Corporation to LLC: Washington Conversion Guide 2024

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How to Convert Corporation to LLC in Washington

The decision to convert a corporation to an LLC in Washington can provide numerous benefits, including improved tax flexibility, simplified management, and reduced compliance burdens. If you’re considering this strategic move, our comprehensive guide will support you through the process of starting an LLC in Washington, equipping you with the knowledge to successfully convert your corporation to an LLC in Washington.

At LLCBase, we aim to make the transition as smooth as possible by providing a step-by-step guide that covers legal requirements, tax implications, and necessary paperwork. Let’s explore the exciting world of corporation-to-LLC conversions in the dynamic Washington business landscape!

What are a Corporation and an LLC

A corporation is a type of business structure that is a separate legal entity from its owners, known as shareholders. This legal distinction provides shareholders with limited liability protection, meaning their personal assets are not at risk in the event of the corporation’s debts or legal issues. Corporations are subject to more stringent regulations and requirements than other business structures, such as keeping detailed records, holding annual meetings, and filing separate tax returns. Corporations can also issue shares of stock to raise capital and can exist perpetually beyond the life of their owners.

On the other hand, an LLC, or Limited Liability Company, combines a corporation’s limited liability protection with the operational flexibility of a partnership or sole proprietorship. In an LLC, the business owner, known as a member, has personal liability protection, meaning their personal assets are not at risk in case of the business’s debts or legal issues. LLCs also have flexible tax options, as they can be taxed as a pass-through entity (like a sole proprietorship or partnership) or a corporation. This type of business structure is more straightforward to set up and manage than a corporation and offers legal and tax benefits for the owner.

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9 Steps to Convert From Corporation to LLC

Converting your corporation to an LLC in Washington is made simple with our 9-step process. By following these steps, you’ll receive expert guidance through each conversion stage, ensuring a smooth and efficient transition for your business.

We’ve also compiled a list of the best business attorneys in Washington who can provide valuable legal services when converting from a Corporation to an LLC. Browse through their expertise for the perfect assistance!

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If you decide to do it yourself, just follow the following steps of converting a corporation to an LLC below:

Step 1: Research Washington LLC Conversion Laws

Before starting the process, it’s essential to understand the specific laws and regulations governing LLC conversions in your state. To gather accurate information, visit your state’s Washington Secretary of State website and other government resources, such as the Washington State Department of Revenue and Washington Secretary of State. These resources will provide the necessary guidelines, requirements, and forms for converting a corporation into an LLC in Washington.

As you research, you must familiarize yourself with required fees, such as the $200, which may vary depending on the state. Additionally, take note of any relevant tax rates that may apply to your new LLC, including the 0%; Washington has no state corporate income tax income tax and 6.50% sales tax. Understanding these tax rates will help you make informed decisions about your business structure and ensure that your conversion to an LLC in Washington complies with all state-specific tax laws.

In some cases, additional requirements or regulations may apply to specific industries or business activities. Be sure to research industry-specific regulations and consult an attorney if you have questions about your situation.

Overall, thorough research is critical for successfully converting your corporation to an LLC in Washington. By understanding the state-specific laws and requirements, you’ll be better prepared to navigate the conversion process and make the transition as seamless as possible.

Step 2: Determine the Type of Conversion

In some states, you can convert a corporation to an LLC using either statutory conversion or statutory merger. These two methods have distinct processes and requirements, so it’s crucial to research their differences and choose the best fit for your situation.

A statutory conversion is a more straightforward process wherein a corporation directly converts into an LLC. This method typically involves filing Articles of Conversion with the Washington Secretary of State and paying the associated state incorporation fee. 

On the other hand, a statutory merger involves merging the existing corporation with a newly formed LLC, effectively transferring the corporation’s assets and liabilities to the LLC. This process may require additional documentation, such as a Plan of Merger or Articles of Merger, and might be subject to a separate fee.

Factors to consider when choosing between these two methods include the complexity of the process and if the two methods, online and by mail is available in your state. Additionally, take note of the associated incorporation fee of$180 for online and by mail filing, as this may impact your decision.

