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The State of Washington is home to a number of successful businesses, including Microsoft, Amazon, Starbucks, Nordstrom, and more. But it’s not only home to big businesses. Many small business owners also call the Evergreen State home. And many of those small businesses choose to form and operate as limited liability companies, or LLCs. This article will guide you through the steps toward establishing a Washington LLC of your own.
What is an LLC?
A limited liability company (LLC) is a common business entity among business owners in the United States. More than 35% of all small businesses in the US are run as LLCs. The main benefits of this entity type are the legal protections and tax treatment that comes with it.
Owners of LLCS, known as “members,” are not usually held financially responsible for the LLC’s business debts. Rather, the LLC itself is liable for those debts, and its financial problems stay insulated from the owners themselves. Likewise, members are insulated from most legal claims made against the LLC.
LLCs also generally enjoy pass-through tax status—meaning they are taxed one time at members’ personal-income levels. For the most part, LLCs also avoid the extra layer of taxation levied against US corporations. However, in some instances, owners of LLCs can elect to have their business treated like a corporation, thereby subjecting it to corporate tax, at least at the federal level.
Is an LLC right for you?
The LLC isn’t the only business structure a Washington entrepreneur can choose—you might opt to form your business as a sole proprietorship or corporation instead. To figure out if the LLC formation is best for you, consider the following:
- Do you have personal assets in need of protection? By forming an LLC, you can shield most or all of your personal assets from business creditors or litigants.
- Are you looking to limit your tax liability? LLCs, by default, do not pay corporate taxes. LLCs are generally considered “pass-through” entities. This means they are subject to a single round of taxation at members’ personal income level. Compare this with the so-called “double taxation” (corporate and income tax) usually applied to corporate entities.
Once you decide a Washington LLC is for you, here are the 11 steps to start one.
1. Name your Washington LLC
Deciding on a name for your Washington LLC is one of the most important determinations you’ll make as an entrepreneur. It’s the first step to building long-lasting and far-reaching brand recognition. Your LLC name must communicate the business’s function and mission in a way that is both distinctive and memorable. There are also specific rules you must follow when naming an LLC in Washington:
- Your Washington LLC’s name must contain the words “limited liability company,” or an abbreviation thereof (“L.L.C.” or “LLC”).
- If your LLC offers a professional service, which is any service that requires a special license (such as a law firm or real estate agency), the LLC’s name must contain the words “professional limited liability company,” “P.L.L.C.,” or “PLLC.”
2. Create a business plan
Devising a business plan is crucial to developing a direction for your new Washington business. It can help you estimate startup costs and capacity for overhead—and show you if you might need to make any adjustments to your goals or expectations. Business plans can also help investors to evaluate the potential profitability of your business before putting money into it.
A workable business plan includes your LLC’s name and a brief description of what you sell: the product, service, or perhaps both. It can also include a market analysis, an organizational structure outline, target customer profiles, and marketing, logistic, and financial plans.
3. Get a federal employer identification number (EIN)
An employer identification number (EIN) is a federal tax ID—a nine-digit number assigned to businesses by the US Internal Revenue Service (IRS) to track a business’s tax obligations. It’s a lot like a Social Security number for a company. You’ll need an EIN to register your LLC with state authorities in Washington, and you can get one online through the IRS website, free of charge.
4. Choose a registered agent in Washington
All formal businesses, including LLCs (but excluding sole proprietorships), are required by law to appoint a registered agent in Washington. A registered agent is an individual or business entity that is authorized to accept official correspondence on your LLC’s behalf.
You can appoint a member or employee of your LLC, or a third-party individual or service, to be your registered agent. Registered agents in the State of Washington must have a physical address in the state and be available at that address during normal business hours.
5. File for your Washington LLC Certificate of Formation
To formally establish your LLC, you must file for a Certificate of Formation with the Washington Secretary of State’s office. A satisfactory Certificate of Formation application will contain:
- The name of your LLC
- The duration of your LLC (perpetual or for a limited period of time)
- The effective date of the certificate (the date of filing or later)
- The name, signature, and address of your LLC’s registered agent
- Your LLC’s principal address
- The signature of an executor
You can file your application online, with a $200 filing fee, or by mail, for $180.
6. Obtain business licenses and permits
The State of Washington requires nearly all resident businesses to obtain a state business license, on top of county-level and city-level permits. You can check the state Department of Revenue’s Business Licensing Wizard tool to see what’s required both in your business’s primary location, and all the locations in Washington where you plan to conduct business.
You can apply for all Washington business licenses, both state and local, through the Washington Department of Revenue’s website, or mail in the appropriate form. Depending on your line of business (for example, if you’re a geologist or an auctioneer), you may also have to obtain certain professional licenses and/or permits. The state’s Department of Licensing maintains a full list of the business areas subject to state permitting rules.
