look at a map of the contiguous U.S. (which doesn’t include Hawaii or Alaska), Washington is up in the Northwest Corner. It has borders with Canada, British Columbia, Idaho, Oregon, and the Pacific Ocean.
Some of the geography of the state includes mountains, rain forests, hills, beaches, valleys, rivers, tons of little flattened hills that are called mima mounds, the Mount St. Helens volcano, and the biggest lava plateau in the world called the Columbia Plateau. It’s home to the Olympic Mountains, the Cascade Mountains, the Rocky Mountains, Mount Ranier which is the 5th highest mountain in the U.S., the Palouse Hills, and the Olympic National Park which is so dense that experts believe it has sections that haven’t been explored yet.
Washington is one of the nation’s biggest producers of plywood and lumber. It also mines aluminum, gold and lead.
Economic Overview of Washington
The state’s Gross State Product (GSP) is $577.2b, and it had a growth rate of 3.6% from 2017-2022, which puts its GSP growth rate at the 2nd in the country.
The biggest industries in the state according to revenue are Software Publishing, Hospitals, New Car Dealers, Drug, Cosmetic & Toiletry Wholesaling, and E-Commerce & Online Auctions. The biggest employers in Washington are Amazon.Com Inc., Microsoft Corporation, the University of Washington, Boeing Co, and Walmart Inc. And the sectors that contribute the most to the state’s GDP are Information, Real Estate & Rental & Leasing, Retail Trade, Manufacturing, and Professional, Scientific & Technical Services.
Washington is known to be where Starbucks got its start, as well as Boeing Co. and Microsoft Corp. With its location on the coastline, it’s one of the nation’s biggest exporters. And it’s agriculture industry is so expansive that it supplies much of the nation’s apples, milk, potatoes and cattle. Aerospace and military defense are big in Washington, too.
Business Environment in Washington
According to Usnews.com, Washington’s economy is #13 in the country, #4 in business environment, #27 in employment and #17 in growth. It’s rated #4 for long-term fiscal stability and #8 for short-term fiscal stability.
It’s rated #3 for energy because 49.7% of its energy usage is renewable, compared to the national average of 12.3%. It also ranks quite well for air and water quality and pollution, #9 and #15 respectively.
It was rated #46 for affordability, which makes sense because the cost of living index in Washington is 108.9 (100.0 nationally). The median household income in the state is $84,247, which is well above the national average of $69,717.
State Specific Regulations and Incentives for Forming an LLC in Washington
Here’s a look at the incentives designed to support businesses.
- Governor’s Strategic Reserve Fund (GSRF): This is an incentive for job creation or retention that you can use for workforce development, technical and planning assistance, relocation assistance or environmental analysis. This is a competitive fund that’s left to the discretion of the Governor.
- Multiple Activities Tax Credit (MATC): If a business performs multiple taxable activities for one product, it’s typically subject to the Business and Occupancy (B&O) tax multiple times. But the state allows companies to take this credit so that the B&O tax is only required to be paid once for the product.
- Business and Occupation (B&O) Tax Credits: These credits are made available for qualifying aerospace, high technology, smelting, forestry, and biomass companies in the state. The activities necessary to qualify are dependent on your industry, but they include things like the property or leasehold taxes paid for your business facility, the cost of preproduction development, and of course R&D.
- Rural County/CEZ Business and Occupation (B&O) Tax Credits: Businesses locating or expanding into Virginia’s rural counties or designated community empowerment zones can qualify for B&O tax credits. Computer service, manufacturing, and R&D companies which create new jobs can get a tax credit for up to $4,000 per each job for up to 5 years.
- Sales and Use Tax Exemptions: Manufacturing, renewable and biomass, biofuel, semiconductor, farming and agriculture, smelting, and various types of research and laboratories for machinery and equipment that are used in these industries and their research operations are exempt from sales and use tax. This also includes an exemption of sales tax for warehouses, distribution centers and grain elevators. The taxes can be deferred or waived for construction or renovation on structures or machinery used for manufacturing biotechnology, as well.
- Rural County/CEZ Sales and Use/ Public Utility Tax Exemption: New datacenter operations in CEZ zones and rural counties can get sales and utility tax exemptions.
- Community Economic Revitalization Board (CERB): This board supplies funds to local governments as well as federally recognized tribes for public infrastructure to encourage business expansion and growth. Projects that qualify include industrial and domestic water, wastewater, stormwater, public buildings, port facilities and telecommunications.
- Clean Energy Fund: This program provides funding for the development, deployment and demonstration of clean energy technology. There’s a focus on grid modernization, transportation electrification, research and development, solar deployment, and grants for nonprofit lenders.
