How to Convert Washington Corporation to LLC | The Ultimate Guide

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Convert Washington Corporation to LLC

When it comes to business structures, corporations and limited liability companies (LLCs) are two of the most popular options in Washington. Each business structure has advantages and disadvantages, so business owners must choose the best fit for their needs. There may come a time when a corporation realizes that converting to an LLC would be more beneficial. This comprehensive guide will walk you through Converting Washington Corporation to an LLC, discussing the reasons for conversion, the steps involved, and any potential challenges you may face.

Webinarcare Editorial Team will help you easily understand the conversion process, so you must be guided by all the factors gathered in this article.

How to Convert Washington Corporation to an LLC

Understanding Corporation and LLC in Washington

Understanding the differences between corporations and LLCs in Washington is essential for aspiring business owners and entrepreneurs. Both business structures offer distinct advantages and disadvantages, and comprehending their characteristics is crucial in making informed decisions.

Corporation

A corporation is a legal entity separate from its owners, known as shareholders or stockholders. It provides limited liability protection to its owners, meaning shareholders’ personal assets are typically shielded from company debts or liabilities. Corporations in Washington have the advantage of being able to issue stock to raise capital, making them an attractive choice for businesses seeking significant investment opportunities. However, corporations also come with additional formalities, such as regular shareholder meetings and extensive record-keeping requirements.

Limited Liability Company (LLC)

A limited liability company (LLC) is a flexible business structure that combines the advantages of both corporations and partnerships. LLCs offer limited liability protection to their owners, called members, shielding their personal assets from business debts or lawsuits. Unlike corporations, LLCs do not require as many formalities as regular meetings or extensive record-keeping. This aspect makes LLCs more suitable for small businesses or entrepreneurs who prefer a less burdensome administrative and compliance structure.

Understanding the distinctions between corporations and LLCs is crucial to determine which structure aligns best with your business goals, resources, and needs in Washington. By evaluating liability protection, taxation, ownership structure, and operational flexibility, entrepreneurs can make confident decisions when establishing their business entity in Washington.

It is suggested that you speak with a legal professional before you begin converting your Washington corporation to an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Washington.

– WEBINARCARE EDITORIAL TEAM

How to Convert Washington Corporation to an LLC

Converting a corporation to an LLC in Washington involves several steps, which may vary depending on Washington laws and regulations. Here is an outline of the steps required to convert Washington corporation to an LLC:

Step 1: Research and Understand the Conversion Process

Before embarking on the conversion process, it’s crucial to research and understands the specific requirements and steps involved in converting a corporation to an LLC in Washington. Familiarizing yourself with the relevant state laws, regulations, and necessary forms or filings will help ensure a smooth transition. 

The Washington Secretary of State will often have valuable information about the conversion process, including required forms, fees, and filing procedures. Look for sections related to business entity conversions and corporation dissolution. In converting to an LLC, hiring an LLC Service in Washington is best since it provides guidance and assistance.

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Step 2: Obtain Shareholder Approval

The second step in converting Washington corporation to an LLC is obtaining approval from the corporation’s shareholders. This typically involves holding a shareholder meeting and voting on a resolution to approve the conversion. Be sure to review the corporation’s bylaws to ensure that the proper procedures are followed.

Step 3: Prepare and File a Plan of Conversion

Washington requires that a Plan of Conversion be prepared and filed with the Washington Secretary of State. This document outlines the terms and conditions of the conversion, including the name and structure of the new LLC, the conversion’s effective date, and any other relevant information. 

In terms of naming your Washington LLC, you must adhere to the following when choosing your LLC’s name:

  • The name must include “Limited Liability Company,” “LLC,” or “L.L.C.“
  • The name cannot include words or phrases that imply the company is engaged in activities it is not authorized to conduct.
  • The name must be distinct from other registered businesses in Washington.

In Washington, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 180 days. You must file a name reservation application with the Washington Secretary of State to keep the name. 

You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for Washington DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for a DBA, you can file it in three methods, online, by mail, and in person filing.

However, before filing a DBA, you should know that you need to renew your DBA every Indefinite, which costs $24.

Be sure to review Washington’s specific requirements for a Plan of Conversion, Or you can hire the Best Washington Registered Agent Services for easier processing. 

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Step 4: File Certificate of Formation for the New Washington LLC

Along with the Plan of Conversion, you must file the Certificate of Formation in Washington for your new LLC. This document establishes the new LLC that includes information such as the LLC’s name, Registered Agent, and management structure. 

For your LLC name, you must check the availability of your desired LLC name by searching the Washington Secretary of State Corporations and Charities Filing System‘s website.