If you need more clarification or are trying to decide which conversion method is best for your situation, consult a business attorney. They can help you navigate the complexities of the process and ensure that you comply with all state-specific laws and regulations for converting a corporation to an LLC in Washington.

Step 3: Hold a Shareholder Meeting

Notifying all corporation shareholders about your plans to convert to an LLC in Washington is crucial in the conversion process. To do this, schedule a shareholder meeting to discuss the conversion, its benefits, and potential challenges. Ensure that you provide adequate notice to all shareholders as required by your corporation’s bylaws or state regulations.

During the meeting, present your case for converting the corporation to an LLC, addressing any concerns or questions from shareholders. Depending on your corporation’s bylaws and Washington regulations, you may need to obtain approval from a specific percentage of shareholders (voting threshold) to proceed with the conversion.

It’s essential to document the meeting minutes accurately, including the details of discussions, any voting results, and the resolutions approving the conversion. These records may be required when filing the Certificate of Existence and any necessary Amended Certificate of Formation documents with the Washington Secretary of State. Proper documentation can also help protect the company and its shareholders in case of any future disputes or legal issues related to the conversion.

Step 4: File the Necessary Documents

Once you have determined the type of conversion and obtained shareholder approval, the next step is to file the required documents with the Washington Secretary of State. Depending on the conversion method you’ve chosen, the forms you need to submit may vary:

  1. Statutory Conversion: If using this method, file the Articles of Conversion, which provide details about your corporation and the new LLC, including the name, principal address, and Registered Agent information. 
  2. Statutory Merger: In this case, you’ll need to submit a Certificate of Merger or similar document outlining the merging entities, the surviving LLC’s name and structure, and the terms and conditions of the merger.

Be sure to include all necessary information in these documents and double-check for accuracy to avoid any delays or issues during the filing process. When submitting your paperwork, pay the required fees, such as the $200 (online and $180 by mail).

In addition to the conversion documents, ensure you meet the state name reservation period of 180 days requirements for reserving your new LLC’s name. Depending on your state’s regulations, you may need to pay the $30 or $30 to reserve your desired name. Remember that some states may have specific naming conventions or restrictions for LLCs that you need to follow.

Step 5: Create an LLC Operating Agreement

Draft an operating agreement for your new Washington LLC. This document outlines your LLC’s management structure, ownership, and operational rules. While not always legally required, having a well-drafted operating agreement is crucial for protecting your business, establishing clear guidelines, and avoiding future disputes among members.

When creating your LLC operating agreement, be sure to address the following items specific to your Washington:

  • Annual report requirements: Detail the frequency and deadlines for filing an annual report in Washington, if applicable. In Washington, the annual report must be filed every 1 year (last day of the anniversary month). Clarify the information required for these reports and assign responsibility for their timely submission.
  • Annual fee obligations: Specify the $60 that your LLC must pay to maintain its good standing in Washington. Outline the payment process, including relevant deadlines and the party responsible for payment.
  • Franchise tax: Your Washington LLC is subject to an annual franchise tax of No franchise tax, including information about the tax rate, calculation method, filing deadlines, and payment procedures. Make it clear which member or manager is responsible for managing and submitting the franchise tax payments.
  • Franchise tax penalty: If your LLC fails to submit the annual franchise tax on time, outline the potential late filing fees and penalties that may apply. In Washington, the penalty for late filing of franchise tax is in Washington, there is no late filing.  Specify the procedure for addressing late payments and resolving any issues with the Washington tax office.

Addressing these critical aspects in your operating agreement ensures that your Washington LLC remains compliant with all state regulations and requirements, minimizing the risk of penalties or disputes among members.

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Step 6: Obtain New EIN

Apply for a new EIN from the IRS for your Washington LLC. This unique nine-digit number is assigned to your business for tax, reporting purposes, and other essential functions. You can apply for an EIN online through the IRS website, which is often the fastest and most convenient method. Alternatively, you may apply via mail or fax by submitting Form SS-4, depending on your preference and the urgency of your application.

