12/09/2022 by Bassler Group
The Complete Guide to Establishing a Business Office in Washington State
Are you seeking to establish a business in Washington state? From filing your formation document with the Secretary of State to obtaining your Federal Tax ID Number, this blog reviews six of the most common filings and considerations for forming a business entity in the Evergreen State.
The 6 Steps to Forming a Business in Washington State
Entrepreneurs seeking to form a business in Washington can get a head start with licensing, permits, and tax IDs with this short list.
1. Choosing the Appropriate Business Entity
The first thing to do is to choose the right legal structure for your Washington business. Here are some of the most common Washington State business structures:
- Sole Proprietorship. This is applicable when no isolated legal entity is created and you operate your business as yourself or a married couple. The upside of this is, this entity enjoys flexibility of management and much fewer legal controls. Any profits you make are taxed like personal income, so you avoid “double taxation.” The downside is that the business owner is personally liable for all debts taken on by the business.
- General Partnership. When two or more persons agree to pool together money, labor, or skills towards a common business goal, it’s called a partnership. The profits and losses of the business are shared among the partners. This structure offers the same pros and cons as a sole proprietorship, but allows two or more persons to pool resources and create a business together. This entity is usually formed with a partnership agreement.. The income and or loss is then passed-through to the individual partners based on ownership.
- Corporation. This differs from the above business structures because it involves a separate legal, taxable entity. This model is more commonly adopted by large businesses or fund-raising startups. Understandably so, as it provides liability protection for most all stakeholders. This means any liabilities incurred by the business are attached to the business itself, and your personal liability exposure is limited. A downside? More minimal control at a personal level but rather the control is held by a board of directors.
- Limited Liability Company (LLC). This is the more popular choice for small businesses, as it offers both liability protection and double-taxation protection. An LLC is a hybrid entity which enjoys the benefits of all the previously discussed structures. What this means is, the business owner(s) have personal liability protection (home, cars, and bank accounts) in case of a lawsuit without facing double taxation. This means that LLC's assets and your assets are considered disconnected.
2. Apply for a Master Business License
While there are some cases in which you do not need a Master Business License, most businesses in Washington State require this license. If you plan to hire employees, collect sales tax, project you will have a gross income equal to or more than $12,000 a year, will be paying required state taxes to the Department of Revenue, and for other reasons, you will need this license. You can apply online for it, or even hire someone to do it for you, but do keep this in mind, as it will help with many things for your business, including workers’ compensation.
3. Getting an Employer Identification Number (EIN)
Along with state filings, you can get a federal Employer Identification Number, or EIN, from the IRS. This is for use when paying taxes, and you can also use it when opening business bank accounts.
With an EIN you can set up bank accounts for your business, including getting a credit card for your business. Separating your personal and business accounts keeps your personal assets safe, and makes accounting and tax filing that much easier. Getting a business credit card can help you separate personal and business expenses, and also lets you build your company’s credit history (something that can help you raise capital later on down the road).
4. Setting up Business Bank Accounts
You’ll need the Employer Identification Number and the legal name of the business. Additionally, you may also have to submit the following documents:
- The business license number or copy of the business license
- The Articles of Incorporation
- The Articles of Organization
- Meeting minutes
- Operating Agreement
You’ll also need to go through the process of legal documentation verification to open and set up a business bank account in Washington. Setting up an account helps you track the performance of your business and makes annual tax filing that much easier. You can even download your bank and credit card transactions, making tax time that much faster and easier.
5. Register with the Washington Department of Revenue
After successful business formation in Washington, registering with the Washington Department of Revenue is the natural next step. It is good to remember that applying for Washington State Business License through WA DOR will automatically register you with the Department of Revenue.
Even though Washington does not have a state income tax, it does impose a Business and Occupation (B&O) tax based on your business's gross income. Getting your business registered will boost your business credibility, give you additional legal protection and make you eligible to apply for citywide funding.
6. Worker's Compensation and Compliance
Suppose you have declared employees on your master business license application. In that case, the WA Department of Labor & Industries sets up a worker's compensation account while the WA Employment Securities Department sets up your unemployment insurance account.
You'll also receive guidance from L&I and Employment Securities, giving you numbers regarding a deduction from employees’ paychecks, quarterly report instructions, your workers’ comp rate, and workplace health & safety information.
Washington state also requires annual license renewal (or annual report). The Secretary of State handles this online filing of $71 as the Business Licensing Services. The last day of the company formation month will be the due date every year.
We’ve reviewed the most common business formation filings. These will get you registered with the state of Washington and make it easier to procure professional service support in tax, legal, and financial services.
Bassler Group brings 25 years experience setting up business management structures and providing a full suite of financial services to startup and scaleup ventures based in US, UK, and AUS. Contact us if you’re looking for financial consulting and outsourced CFO support for your business.