- Washington Customized Training Program (CTP): This program is provided by the State Board for Community and Technical Colleges (SBCTC), and it provides interest free loans for training. Once the job training is completed, the company must pay the training cost back to the SBCTC. Then the state provides a tax credit for 50% of the company’s B&O tax.
- Job Skills Program (JSP): This is a program through the community and technical college system. It’s a cost-share between both the state and the employer, with each one paying for 50% of the program’s cost. The employer’s contribution can be matched through the wages paid to employees during the training at the employer’s facility. This program receives around $2.2 million per year statewide.
- Work Start: This is a workforce training program that uses the Governor’s Strategic Reserve Funds and provides employers with customized training that’s in line with business recruitment, retention and expansion efforts in the state. The Work Start program coordinates with training programs on state and local levels to make sure they provide the best training possible, and that it’s efficiently provided.
Pros and Cons of Establishing an LLC in Washington
There are both pros and cons in regard to forming an LLC. Here’s what you need to know:
Pros:
- Limited Liability Protection is the advantage that draws in most business owners. This means that the business and each LLC member are considered separate entities. It separates your personal assets and finances from that of the business and protects them in the event that the LLC is sued.
- LLCs are pass-through entities, which means the LLC isn’t taxed, but the income of the LLC members is.
- LLCs can choose to be member-managed or manager-managed.
Cons:
- LLCs come with taxes and annual fees that must be paid to maintain them.
- You must keep detailed records of both operations and finances for your LLC.
Procedure of Establishing an LLC in Washington
It can be hard work to form an LLC, but we’ll provide you with instructions for each step which will clarify the process and make it a lot simpler!
Necessary Documentation for Filing an LLC in Washington
These are the documents you’ll need to have ready in preparation for LLC filing.
- Employer Identification Number: Your business will need an Employer Identification Number, or EIN, for a number of business tasks. You’ll need an EIN to open a business bank account, fill out tax forms, and yes, hire employees. You can apply for an EIN on the IRS website for free.
- Name Reservation Application: Just because you think of a cool business name doesn’t mean you’re allowed to use it in a legal capacity. You must first ensure that no other business in the state is already using it, which you can do by running a search of the business name database on the Secretary of State’s website. Once you’ve decided on a suitable name that meets all of the state’s legal requirements, you’re required to file a Name Reservation form with the Secretary of State, which prevents other businesses in the state from using it.
- Certificate of Formation: This is definitely the most important formation document you’ll acquire. Once you fill this in and submit it to the Secretary of State, it initiates the formation process. Some of the information presented to the Secretary of State through the Certificate of Formation form is: your business’s name, address, purpose and duration, a list of LLC members as well as their contact information and ownership shares, your registered agent’s information, and an explanation of your LLC’s management structure (member-managed or manager-managed).
- Operating Agreement: An operating agreement isn’t a legal requirement for LLCs, but it’s still a crucial internal business document. It can prevent a lot of arguments, and provide instructions for how your company should run- even in an emergency. Some of the information that operating agreements typically include is: contact information for LLC members, details about their roles and contributions to the company, information about how profits and losses are dispersed, information for managers including LLC member voting rights and meeting schedules, and directives for how to add or remove an LLC member which can be quite useful in the unthinkable event that an LLC member should die.
- Initial Report: All LLCs in Washington must file an annual report. The first one is called an initial report, and it’s due within 120 days of filing your Certificate of Formation.
- Tax Registrations: If you’re going to hire employees, then your business is required to sign up with the Employment Security Department to pay unemployment tax. If your business makes $12,000 then it’s required to collect sales tax, which you can sign up with through the Department of Revenue.
- Business Licenses: In Washington, you’re required to have a state business license, as well as local and county licenses. To find out about business licenses, check out the Business Licensing Wizard on the Department of Revenue website and contact clerks at county and municipal levels. Businesses that provide certain services are required to obtain professional business licenses, too, which you can get through the State Department of Licensing.
Legal Requirements for Starting an LLC in Washington
Follow these steps to form an LLC and you’ll get through the process in no time.
- Obtain a Certificate of Formation form: The first step is to get your hands on a Certificate of Formation form, which is available from the Secretary of State.
- Pick a Business Name: If you’ve followed all of the steps in the previous section, then you’ve chosen and secured a business name for your LLC, which other businesses in the state can’t use.
- Choose Your Registered Agent: Your LLC is required by law to maintain a registered agent, which is a person or business that will accept service of process and receive official correspondence from government agencies for your company at their address. It’s an important job, so although you’re permitted to designate a civilian you trust, it may benefit you to use a professional registered agent service instead.