Regarding your Registered Agent, he must receive and forward legal and tax documents on behalf of your LLC, such as service of process, state tax notification, and filing Annual Report. Your Registered Agent must have a physical address in Washington and be available during regular business hours. The cost of Registered Agent in Washington ranges from $50 – $150.

With all of the information included in the Certificate of Formation, you must pay the filing fee of $200, which you can pay with the Washington Secretary of State.

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Step 5: Prepare the Operating Agreement

While not always required by state law, it’s a good idea to draft an operating agreement for the new Washington LLC. This document outlines the LLC members’ roles, responsibilities, ownership percentages, and other important operational details.

The operating agreement should include the following:

  • The roles and responsibilities of members and managers
  • The process for admitting or removing members
  • The allocation of profits and losses among members
  • The procedure for making major decisions
  • The process for dissolving the LLC

Step 6: Notify Creditors and Other Interested Parties

Inform creditors, vendors, and other interested parties of the Washington corporation’s conversion to an LLC. This can help ensure a smooth transition and maintain good relationships with those involved in your business.

Step 7: Update Tax Information

After converting to an LLC, you must update your tax information with the Internal Revenue Service (IRS) and the Washington State Department of Revenue. This includes obtaining a new Employer Identification Number (EIN) for the LLC and updating any tax accounts or registrations.

To obtain an EIN for your Washington LLC, you can apply online on the IRS website, by mail, or by fax. The online application process is the fastest and most convenient method, as you will receive your EIN immediately upon completing the application. There is no fee to obtain an EIN.

The application of an EIN in Washington can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

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As an LLC in Washington, your business may be subject to various state taxes and licenses, depending on the nature of your operations. Common taxes and licenses include:

  • Sales Tax: If your LLC sells taxable goods or services, register for Washington sales tax permit and collect sales tax from your customers.
  • Employer Taxes: If your LLC has employees, you may be required to register for Washington unemployment insurance and workers’ compensation coverage.

To ensure you comply with all applicable Washington tax and licensing requirements, you can check out the Washington State Department of Revenue and Washington Small Business Taxes for more information.

Step 8: Update Licenses and Permits

Depending on the nature of your Washington business, you may need to update or obtain new licenses and permits for your LLC. Check with the appropriate local, state, and federal agencies to ensure your LLC complies with all necessary regulations.

Reasons for Converting Washington Corporation to an LLC

When considering the conversion of a corporation to a limited liability company (LLC) in Washington, it is essential to understand the potential advantages that this change in business structure may provide. Here are some common reasons for converting Washington corporation to an LLC:

  • Tax Flexibility: One of the primary reasons Washington business owners opt to convert their corporation to an LLC is the tax benefits. While corporations are subject to double taxation, where the company’s income and the shareholder’s dividends are taxed, LLCs are considered pass-through entities. This means the business’s income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Simplified Management Structure: Another advantage of an LLC over a corporation is its simplified management structure. Washington Corporations have a more complex structure with shareholders, One directors, and officers, while an LLC is managed by its members or designated managers. This can make decision-making and operations more straightforward for small businesses.
  • Reduced Administrative Requirements: Washington LLCs generally have fewer administrative requirements than corporations, such as lower Annual Report fees and less stringent record-keeping rules. This can save Washington business owners time and money, allowing them to focus more on growing their businesses.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer an LLC’s specific liability protections over a corporation.

Challenges and Considerations

When converting a corporation to an LLC in Washington, it is essential to consider the potential challenges and implications of the conversion process. Here are some challenges and considerations to keep in mind:

  • Tax Implications: Although converting Washington corporation to an LLC can offer tax benefits, it’s essential to consider the potential tax implications of the conversion. In some cases, the IRS may treat the conversion as a taxable event, which could result in additional taxes being owed. Consult with a tax professional to understand the tax implications of converting your corporation to an LLC in Washington.
  • Legal and Financial Advice: Converting Washington corporation to an LLC can be a complex process, and it’s essential to seek legal and financial advice to ensure that the conversion is done correctly in the business’s best interests.
  • Timing: Converting Washington corporation to an LLC can take time, particularly if there are regulatory approvals or other requirements to be met. Be prepared for the conversion process to take several weeks or even months to complete.