Once you have obtained your new EIN, updating all relevant tax and business documents with your new number is crucial. This includes updating the Exemption Application filed with the Washington State Department of Revenue to ensure accurate reporting and compliance with Washington tax regulations. Additionally, update any other federal, state, and local tax forms or registrations that require your EIN, such as payroll tax filings, sales tax permits, and any required business licenses or permits.

Inform your bank, financial institutions, and other relevant parties of your new EIN to ensure all accounts, loans, and financial transactions are associated with your Washington LLC’s correct tax identification number.

By obtaining a new EIN and updating all relevant documents and accounts, you can ensure a smooth transition of your business operations under your new Washington LLC structure, maintaining compliance with all tax and reporting requirements.

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Step 7: Update Licenses and Permits

Notify all relevant federal, state, and local agencies of your business’s conversion to an LLC in Washington. This includes but is not limited to, the Washington Secretary of State, the  Washington State Employment Security Department, the Washington Secretary of State, the Washington State Department of Revenue, and any other regulatory bodies overseeing your industry or business activities. Informing these agencies of your new LLC structure ensures that your business remains compliant with all applicable regulations and maintains accurate records.

Update any Washington licenses, permits, or registrations your business holds to reflect your new Washington LLC structure and ownership. This may involve applying for new licenses or permits, transferring existing ones, or amending the information on file with the issuing agencies. Review the specific requirements and procedures for each license or permit, as these may vary between federal, state, and local levels.

In addition to updating your licenses and permits, you may need to update your information with the Washington Secretary of State. This could include filing an amendment to your Certificate of Formation  or notifying the Washington Secretary of State of changes to your Registered Agent or business address. Consult the Washington Secretary of State website or contact their office for guidance on updating your business’s information following the conversion to an LLC.

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Step 8: Inform Creditors and Other Stakeholders

Notify all creditors, suppliers, customers, and other stakeholders of your corporation’s conversion to an Washington LLC. This ensures they know the change and can update their records, contracts, and invoices accordingly. Be transparent and proactive in communicating this information to maintain trust and minimize potential disruptions to your business relationships.

Be prepared to provide these parties with any necessary documentation related to the conversion, such as your new EIN, updated operating agreement, or new licenses and permits. Providing this information on time can help facilitate a smooth transition and keep your business operations running smoothly.

Step 9: Close the Corporation

After completing the conversion process and successfully establishing your new Washington LLC, you may be required to dissolve the corporation formally. Dissolving the corporation ensures that it is no longer considered a separate legal entity and releases you from any ongoing compliance obligations related to the corporation.

Follow your state’s guidelines for dissolving a corporation in Washington, which can typically be found on the Washington Secretary of State website or by contacting their office. The process may involve submitting a Certificate of Dissolution or similar document and any required fees.

As part of the dissolution process, you may need to file a final tax return for the corporation, settle any outstanding debts or liabilities, and distribute the remaining assets to shareholders by your corporation’s bylaws or state law. Consult with legal and financial advisors to ensure you complete all necessary steps to dissolve the corporation properly and comply with your state’s regulations.

By diligently informing all stakeholders of your corporation’s conversion to an Washington LLC and formally dissolving the corporation, you can ensure a seamless transition and protect your business interests as you move forward under the new LLC structure.

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Why Change from Corporation to LLC in Washington

While both entities offer limited liability protection to their owners, there are several reasons why converting to an LLC may be beneficial. Let’s explore why business owners may change from a corporation to an LLC in Washington.

