Opening a business in Washington State involves filing papers with the Secretary of State containing the details of your business’ legal structure, name, location, obtaining necessary permits and licenses conduct business. Below is a checklist of the items required to start a business in Washington State. A more detailed checklist can be downloaded.
Are You Buying An Existing Business?
You may also be buying unpaid debts, unpaid taxes, worker’s compensation and unemployment insurance ratings. You should require the owner to provide a Tax Status Letter.
Starting A New Business
- Choose Your Business Name
- Choose A Business Legal Structure
- Sole Proprietorship
- Sole proprietorships are allowed for individuals or married couples and do not require registration with the Secretary of State. Claims against the business can be settled from both business and the owner’s personal assets. All business revenues and expenses must be reported on the owner’s personal tax return.
- General Partnerships
- Members of a partnership are similar to owners of sole proprietorships. Claims against the business can be settled from both business assets and each partner’s personal assets. Each partner’s share of business expenses and revenues must be reported on their personal tax return.
- Limited Liability Companies (LLCs)
- Formation requires completing official forms filed with the Secretary of State (see File formation documents with Secretary of State below). Annual reporting to the Secretary of State and a federal tax ID is required. LLC members are usually not liable for debts and taxes of the LLC. For federal taxes, a single member LLC is treated as a sole proprietorship and like partnerships if there is more than one LLC owner.
- Corporations
- Registration with the Secretary of State is required (see File formation documents with Secretary of State below). Forming a corporation can range from a simple to highly complicated. Shareholders are usually not liable for corporation debts but are required to report earnings on their personal tax return. Washington State recognizes two classes of corporations (C-Corp, S-Corp) which have different methods of taxation. Corporations may elect to distribute a portion of business profits to shareholders in the form of dividends. Taxes are based on business income.
- Limited Partnerships (LPs)
- Registration with the Secretary of State is required (see File formation documents with Secretary of State below). Commonly used for real estate ownership, LPs have general partners and limited partners. General partners manage day to day operations, share fully in profits or losses and are often corporations or LLCs that shield general partners from liability. Limited partners are usually not involved in day-to-day operations.
- Sole Proprietorship
“Piercing The Corporate Veil Of Protection”
A major reason business owners choose legal structures other than sole proprietorships and similarly structured partnerships is so they won’t be personally liable for debts if the business is unable to pay its debts. However, in some situations, the courts will hold owners, members and shareholders personally liable for business debts if it determines “the corporate veil of liability protection was pierced.” In general “piercing the corporate veil” occurs if one of the incorporators co-signs a lease, loan agreement, pledges personal assets as collateral for a loan, or fails to keep business and personal finances separate. In that case, previously declared business deductions and any deferred state, local and federal employment taxes, Social Security and Medicare payments are retroactively disallowed and shareholders are held personally responsible to repay them.
Obtain A Federal Tax ID
Sole proprietorships and single-member LLCs can use their Social Security Number as their federal tax ID. Multi-member LLCs and corporations must obtain a separate federal tax ID.
Choose Your Business Location
- Even online businesses, must identify a physical location to receive official correspondence and accurately assess taxes. If your business requires a physical location, you should be prepared to answer the following questions:
- Is it is zoned appropriately?
- Are any special permits required to modify it?
- Do licensure requirements require on-site office space for regulators?
- If your business is home-based are there any city, county or homeowners association restrictions?
- The online Business Licensing Wizard will help to identify licensing and permit requirements for your business.
File Formation Documents online
You will receive a Unified Business Identifier (UBI) number by mail. Use the UBI to complete the Master Business License Application which informs all related state agencies of your business. When your registration document arrives in the mail, you can open a business bank account and complete the steps required to begin serving customers.
Other Important Steps
- Obtain Required Licenses And Permits
- Open A Business Bank Account And Fund The Account
- Set Up Operations
- Open Your Doors For Business
- Stay In Compliance With Taxes And Required Reports
- Continuing Education