Benefits of Converting Washington Corporation to an LLC

Converting a corporation to a limited liability company (LLC) can benefit business owners. These advantages can include:

  • Tax Flexibility: One of the primary benefits of converting Washington corporation to an LLC is the potential tax advantages. While corporations are subject to double taxation (the company’s income and the shareholder’s dividends are taxed), LLCs are generally considered pass-through entities for tax purposes. This means the business income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer the specific liability protections provided by an LLC over a corporation, depending on the nature of their business and the potential risks involved.
  • Increased Flexibility in Profit Distribution: Unlike Washington corporations, which typically distribute profits according to the percentage of shares owned, LLCs can offer more flexibility in profit distribution among members. This can be particularly advantageous for businesses with multiple owners who contribute differently to the company’s success.
  • Potential for Easier Transfer of Ownership: Depending on the specific rules and regulations in Washington, transferring ownership of an LLC may be easier than transferring ownership of a corporation. This is an important consideration for business owners who plan to sell or transfer their business.

While the benefits of converting Washington corporation to an LLC can be significant, it’s essential to carefully consider the potential challenges and implications of the conversion process.

FAQs

Can a Washington corporation be converted to a limited liability company?
Yes, a Washington corporation can be converted to an LLC.
What is the process of converting a Washington corporation to an LLC?
The process involves filing a certificate of conversion with the Washington Secretary of State.
What are the advantages of converting a Washington corporation to an LLC?
LLCs offer limited liability protection as well as flexibility in taxation and management structure.
Do I need to dissolve my Washington corporation before converting to an LLC?
No, you don’t need to dissolve the corporation before converting to an LLC.
Are there any tax implications of converting a Washington corporation to an LLC?
There may be tax implications, especially if the corporation has elected S corporation status.
Will the name of the entity change when converting a Washington corporation to an LLC?
No, the name can remain the same or it can be changed during the conversion process.
How long does the process of converting a Washington corporation to an LLC take?
It usually takes several weeks for the process to be completed.
Can the conversion process be expedited in Washington?
Yes, it is possible to expedite the process for an additional fee.
Will the assets and liabilities of the Washington corporation be transferred to the LLC?
Yes, the assets and liabilities will be automatically transferred to the LLC upon conversion.
Will the shareholders of the Washington corporation become members of the LLC?
Yes, the shareholders will become members of the LLC.
What happens to the articles of incorporation of the Washington corporation after conversion?
The articles of incorporation become the articles of organization for the LLC.
What is required to file a certificate of conversion in Washington?
The certificate of conversion must include certain information about the corporation and the LLC.
Can the Washington corporation continue to operate during the conversion process?
Yes, the corporation can continue to operate until the conversion is complete.
What is the fee for converting a Washington corporation to an LLC?
The fee varies depending on the type of entity and the type of filing.
Can the conversion process be reversed in Washington?
No, the conversion cannot be reversed once it has been completed.
Do I need to notify my creditors when converting a Washington corporation to an LLC?
Yes, it is recommended to notify all creditors of the conversion.
Can a Washington corporation that has suspended status be converted to an LLC?
No, the corporation must be in good standing to be converted to an LLC.
Are there any restrictions on the types of businesses that can convert in Washington?
Generally no, any Washington corporation can convert to an LLC.
Will the EIN of the Washington corporation remain the same after conversion?
Yes, the EIN will typically remain the same.
Can an out-of-state corporation convert to a WA LLC if it wants to do business in Washington?
Yes, it is possible for an out-of-state corporation to convert to a WA LLC.
Can a nonprofit Washington corporation be converted to a WA LLC?
No, nonprofit corporations must dissolve and incorporate as a nonprofit LLC in Washington.
How will the 4-tiered business and occupation tax be affected by conversion?
The answer depends on the structure of the new LLC. Consulting a tax professional is advised.
What is the difference in management structure between a Washington corporation and an LLC?
Corporations have a board of directors and officers, while LLCs can be managed by members or managers, as stated in the operating agreement.
How much liability protection does converting a Washington corporation to an LLC offer?
LLCs offer liability protection to limit an owner’s personal responsibility for the company’s business debts and lawsuits.
What is the process for amending the articles of organization for an LLC in Washington?
All LLCs must file an annual report on which legal and operational changes can be disclosed and amended on that report.
Once an LLC has been established for a Washington business, is an income tax return for the WA Department of Revenue still required?
Yes, LLC’s are still required to turn in income information with the Department of Revenue.
Must amendments of articles of organization with a dating effect be of the same defined period as the creation of the articles of organization?
No.
Can members or managers be found responsible for an LLCs unpaid taxes or dues, like with directors of corporations?
Generally, no.
Can non-profit LLC structures currently legally form in Washington state?