  • Tax Flexibility: One of the most significant advantages of an LLC over a corporation is its tax flexibility. By default, LLCs are considered pass-through entities for tax purposes, meaning that the company’s profits and losses are passed through to its members, who report them on their personal income tax returns. This avoids the double taxation faced by corporations, where profits are taxed at the corporate level and again at the individual level when dividends are distributed to shareholders. By converting to an LLC in Washington, business owners can take advantage of pass-through taxation, potentially resulting in significant tax savings. Also, LLCs can be taxed as a corporation if it becomes more advantageous.
  • Simplified Management Structure: LLCs offer a more flexible and straightforward management structure than corporations. While corporations require a board of directors to oversee the company’s operations and make major decisions, LLCs can be managed directly by their members (member-managed) or appoint managers to oversee business operations (manager-managed). By converting to an LLC in Washington, business owners can streamline their company’s management structure and reduce the administrative burden associated with maintaining a board of directors, holding shareholder meetings, and keeping minutes of all corporate meetings.
  • Fewer Compliance Requirements: LLCs typically have fewer compliance requirements than corporations, making them easier to maintain and manage. For example, LLCs can hold annual meetings, maintain a board of directors, or adhere to corporations’ formalities. By converting to an LLC in Washington, business owners can reduce the time and resources spent on meeting various compliance requirements, allowing them to focus more on their core business operations.
  • Increased Asset Protection: LLCs may offer additional asset protection benefits in some states than corporations. For example, some states provide charging order protection for LLCs, which limits a creditor’s ability to seize a member’s ownership interest in the LLC. This can be particularly important for business owners concerned about protecting their personal assets from potential business liabilities. By converting to an LLC in Washington, business owners may be able to take advantage of these additional asset protection benefits, depending on the specific regulations in Washington.
  • Customizable Operating Agreement: LLCs can create a customized operating agreement that outlines the company’s management structure, ownership, and operational rules. This allows business owners to tailor the agreement to suit their specific needs and preferences instead of the more rigid bylaws required by corporations. By converting to an LLC in Washington, business owners can create an operating agreement that better aligns with their business goals and desired management structure.

