Washington LLC Operating Agreement: Drafting Checklist

To create a limited liability company in Washington, you must file the necessary documents, which the Secretary of State must then approve. One of the documents you need is the Articles of Organization, which contains information about your LLC and its members and an assigned registered agent.

Apart from the mentioned necessities, having a Washington LLC operating agreement is also beneficial. Whether or not you are legally bound to have an operating agreement will depend on the state where your business operates. This article will explain if this document is required in Washington, why it’s beneficial, what it contains, and how to draft one.

Key Takeaways

• Washington doesn’t require businesses to file an LLC operating agreement. However, writing this document can benefit your small business.

• An operating agreement should contain basic information about your LLC formation, how to add new members, the responsibilities of each member, decision-making inside the company, and voting rights.

• An operating agreement defines the rules of your management, proves it’s a separate entity from the owners, and offers protection, proving limited liability in the event of a dispute.

What Is an LLC Operating Agreement?

An operating agreement is a legal document containing basic information about your LLC’s structure, management, and members. It’s a binding contract that all limited liability company members need to sign.

Furthermore, this document defines the rules for handling particular situations, which all members must abide by. An operating agreement helps your business function based on the company’s best interests, which don’t often align with generalized state laws.

The information you should include in the Washington operating agreement is similar to your Articles of Organization. This information includes:

• Name of your LLC and location

• Registered agent

• Employer Identification Number (EIN)

The registered agent in your LLC formation will handle all legal documents and correspondence with your business.

State Requirements

Is drafting an operating agreement required to create a Washington limited liability company? The answer is no. No laws in Washington force you to make this internal document, and the Washington Secretary of State doesn’t require it. The Washington State Legislature states that this document can be verbal or implied. However, this doesn’t mean you shouldn’t create an operating agreement.

A written operating agreement can help you in many situations, especially if you want to avoid operating under the default state laws. With the Limited Liability Company Act, the state can control how you manage your business, which doesn’t consider the specifics of your LLC management.[1]

LLC Operating Agreement Benefits

This internal document is worth taking time to draft because of the various benefits it can bring to your new business. 

Protecting limited liability status

Having an operating agreement in the event of a lawsuit is the biggest reason to have this document. It proves that your business assets and personal assets are separate. In the case of a lawsuit where you have to pay a settlement with an operating agreement drawn up, only the finances of your LLC business entity are taken into account, not your personal money.

The tax classifications and how you handle tax returns are other benefits of an operating agreement. This document lets you control income tax responsibilities and how your LLC is taxed. You can prepare tax returns accordingly as a corporation, partnership, or any other formation.

Evading default state laws

An operating agreement helps you avoid default state laws that could end up governing your business and how it operates. Without this document, in the event of a lawsuit, you might be forced to compromise unnecessarily since the laws you abide by are the general state laws. If you have the operating agreement, your business is governed by the rules you wrote.

To meet the needs of your LLC, it’s vital to have an operating agreement, as state laws are general and won’t always be consistent with what’s most beneficial for your company’s business plan. Even if you don’t have a newly created business but have already started your business entity, you can create an operating agreement at any point.

Opening a business bank account

When applying for business finances, many banks and lenders value an operating agreement to show them the ins and outs of your business. You may earn their trust, leading to an account or line of credit. Creating a bank account for your LLC is an excellent way to keep your personal assets separate from business assets. This way, you can separate the profits and losses of your company from your personal finances. 

This isn’t a legal requirement, but it’s best to do so if the IRS wants to check that all your profits come from your business bank account.

Who Needs an Operating Agreement?

Considering Washington state laws don’t require any limited liability company formation to have an operating agreement, the answer is that no business entity needs one. You can operate without the agreement, as it’s not a part of the LLC formation process.[2]

However, since there are many benefits to drawing this document, it’s essential to have one to start an LLC for various reasons:

• Your limited liability company members have different roles and responsibilities you want to outline in a legally binding document they must abide by.

• You can avoid default state laws forcing you to compromise in legal disputes.

• Your LLC and its owners want to protect their company in situations where Washington state laws might change.

An operating agreement can create an essential structure if you introduce a corporation or set up an S-Corp tax plan later.

Drafting Your Washington LLC Operating Agreement

Now that all the benefits of having an operating agreement have been highlighted, it’s time to see what’s needed to draft your Washington LLC Operating Agreement.

There are a few ways you can draft this legal document. You can find an LLC operating agreement template online, download and fill it out, or perform an online filing. You can also seek legal advice if you want your operating agreement to cover all the crucial points.

