Getting it Right: Three Tips for Incorporating Your Business in Washington

By July 22, 2015 February 25th, 2020 No Comments

3340589299_a8a6d3bfe5_zWashington corporations have played an essential role in our local business community for a long time. Washington lawmakers enacted the Uniform Business Corporation Act in 1928. This sharply contrasts with the new kid on the block – limited liability companies, or LLCs. Washington’s legislature enacted the Limited Liability Company Act in 1994.

Are you thinking about incorporating your business? Here are three things you need to know:

  1. Get the Structure Right

Many people form their corporations online at the Washington Secretary of State’s website. Answer a few questions, plug in your credit card information, and you’re done – right? Not so fast. Yes, in a way you’re done – you’ve successfully formed a corporation in the eyes of the State. But, why did you form the corporation? If you formed it because you want to protect your personal assets from business liabilities, it’s highly questionable whether your newly formed entity will do the trick.

If your corporation gets sued, you will likely be asked to produce a variety of corporate governance documents including the Articles of Incorporation, corporate Bylaws, documents evidencing the issuance of stock, and resolutions and/or minutes of the meetings of both the shareholders and the Board of Directors of your corporation. If you can only produce a one-page form from the Secretary of State’s website, it supports an argument that you are not really operating as a corporation, so they should be able to “pierce the corporate veil” and reach your individual assets as well as the assets of the business.

A corporation is more than a one-page form. A corporation operates, on a daily basis, as a separate business entity – even if it’s owned by one person. Will the corporation be changing banks? Approving a commercial lease? Entering into a loan? Purchasing another business? If so, the corporation needs to document those decisions with appropriate minutes or resolutions of the shareholders and Board of Directors. And, who are the shareholders? What percentage of the business do they own? The one-pager does not set this out.

The one-pager does say who the Board of Directors are. But, did you know those people need to be elected annually? Did your corporation actually hold an election? If you don’t get your corporate structure right, it’s impossible to get your business right. Why would you invest time and energy in developing a business with a lousy structure? It would be just like purchasing a home with a poorly built foundation, and then updating the kitchen and bathrooms while ignoring the structural issues.

  1. Get the Relationships Right

What happens if you own your corporation with three other people, and you get into a fight? Do you go to court to resolve it? Or, what happens if one shareholder dies, and her husband wants immediate payment for her portion of the business? Do you pay up, even if the amount is so high that you need to close your doors? Or, suppose one shareholder decides to sell his interest, and puts it on craigslist? What’s stopping him from doing that? Nothing. Unless, you were smart – and you entered into a buy-sell agreement with all of the owners to govern the sale of the business, and all of the other potential pitfalls that come into play with multiple business owners. Getting the relationships right means having direct conversations with your fellow business owners, and then hiring counsel to get it all down on paper.

  1. Stay on the Right Track – Maintain the Corporation

There’s only one thing worse than relying on the one-pager from the Secretary of State’s office. That would be having five, 10, or 20 years go by, and never doing anything to maintain your corporation other than paying the annual fee and, again, filling out the one-page form. Did you know corporate shareholders are required by law to have annual meetings? Once you’ve worked with your attorney to get the right corporate structure in place, and to develop a written buy-sell agreement between the shareholders, you’re still not done. You need to follow up on an on-going basis to make sure annual corporate meetings are being conducted, key decisions are being documents by resolutions and minutes, and all the crazy things that come up for any business are being appropriately handled from a legal standpoint.

Need help? Have questions? Please contact us. We’re happy to help you form your corporation right, or get your already-formed corporation on the right track.

Photo credit: David Wall on Flickr

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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