Yes, a nonprofit LLC is permitted in Washington.
What is the process of converting a corporation to an LLC in Washington?
The process typically involves filing formation documents with the Washington Secretary of State and obtaining any necessary business licenses and permits.
Can an out-of-state corporation convert to an LLC in Washington?
Yes, but the corporation will need to qualify to do business in Washington first.
What advantages does an LLC offer over a corporation in Washington?
LLCs offer greater flexibility in management and tax structure, as well as having more straightforward reporting requirements.
Are there any disadvantages to converting to an LLC in Washington?
It may be more difficult to raise capital as an LLC, and there may be differences in legal liability.
Is it more expensive to form an LLC or a corporation in Washington?
Generally, LLC formation is less expensive than creating a corporation.
How much does it cost to convert a Washington corporation to an LLC?
The cost will depend on the specific circumstances of the business and may include filing fees, legal fees, and other expenses.
Can I convert my Washington corporation to an LLC on my own, or should I hire an attorney?
While it is possible to handle the conversion process yourself, it is recommended to work with an experienced attorney to ensure all the legal requirements are met.
Will converting to an LLC affect my Washington business licenses?
It may, but you should be able to transfer any necessary licenses and permits to the new LLC.
Do I need to file any documents with the Washington Department of Revenue when converting to an LLC?
Yes, you will need to update your registration with the Department of Revenue to reflect the new LLC structure.
How long does the Washington LLC conversion process take?
The timeframe may vary depending on the specifics of your business but generally takes a few weeks to a few months.
Can shareholders challenge the decision to convert your Washington corporation to an LLC?
Shareholders may have the right to object to major business decisions, but the specific legal requirements will depend on your corporation’s bylaws.
Will converting to an LLC impact how my business is taxed in Washington?
Yes, as an LLC, you will have more tax flexibility and be able to choose how your business is taxed.
Do I need to hold a meeting of shareholders and directors when converting to an LLC in Washington?
It is typically not required, but you should review your corporation’s rules and bylaws to confirm.
Can I change my corporation’s name when converting to an LLC?
Yes, as part of the conversion process, you can change your business name but should ensure the new name is available in Washington.
Will the Washington Secretary of State notify my shareholders of the LLC conversion?
No, it is typically up to the business owner to inform shareholders of the decision to convert.
Do I need to file any documents with the Internal Revenue Service when converting to an LLC in Washington?
Potentially yes, depending on how your LLC will be taxed; you should consult a tax professional for guidance.
Are there any special considerations for converting a Washington nonprofit corporation to an LLC?
Yes, the specific rules and regulations around nonprofit corporations will need to be considered in the conversion process.
Once I convert to an LLC, can I convert back to a corporation in Washington?
Yes, but it may not be a smooth or straightforward process.
Will existing contracts with my corporation be affected by the LLC conversion?
It may be necessary to renegotiate contracts or seek legal guidance to determine how contracts should be handled.
Will the LLC conversion impact any existing loans or debt?
It may, and you should consult with any lenders or creditors to ensure the process goes smoothly.
Do I need to dissolve my corporation before converting to an LLC in Washington?
No, the conversion process should legally dissolve the corporation.
Can I still have shareholders and directors with an LLC in Washington?
Yes, but the management structure of an LLC is typically more flexible than that of a corporation.
Are there any specific rules for LLCs in Washington that I should be aware of?
Yes, all LLCs in Washington are required to have a registered agent and must file annual reports with the Secretary of State.
If I convert to an LLC, will I become personally liable for business debts?
An LLC typically provides more protection against liability compared to a corporation, but specific circumstances will need to be considered.
Can I convert to an LLC and keep my existing federal employer identification number (EIN)?
It depends on the specific circumstances, but an LLC may need to obtain a new EIN.
Is there a specific timeframe by which I need to complete the LLC conversion process in Washington?
No, but you should aim to complete the process as soon as possible to minimize any potential legal complications.
Will I need to amend my articles of incorporation when converting to an LLC in Washington?
Yes, you will need to file new documents with the Secretary of State to reflect the LLC structure.
If I convert to an LLC, does that mean my personal assets are protected in case of a business lawsuit?
Yes, an LLC typically offers more protection for personal assets compared to a corporation.
Can I operate the LLC under a different name than the original corporation name?
Yes, but you will need to ensure the name is available and in compliance with Washington’s naming requirements.

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Conclusion

Converting Washington corporation to an LLC can offer significant benefits for your business, including tax flexibility, simplified management, and reduced administrative requirements. However, it’s essential to carefully consider the potential challenges and implications of the conversion process. Following the steps outlined in this guide and seeking professional advice, you can successfully convert your corporation to an LLC and position your business for continued success.

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