The other way of drafting an operating agreement is to start from scratch and create one yourself. The following five steps will demonstrate how to prepare the necessary sections of the agreement.

Step 1: Provide Business Information

The first step of drafting an operating agreement is the easiest, as the essential information you must enter in this document is already listed in the Articles of Organization. 

Here is the essential information you must provide for your Washington LLC operating agreement:

• Your LLC name

• Place of business

• Information about your registered agent (name, registered address, etc.)

• Employer Identification Number (EIN)

• Information about LLC members

Step 2: List LLC Members

After you finish listing the basic information about your LLC, it’s time to list all the members of this business entity. If you’re wondering whether you need to skip this step for a single-member LLC, the answer is no. Even though your business contains only one member, it’s still important to include information about that member.

This step is essential for single- or multi-member LLCs, confirming that you own a piece of the business and providing personal liability protection. The information required here is as follows:

• Names and addresses of all business owners/members or a sole owner in a single-member LLC case

• Details of the membership fee and the rights to which the member is entitled

• Membership interests/ownership interests of each business owner

• Voting rights and voting power for all members

• Roles and responsibilities of each member

Creating this list even for a single-member LLC shows you are prepared to grow and expand, possibly becoming a multi-member LLC.

Step 3: Decide Member-managed vs. Manager-managed

In this step, deciding who is in charge of your Washington limited liability company management is essential. 

The member-managed option is for both single- and multi-member LLCs. Many sole proprietorship LLC owners prefer this business structure because it gives them complete control over their business operations. Choosing one member who excels at a management role for a multi-managed LLC is an excellent decision.

If you opt for a manager-managed LLC, you can bring an independent party to regulate your management structure. This option is great for large firms and gives members more time to do their tasks. Hiring a third party is a way of attracting investors who can fill this role. They can oversee the management and be beneficial if there are internal conflicts.

Step 4: Lay Out Administrative Operations

After you choose the type of management structure for your LLC, you can move on to outlining administrative responsibilities. In other words, you must highlight who does what in your company and define what happens in different situations. Unplanned situations can vary, but you must define what you can in a way that’s the most optimal for your LLC needs.

Your operating agreement should contain the following:

• Voting rights of each member in your LLC

• Assigned tasks for members (deciding who handles bank accounts, allocation, day-to-day operations, and the annual report)

• Updating your business license

• Who oversees business plan realization

• Details on how the IRS is taxing your business and who communicates with the IRS

Step 5: Add and Remove LLC Members

Here, membership interest must be defined when a member decides to leave or new members join the enterprise.

The critical thing to determine here is how ownership percentages are affected by one or multiple members leaving or new members joining, how to divide distributions, how to define shared buyouts, etc. This information is essential to your Washington LLC operating agreement, even if it’s a single-member LLC. This formation change and those changes can affect ownership percentages.

When new members join a single-member LLC, it’s vital to have an internal document defining the rules of how things go down. It is also helpful to include what happens in case of a buyout or indemnification payments are required.

Create Your Operating Agreement Through a Filing Service

Whether you are just starting your business and haven’t yet filed for your LLC or you’re a business owner who has an LLC but is finishing their legal documentation, drafting an operating agreement is a huge benefit. 

Through our operating agreement services, you can highlight crucial points for your business and ensure it’s drafted according to state laws. 

FAQs

Is an LLC Operating Agreement required in Washington?

Washington state law doesn’t require business entities to have an operating agreement. However, it’s a crucial document to draft when starting a business.

How does an LLC Operating Agreement help protect my assets?

The LLC operating agreement establishes the LLC’s membership structure. You can use this document to prove that the business is a separate entity, limiting liability in cases of legal action.

Who needs access to this document once it’s drafted?

Only members of the LLC need access to an operating agreement. Financial and legal professionals might also ask for access if the situation arises.

How do I edit information on this document if membership changes?

You need to draft a new document that contains a changed membership structure. The document is legally binding, so all members must sign the latest draft.

What other legal documents do I need to draft for my Washington LLC?

The Articles of Organization are the other legal document needed to form your Washington LLC.[3] 

Bibliography

1. Washington State Legislature. “Revised Code of Washington Section 25.15.006.” Accessed June 29, 2023.

2. Washington Secretary of State. “Limited Liability Companies.” Accessed June 29, 2023.

3. Washington Secretary of State. “Frequently Asked Questions.” Accessed June 29, 2023.