Forming an LLC is one of the most popular choices for small business owners in Washington. It offers limited liability protection, a flexible management structure, and simplified taxation. But despite these benefits, many new entrepreneurs make legal missteps that can create serious problems later on.
At John L. Davis PLLC, we’ve helped many Washington businesses lay a solid legal foundation. Here are some of the most common mistakes we see when forming an LLC—and how to avoid them.
Just because LLCs are popular doesn’t mean they’re right for every business. Depending on your industry, goals, or funding plans, a corporation or partnership might serve you better. For instance, tech startups seeking venture capital often benefit more from a C-corp structure. Choosing the wrong type of entity could limit growth or create tax complications down the road.
To officially form an LLC in Washington, you must file a Certificate of Formation with the Secretary of State. Many business owners either forget to file or make small mistakes in their paperwork—misspelled names, wrong addresses, or skipped sections. These errors can delay formation or cause compliance issues. Make sure everything is reviewed carefully or let a professional handle it for you.
An operating agreement outlines how your LLC runs, including member roles, profit distribution, and decision-making. Washington doesn’t require one by law, but skipping this document can backfire. If there’s a dispute among members—or if you’re the only owner and become incapacitated—the absence of clear rules can cause confusion or court involvement. A written agreement protects your business and provides structure.
One of the biggest legal risks for LLC owners is blurring the line between personal and business money. If you use your business account to pay personal bills or don’t keep separate records, you could lose your liability protection. This is called “piercing the corporate veil,” and it means creditors might go after your personal assets. Open a separate business bank account and keep detailed records from day one.
Depending on your industry and location, your LLC might need state or local business licenses. You’ll also need to register with the Washington State Department of Revenue if you plan to collect sales tax or hire employees. Failing to do so can result in fines and delays. It’s not just paperwork—it’s essential for operating legally.
Forming your LLC is just the beginning. Washington requires all LLCs to file an annual report and maintain a registered agent. Forgetting to file or update your agent’s info can lead to administrative dissolution—essentially shutting your business down. Ongoing compliance keeps your LLC in good standing.
Avoiding these common legal mistakes can save you from future headaches. At John L. Davis PLLC, we help small business owners in Vancouver and across Washington form LLCs with confidence. A little legal guidance now can protect your business for years to come.
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