FAQs

What is the process of converting a corporation to an LLC in Washington?
The process of converting a corporation to an LLC in Washington involves filing some paperwork and ensuring that legal formalities ‒ such as obtaining any necessary permits or licenses ‒ are satisfied.
What fees are involved in converting a corporation to an LLC in Washington?
The fees involved in converting a corporation to an LLC in Washington depend on the specific details of your situation and can include costs such as filing fees and fees associated with obtaining any necessary permits.
What should I consider before deciding to convert a corporation to an LLC in Washington?
You should consider things such as liability protection and taxes before deciding to convert a corporation to an LLC in Washington.
Can I convert my out-of-state corporation to an LLC in Washington?
Yes, you can convert your out-of-state corporation to an LLC in Washington as long as you file the necessary paperwork with the state.
Do I need to file any forms or paperwork to convert my corporation to an LLC in Washington?
Yes – to convert a corporation to an LLC in Washington, you will need to file certain forms with the state.
Is it difficult to convert a corporation to an LLC in Washington?
The difficulty of converting a corporation to an LLC in Washington varies based on the specific details of your situation and how smoothly the process goes.
How long does it take to convert a corporation to an LLC in Washington?
The amount of time it takes to convert a corporation to an LLC in Washington depends on a variety of factors, including how long it takes to file necessary paperwork and comply with legal formalities.
Can I convert my LLC to a corporation in Washington after I’ve already converted it?
Yes, you can convert an LLC to a corporation in Washington after you’ve already converted it, though this may involve filing additional paperwork.
What is the first step I need to take to convert my corporation to an LLC in Washington?
The first step to convert your corporation to an LLC in Washington is to determine whether doing so is the right move for your business.
What advantages will I gain from converting my corporation to an LLC in Washington?
Advantages of converting a corporation to an LLC in Washington can include lower tax liability, greater flexibility in management structure, and increased protection from liability.
What disadvantages might I face after I’ve converted my corporation to an LLC in Washington?
Depending on their specific situation, businesses that convert a corporation to an LLC in Washington might face disadvantages such as increased difficulty in obtaining financing or a potentially higher tax obligation.
What should I do if I’m unsure whether converting my corporation to an LLC in Washington is the right move for my business?
Consulting with an attorney or legal professional experienced in the nuances of corporate transactions can be a helpful step for businesses considering a conversion to an LLC in Washington.
Should I talk to a bank before I convert my corporation to an LLC in Washington?
Yes, speaking with your bank to evaluate your financing options after a conversion from a corporation to an LLC in Washington can be helpful.
What types of liability-conscious paperwork or companies should I speak to when preparing to convert my corporation to an LLC in Washington?
Business owners who are interested in converting a corporation to an LLC in Washington may want to speak with business and liability insurance brokers as well as other professionals with experience working in Washington state corporate law.
In general, are LLC’s subject to more stringent rules than corporations in Washington, or less?
Whether an LLC or corporation is subject to more stringent rules in Washington depends on a variety of factors, including the specific characteristics of the business and regulations within the industry.
What’s the first question a business owner should ask themselves after considering the advantages an LLC may offer?
The first question you should ask yourself after considering the advantages an LLC may offer to your business is whether making such a conversion will be beneficial in the long run.
What will happen to the old company bylaws after a corporation is converted to an LLC?
Bylaws from a corporation that has been converted to an LLC will not carry the same legal weight and will likely need to be restructured.
What are the primary reasons that corporations convert to LLC’s in Washington as of 2021?
Businesses converting to an LLC in Washington as of 2021 are primarily doing so in order to reduce tax liability and gain greater flexibility in their management structure.
After converting a corporation to an LLC in Washington, what changes should business owners expect in day-to-day operations?
Changes you may experience in day-to-day operations after converting a corporation to an LLC in Washington will depend on the specific details of your business, but could include a loosening of corporate formalities and potential tax savings.
Can corporations reduce ownership tax by converting to an LLC in Washington?
In some cases, corporations can qualify for tax savings if they convert to an LLC in Washington.
Is a business owner’s personal ownership after a corporation LLC conversion diluting, or do they control the same amount of ownership percentage?
A business owner’s percentage ownership stake generally will not change after a corporation is converted to an LLC.
Do I need new tax IDs and may I be charged for these when changing a Corporation into an LLC?
Businesses converting a corporation into an LLC in Washington may need to apply for a new tax ID number, and this may carry a fee.
After converting a my corporation to an LLC in Washington, will the state charge me fees each year for upkeep purposes?
Owners of an LLC formed by converting a corporation in Washington can expect to pay an annual renewal fee to keep the LLC in good standing under the laws of the state.
Can a Washington corporation convert back to an LLC with ease or are restrictions in place?
In many cases, businesses that have converted a corporation to an LLC in Washington can reopt to revert back to corporation status with relative ease, though potentially with additional taxation fees.
What agreements will my new LLC need, and will contracts or assets need modification, when I convert my corporation to an LLC?
An LLC composed of a former corporation in Washington will require new statutes, standard documents, and contracts appropriate for adoption, as well as carefully modifying records and assets as required.
What forms must I file to Washington if the principle force behind my previously incorporated company is leaving and wants to re-incorporate / register as an LLC instead?
If you’re planning on converting your corporation to an LLC in Washington and have a principal leaving to try to incorporate once again in another place or different way, contact the Office of the Secretary of State for specific necessary filings.
