Picking the right business entity for your new business is a big decision. You decide to form a limited liability company (LLC), select a name, and file the Certificate of Formation for the LLC with the Washington Secretary of State. Are you good to go? Sadly, no. There is a lot more to forming – and properly maintaining — a LLC than just filing the Certificate of Formation and paying the filing fee.
First and foremost, the LLC must obtain a Washington business license from the Washington Department of Licensing, as well as a business license for any local jurisdiction in which the LLC conducts business requiring a separate license, such as the City of Seattle. If you and your CPA decide that the LLC will be taxed as a corporation, you will need to apply for a federal Employer Identification Number from the IRS. If the LLC has employees, you may need to report new hires to the Washington Department of Social and Health Services, set up a Workers Compensation account with the Washington Department of Labor & Industries, and contact the Washington Employment Security Department to set up an Unemployment Insurance account. In addition, the LLC must file an Initial Report with the Washington Secretary of State.
On top of required licensing, tax, and administrative filings, the LLC must also get its internal governing documents in order. This means working with an attorney to prepare and execute its limited liability company agreement, holding regular meetings at which minutes are kept and as required by the terms of the limited liability company agreement, and documenting major decisions in writing. A limited liability company agreement is a document that sets forth how the LLC will be governed. It may include provisions related to how and when the LLC members must hold meetings, the types of actions requiring the unanimous consent of the LLC’s members, the voting rights of the LLC’s members, and circumstances requiring the LLC to dissolve. A limited liability company agreement not only provides a useful chart for LLC members in setting a course of action in times of conflict or transition, it also helps to protect the LLC members from individual liability by demonstrating that the LLC’s members are treating the business as a separate entity from their personal affairs.
Finally, the LLC members cannot overlook maintaining the LLC with license renewals, tax filings, and filing an Annual Report with the Washington Secretary of State. Failure to file the Annual Report can result in the administrative dissolution of the LLC. If the LLC is administratively dissolved, its members may file with the Washington Secretary of State for Reinstatement, provided less than five years have passed since the administrative dissolution occurred.
The bottom line is that while the LLC may be the goldendoodle of business entities, providing the liability protection of a corporation without all of the administrative requirements, it is not maintenance free. Keeping regular records and keeping up with required tax filings, licenses, and administrative registrations are required to keep your LLC purring like a well-maintained engine. Do you have questions regarding how to maintain your LLC? We’re happy to help!
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.