7. Understand Washington tax requirements
LLCs in Washington and elsewhere may be taxed like corporations, limited liability partnerships, or single-member LLCs—which are taxed much like a sole proprietorship. Its tax obligations depend on the tax status you elect. Taxes you may be responsible for as an LLC member include:
- Business and occupation tax. Regardless of how you form your LLC—as a pass-through tax entity or corporation—you and any partner-members will pay federal taxes on income earned through the LLC at your personal-income levels. Washington does not levy a personal-income or corporate-income tax, but anyone who conducts business in the state is subject to a business and occupation (B&O) tax, or 0.471% of gross income.
- Sales tax. If your LLC is a retailer, you’ll be subject to a 6.5% sales tax. Most retailers remit this tax on a monthly basis to the Washington Department of Revenue. You can make these payments online.
Every Washington state LLC is also required to file an annual report to the Washington Secretary of State’s office and pay a filing fee of $60.
8. Prepare an LLC operating agreement
An operating agreement is a legal document that outlines how you will conduct business. Though operating agreements are not required by state or federal law, they can provide helpful guidance for internal operations, accountability, and goal-setting within a business. An operating agreement typically includes:
- Your LLC’s business name and primary address
- How long you plan to run the LLC (perhaps indefinitely)
- Information on the LLC’s registered agent
- Information about the Certificate of Formation
- The business’s purpose and mission statement
- An organizational chart listing members and their respective investments
- How profits and losses are divided between LLC owners
- The process for admitting new members and offboarding outgoing ones
- An overall management plan
- Various indemnification and liability provisions
9. Examine business insurance options in Washington
Unexpected losses can be devastating for a fledgling small business. While LLCs offer a degree of personal asset protection in the event of such losses attributable to debts or legal claims, you may still want to purchase insurance to protect your business’s non-covered property. Standard policies available in Washington include:
- Workers’ compensation. Washington state law requires all businesses with employees to purchase workers’ comp—an insurance package covering injuries or illnesses workers suffer on the job. Washington LLCs must purchase their workers’ comp directly from the state’s Department of Labor and Industries.
- General liability insurance. General liability insurance provides broad spectrum, general coverage for your business, shielding it against legal actions resulting from accidents, injuries, or negligence connected to the company, or occurring on company property.
- Commercial property insurance. Commercial property insurance covers some or all of the costs associated with repairing or replacing property lost or damaged in the course of business. It can cover costs associated with fire, weather damage, or theft.
- Professional liability insurance. Professional liability insurance protects businesses that provide certain professional services, like those in the fields of law, accounting, or real estate. This is otherwise known as malpractice insurance.
- Cyber liability insurance. Data breaches and ransomware can harm your customers and tarnish your LLC’s reputation. Cyber liability insurance comes in handy when you have to tell customers about an attack, compensate them in case of a claim, and pay for credit monitoring for those impacted by a breach.
The Small Business Administration (SBA) maintains a list of forms of insurance your Washington LLC may need.
10. Understand financial considerations
Basic costs for starting your LLC might include renting an office, storage, or retail space, commissioning a professionally designed website, or paying for advertising, equipment, and software. You may also want to hire one or more lawyers, accountants, or other professionals. Because these costs can add up, you may be interested in accessible funding options, like Shopify Capital, which lets you repay funding as a percent of your Washington LLC’s daily sales. This allows payments to be tailored to how much money you’re making. You may also consider opening a business bank account to handle cash flow and overhead.
11. Market your LLC
Once your new business is launched, it’s time to take it to market. Marketing your LLC allows you to reach new potential customers and turn them into repeat customers. A good marketing plan for your Washington LLC might include elements like:
- Market research. Understanding your LLC’s target customer profile is key. You can accomplish this by thoroughly researching target customers, competitors, and the sales and/or economic history of the good or service you’re trying to sell.
- Advertising and promotion. You can design and place ads yourself, or hire an advertising agency to do it for you. Traditional paid advertising in print publications or on billboards may seem a little dated, but it still can be highly effective for generating new business.
- Social media. Successful businesses today must have robust online presences across multiple social media platforms—including Facebook, Instagram, TikTok, YouTube, and more. Consistently publishing social media content that aligns with your brand identity can garner more visibility in Washington, and even around the world.
- Public relations. Developing strong relationships with press in Washington and even with national and foreign outlets may bring attention organically to your LLC.
- Customer retention. Building genuine relationships with customers is one way to turn them into repeat customers. You might do this by leveraging your marketing materials, digital tools, and social media presence.
Starting a Washington LLC FAQ
How much does it cost to form an LLC in Washington?
Starting an LLC in Washington costs, at a minimum, $180 to file your Certificate of Formation by mail, or $200 to file online. You will also need to pay $60 every year to file a Washington LLC annual report.
Do you need a Washington registered agent for your LLC?
Yes, all LLCs in Washington must appoint a registered agent or registered agent service to receive official correspondence and legal documents. Whether you appoint an individual (including employees) or a service, they must be available during normal business hours at an in-state, physical address—no PO boxes!
How do LLC state taxes work in Washington?
Washington does not levy personal income or corporate taxes on in-state LLCs. However, all businesses in Washington are subject to a 0.471% business and occupation (B&O) tax, and those engaged in retail are subject to a 6.5% sales tax.