What earnings minimums or limit will my WA corporation face when converting to an LLC?
Corporations converting to LLCs in Washington following 2020 are not held tightly according to earnings gauges, although alternative benefit standards usually exist involving reducing liability concerns.
Do owners of LLC’s based on corporations get personal tax-year leeway accruing from tax expenditures of the business?
Owners of converting corporations into LLCs in Washington can carry the tax advantages for personal use in certain situations.
Following a WA-based corporation’s qualification as an LLC, will there be a guidelines list issued vis-a-vis reporting structures?
In order to avoid hefty organizational structures post alteration into an LLC, a modified regulations list detailing such provisions must be filed to remind personnel of constraints on operations.
What is an LLC in Washington?
LLC stands for Limited Liability Company and it is a legal entity that provides limited liability to its members while giving them flexibility in running their business.
Can a corporation be converted to an LLC in Washington?
Yes, a corporation can be converted to an LLC in Washington.
Is it mandatory to convert a corporation to an LLC in Washington?
No, it is not mandatory to convert a corporation to an LLC in Washington, it is up to the business owners to decide the best course of action.
What are the benefits of converting a corporation to an LLC in Washington?
Some benefits of an LLC include less paperwork, limited liability protection for members, pass-through taxation, and more flexibility in management.
What are the requirements to convert a corporation to an LLC in Washington?
The requirements include filing an Articles of Conversion with the Secretary of State, satisfying any existing obligations of the corporation, and changing necessary legal documents.
Can a corporation in Washington convert to an LLC without dissolving the corporation?
Yes, it is possible to convert a corporation to an LLC without dissolving the corporation, this is called a statutory conversion.
What is required for a statutory conversion in Washington?
In addition to filing the Articles of Conversion, the corporation must comply with certain requirements, including publishing notice of intent to convert in a newspaper in the county where the corporation’s principal place of business is located.
Can a shareholder of the corporation object to the conversion to an LLC in Washington?
Yes, a shareholder can object to the conversion of a corporation to an LLC in Washington, but they must follow certain legal steps.
How are taxes paid after a corporation is converted to an LLC in Washington?
After the conversion, the LLC will file its taxes as a pass-through entity and its members will report their share of the income on their individual tax returns.
Is there a fee for converting a corporation to an LLC in Washington?
Yes, there is a fee for converting a corporation to an LLC in Washington, the fee will vary depending on the entity type and status.
Can a nonprofit corporation be converted to an LLC in Washington?
No, a nonprofit corporation cannot be converted to an LLC in Washington, as an LLC cannot be a nonprofit entity.
Can a foreign corporation convert to an LLC in Washington?
Yes, a foreign corporation can convert to an LLC in Washington, as long as it meets all the requirements and pays any applicable fees.
Do the assets of the corporation transfer to the LLC upon conversion in Washington?
In most cases, the assets of the corporation will transfer to the LLC upon conversion in Washington.
How are debts and liabilities handled during the conversion of a corporation to an LLC in Washington?
In most cases, debts and liabilities of the corporation will transfer to the LLC upon conversion in Washington.
Is it necessary to obtain new licenses and permits in Washington after conversion from a corporation to an LLC?
Yes, the LLC will likely need to obtain new licenses and permits in Washington upon conversion, as the entity structure has changed.
Can a professional corporation be converted to an LLC in Washington?
Yes, a professional corporation can be converted to an LLC in Washington, as long as it meets the necessary requirements.
Does the conversion of a corporation to an LLC affect the company’s contracts in Washington?
In most cases, the company’s contracts will remain in effect after the conversion from a corporation to an LLC in Washington.
What is the first step to convert a corporation to an LLC in Washington?
The first step is to draft and file articles of conversion with the Washington Secretary of State.
Are filings required with state and local agencies in Washington after converting a corporation to an LLC?
Yes, filings are required with both state and local agencies in Washington after converting a corporation to an LLC.
Can the name of a corporation be used for the LLC after conversion in Washington?
Yes, the name of the corporation can be used for the LLC after conversion in Washington.
Can the tax status of the corporation be retained after conversion to an LLC in Washington?
No, the tax status will change when the corporation converts to an LLC in Washington.
What happens when the shareholders or directors of the corporation disagree on conversion to an LLC in Washington?
The business needs to follow specific procedures and obtain specific approvals with the corporations statute.
Will the conversion of a corporation to an LLC affect copyrights or patents held by the corporation in Washington?
No, the copyrights and patents will remain in effect after the conversion from a corporation to an LLC in Washington.
Can all the corporation’s assets transfer to the LLC once converted in Washington?
Yes, all assets can usually transfer to the LLC in Washington upon conversion.
What about outstanding litigation and lawsuits when the corporation converts to an LLC in Washington?
In most cases, all outstanding litigation and lawsuits will carry over to the LLC in Washington upon conversion.
What happens to ownership shares in the corporation after conversion to an LLC in Washington?
The ownership shares will be converted to membership interest in the LLC in Washington, with each member owning a percentage of ownership.
Can an LLC have only one member in Washington?
Yes, an LLC can have only one member in Washington.

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Conclusion

Converting a corporation to an LLC in Washington can offer numerous advantages, including tax flexibility, simplified management, and reduced compliance requirements. By following the steps outlined in this article, you can successfully navigate the conversion process and unlock the full potential of your new Washington LLC. To learn more about LLC formation, compliance, and other essential business topics, visit LLCBase and explore our resources to help you build a thriving and compliant business. Don’t miss out on the benefits of an Washington LLC – take the first step in your business transformation journey today!

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