- Choose an LLC Address: Like your business name, your business address is listed on public record. That means that if you jot down your home address, literally everyone has access to that information. Some of the options that you have include virtual addresses or requesting to use your registered agent’s address.
- Sign and File Your Certificate of Formation: Once you’re quite certain that all of the information on the form is included and correct, the next step is to sign and file it. If you don’t want your name on the public record, you could choose an LLC formation service to complete the task for you.
Time Frame for Establishing an LLC in Washington
After you’ve submitted your documents, you’ll wait for the Secretary of State to contact you. This is typically what is referred to as formation time. There are two figures to take into account when it comes to formation times, approval time and processing time. Approval time is the total time from the submission of your documents to your LLC’s approval, including processing and transit time. Processing time is the time it takes for the Secretary of State’s office to enter the information in your documents to their computer system.
Here’s a look at formation time frames in Washington.
How Long Does the Initial Paperwork Take in the State of Washington?
Approval times to file online can take 2-3 weeks, or 7-8 weeks if you file by mail.
Processing Times in the State of Washington
Processing times for online filing are 12-14 business days, while processing times for mail filing are 5-6 weeks.
Common Delays in the LLC Formation Process in Washington
These are some of the circumstances that could hold up your LLC formation.
- Document Issues: There are lots of requirements for your formation documents. All of the pertinent information must be included and correct. You must include the correct number of copies, and pay the necessary fees. If any of these steps aren’t in place, then it could cause a delay.
- Filing At the Wrong Time: The Secretary of State’s office isn’t open on holidays or weekends. This means that in the simplest of terms, no one will be there so no one can process your paperwork on these days. You should file on a Monday, or the next business day after the holiday instead.
- Filing Volume: There’s always a huge spike in LLC filings at the beginning and the end of the year. The high volume of filings and increased workload causes delays as the staff work to process everything.
Expedited Processing for LLC Formation in Washington
Now let’s discuss the fastest way to form an LLC: expedited processing!
What are the Expedited Options Available?
There’s only one expedited processing option in Washington. It’s a 2-day expedited option for mail filings. To receive this service, write “EXPEDITE” in bold capital letters on the envelope.
Additional Costs for Expedited Services in Washington
The fee for expedited processing is $100. This is an extra fee on top of the filing fee.
Comparing LLC Formation Time Frame in Washington with Other States
One of the most important things to consider when starting an LLC, in addition to the formation costs, is how your state’s formation times compare to other states. Here’s how Washington measures up.
Brief Comparison with Key States
To review, processing times in Washington are 12-14 days to file online, or 5-6 weeks if you file online, and there’s a two-day expedited processing option.
While Washington’s processing times are slower than some states, there are other states with even slower times, believe it or not. To file online in Arizona takes 14-16 days. To file by mail in Maryland takes 5-8 weeks, and it’s 8 months in New York. And expedited processing in Arizona and Maryland takes 5 and 7 days, respectively, while there are many states that don’t even offer expedited processing.
Conversely, processing times for online filings in Alabama, Alaska, Colorado, Kansas, Kentucky, Minnesota, Missouri, New York, South Dakota, Tennessee, Wisconsin and Wyoming are immediate. Processing for mail filings takes only 1-2 days in Alabama, Massachusetts and South Dakota, and only 1 day in Kentucky and Ohio. California has a 4 hour expedited processing option, Louisiana has a 2-4 hour expedited option, New York’s is 2 hours and expedited processing takes just one hour in Delaware, Michigan, Montana, Nevada, New York, Pennsylvania, and West Virginia.
In short, there are only a handful of states with slower processing times than Washington, while a number of states have far faster processing times.
Why is Washington a Favorable Place for Forming an LLC?
Washington can be a great place to start a business for a number of reasons. The workforce is one of the most educated and skilled in the country. At least ⅓ of workers have earned a post-secondary degree. Innovation, creativity and new ideas thrive in Washington. It’s where companies like Starbucks, Microsoft and Boeing all got their start, which wouldn’t have happened if they didn’t think outside the box. Washington is one of the country’s biggest producers of hydroelectric power, and it’s made strides to adopt other alternative energy sources like solar and wind power. Because of this, it offers energy costs as low as 4.25 cents per kilowatts for businesses. The state is quite diverse, with rural as well as metropolitan areas which means that a wide variety of businesses have the opportunity to thrive here. It’s also an excellent place for businesses due to its status as an export hub. It’s equally distant from Asia and Europe, with shipping and air ports that make international shipping easy.
