Business Startup

Washington LLC Formation Checklist

The Washington Secretary of State has created a streamlined process for businesses to create limited liability companies. If you’re forming a LLC in Washington, the following Washington LLC formation checklist might be helpful to review to ensure you consider the steps for proper LLC formation:

1) Check the Business Name. Before settling on a business name, you’ll want to make sure that the name is available and conforms with statutory requirements. An easy way to check if your name is available is by running a business search here.

2) Certificate of Formation. Prepare and file the Certificate of Formation with the Secretary of State to “create” the LLC. You can file the Certificate of Formation online here. When you file your Certificate...

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Business Startup

Entity Structure Considerations When Choosing Between a LLC and a Corporation

It’s important to understand the significant (and sometimes subtle) differences between the various choices when determining the right entity structure for your new venture. Today’s post details some important distinctions between corporations and LLCs.

The Distinction Between State Entities vs. Federal Tax Elections 

For state law purposes, there are two primary entities that the choice of entity generally comes down to: corporations and LLCs. Corporations and LLCs both offer limited liability to owners of the company. This means that (absent extraordinary circumstances) if the business is sued, only business assets are at risk and the ownerss personal assets will be shielded from the company’s liabilities.

For federal tax purposes, there are three primary tax classifications that most companies are organized under: C corporations, S corporations, and...

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Business Startup

Can You Convert Your Company Into a Social Purpose Corporation?

Yes, an existing Washington business entity can convert into a social purpose corporation (“SPC”). In this blog post, we’ll discuss how an existing traditional corporation can become a social purpose corporation.

To convert a corporation into an SPC, the company needs to take a few steps. First, the board of directors has to recommend the corporate action to the shareholders. The action must pass by at least two-thirds of the votes of the voting group entitled to vote on the corporate action. Further, the action must pass by two-thirds of all other shares voting as separate voting groups. Essentially, the SPC conversion statute controls over any existing arrangement in the corporation’s governing documents. So the corporate action to convert to an...

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Business Startup

Why You Should Consider a Social Purpose Corporation When Choosing Your Business Entity Type

Prior to the emergence of the Washington social purpose corporation (“SPC”) and similar corporate forms in other states, entrepreneurs who wanted to build for-profit companies with specific social values faced a dilemma. They could create a business structured to focus primarily on profits, a corporation. Alternatively, they could create a business focusing on a social mission, a non-profit corporation. But the non-profit corporation could not operate for profit. So if they wanted to be profitable, they couldn’t as effectively capitalize on the socially responsible reputation that non-profits achieved, even if it was an important part of their business identity. However, SPCs can now bridge that gap. In today’s blog post we discuss how an SPC allows a company to more...

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Business Startup

Brewery Law 101: Operating Agreements

Once you’ve chosen the right entity for your brewery or distillery, you’ll need to draft some key contracts governing your business entity. Today, we will continue our Brewery Law 101 series by discussing operating agreements. As we discussed in our post on brewery entities, an LLC likely is the right choice of entity for your brewery or distillery. So we will focus on operating agreements, as operating agreements are the primary governing document for an LLC. (While we are specifically discussing operating agreements, many of these issues will carry over to the governing documents you will want for any entity type.)

One of the most appealing attributes of the limited liability company and why it has been so widely adopted is the...

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Business Startup

Shareholder Inspection Rights for Washington Corporations

Becoming a shareholder in a Washington corporation comes with certain statutory rights, including the right to inspect the company’s records. These shareholder inspection rights may not be included in the company’s articles or bylaws, and many shareholders are not aware the shareholder inspection rights exist. But it can be very important to understand what documents you have a right to see as a shareholder. Below, we’ve highlighted the ins and outs of shareholder inspection rights in Washington and the procedural requirements for requesting records.

Who can request corporate records?

Under RCW 23B.16.020, shareholders of a corporation are entitled to inspect and copy a corporation’s records at the company’s office and during normal business hours if the shareholder gives that corporation at least...

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Business Startup

Understanding the Cumulative Voting System

When you form a company, there are several key decisions that you need to make upfront to make sure you protect your interests and position your company for long-term success. Sorting out the voting system for electing directors is one of those key decisions. Today’s post highlights cumulative voting in director elections and why it might make sense for your company.

What is Cumulative Voting?

Cumulative voting is a type of voting system that allows shareholders to vote their shares cumulatively, which is to say that the shareholders can vote all of their shares for a single director candidate. For context, in a “normal” voting system assuming one vote per share, each shareholder can vote only as many shares as they have...

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Business Startup

Delaware Says No Writing Necessary for Board Resignations

A recent Delaware court case discussed what type of action is necessary for directors to resign from a corporation’s board of directors. Ultimately, the court held that director resignations need not be in writing because Delaware Code Section 141(b) is a permissive statute.

 Summary of the Case

The CEO of Biolase, Inc, Federico Pignatelli, thought that Biolase’s board needed more experienced directors, and he asked some of the board members to resign so he could fill their positions with more seasoned directors. The board members resigned. But without Pignatelli’s knowledge, the directors he wished to replace had also aligned themselves with the new board members in order to try and replace Pignatelli as CEO. In an attempt to disrupt the new board...

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Business Startup

Why an LLC Taxed as an S Corporation is an Attractive Option for Businesses

As we’ve discussed in previous posts, the limited liability company (LLC) entity offers a ton of flexibility when organizing the management and economic structure of the company. Because of this flexibility, the LLC has quickly become the most popular entity to form when seeking limited liability protection for new businesses. Below we’ve highlighted one important consideration when forming your LLC: whether to elect to be an LLC taxed as an S corporation. 

Distinction between LLC and S Corporation

It is important to understand the distinction between an LLC and a S corporation. An LLC is a specific type of limited liability entity that is governed by state statutes and offers the owners (also known as “members”) limited liability protection when conducting business...

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Business Startup

Washington State Passes Corporate Entity Conversion Bill

In an effort to streamline the process of converting one business entity to another business entity (e.g. converting your LLC into a corporation), Washington legislators recently passed Senate Bill 5999. Sponsored by Senators Pederson, O’Ban, Kline, and Rain, the bill amends Washington’s Limited Liability Company Act and the Business Corporation Act to allow conversions between Washington LLCs, corporations, and limited partnerships. The bill also allows entities formed in another state to convert into Washington LLCs and corporations.

The bill was signed into law by Governor Inslee on March 27, 2014, and will become law in early July 2014. The bill will be incorporated into the Revised Code of Washington, and the updated RCW should be available online as early as July...

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