Business Formation & Organization

Choosing the right entity structure

Washington businesses typically organize as LLCs (governed by RCW 25.15, the Washington Limited Liability Company Act), corporations (RCW 23B), or partnerships (RCW 25.05), and each carries different implications for taxation, liability, management, and future financing. An LLC offers flexibility and pass-through taxation, making it a common default for small to mid-sized businesses, but it's not always the right call. Founders who anticipate raising institutional capital, issuing stock options, or selling to a strategic acquirer often need a C-corporation structure from the start, sometimes specifically to preserve eligibility for the Qualified Small Business Stock exclusion under IRC § 1202, which can shield up to the greater of $10 million or 10× basis of qualified gain after a five-year hold. S-corporations offer pass-through taxation with more formal governance requirements, and they come with ownership restrictions that matter if you're planning to bring in foreign investors. Under IRC §§ 1361–1362, S-corps are capped at 100 shareholders and limited to U.S. citizens, U.S. residents, and a defined set of trusts and estates.

The choice depends on your business model, your growth plans, your co-owners, and where the money is coming from. We help clients work through those variables before they commit to a structure they'll have to unwind later.

Formation documents and what they actually do

Filing articles of organization (RCW 25.15.071) or incorporation (RCW 23B.02.020) with the Washington Secretary of State creates your legal entity. The documents that govern how it operates are a different matter. For LLCs, that means an operating agreement, which Washington treats as the controlling document for LLC governance under RCW 25.15.018, whether it's written, oral, or implied. For corporations, articles of incorporation, bylaws, and an initial set of board resolutions. These documents define who has authority to make decisions, how profits and distributions are handled, what happens when owners disagree, and how ownership can be transferred or sold.

Generic templates exist. They're also a recurring source of disputes we're called in to resolve. We draft formation documents built around your specific ownership structure, capital arrangement, and operating realities, so there's no ambiguity about who controls what when it matters.

Ownership structure and equity allocation

How you split ownership at formation is one of the highest-stakes decisions a new business makes. Equity allocated early, before the business has meaningful value, is far less expensive than equity granted or litigated over later. That means thinking carefully about vesting schedules for founder shares, how ownership percentages relate to actual capital contributions, what happens to a departing owner's interest, and whether certain owners will hold voting versus non-voting interests. For founder shares subject to vesting, an IRC § 83(b) election filed within 30 days of grant fixes the recipient's tax basis at issuance rather than at vest. It's a one-page filing with major downstream consequences if missed.

For businesses with multiple owners, we also address buy-sell provisions: the terms that govern what happens when an owner wants to exit, becomes disabled, dies, or is forced out. These provisions rarely get attention at formation and become urgent in a crisis.

Capitalization and initial financing

How your business is capitalized at formation, whether by founder equity, loans, or outside investment, has legal and tax implications that run forward. We help clients structure initial capital contributions, document loans between owners and the entity, and understand how early financing decisions interact with future fundraising.

For companies planning to raise outside capital, we advise on the difference between equity and convertible instruments, the mechanics of SAFEs and convertible notes at the early stage, and how formation choices affect your options when you go to raise a priced round. Most early-stage Washington raises rely on SEC Regulation D, Rules 506(b) or 506(c), which permit unlimited capital from accredited investors without SEC registration; Washington-specific exemptions live in RCW 21.20, the Securities Act of Washington.

Registered agents, licensing, and ongoing compliance

Washington law requires every business entity to maintain a registered agent and a registered office in the state under RCW 23.95, the Washington Uniform Business Organizations Code. Beyond that, many businesses require additional licenses or permits at the state, county, or municipal level. We handle the mechanics of formation, including registered agent setup, and can advise on what ongoing compliance obligations your entity type will carry, including annual reports, meeting requirements for corporations, and the record-keeping practices that protect your liability shield.

For businesses with owners or operations in multiple states, we also address foreign qualification requirements under RCW 23.95: when you need to register your Washington entity to do business elsewhere, and how to do it without creating unintended tax exposure.