Are you looking to form a Washington professional corporation, but you’re not familiar with the incorporation process?
Professional corporations are those owned and operated by licensed professionals, like doctors, lawyers, and architects. There are quite a few important steps you’ll need to take to create your Washington professional corporation and maintain it, so this guide will outline the rules and regulations involved with this process.
To get started, please reference our 12-step guide below or hire a professional online incorporation service like LegalZoom.
How to Form a Washington Professional Corporation (in 12 Steps)
Step One) Determine Whether a Professional Corporation is the Right Choice
A professional corporation ― also called a professional service corporation in Washington ― is a business structure formed by licensed professionals. In Washington, a professional corporation may be formed to provide any type of personal service to the public that requires a license or other legal authorization, including, but not limited to, services provided by certified public accountants, chiropractors, dentists, osteopaths, physicians, podiatric physicians and surgeons, chiropodists, architects, veterinarians, and attorneys-at-law.
Before beginning the process of forming a Washington professional corporation, it’s very helpful to review your business’ objectives and become familiar with your options as a business owner.
Should you form a professional corporation?
This guide explains how to create a Washington professional corporation. When starting a new business, forming a professional corporation is just one of several options. Many businesses instead choose to set up a professional limited liability company, or PLLC.
In general, the difference between the PLLC and a Washington professional service corporation is the same as the difference between a regular LLC and corporation ― namely, that the corporation is a more formal and less flexible business type. Not sure which option is right for you? Read this guide from the SBA.
How will ownership be divided?
A professional corporation issues “shares” to its owners, who are known as its shareholders. Before forming your professional corporation, it’s important to decide how shares of ownership will be divided among the owners.
It’s crucial to note that any shareholders, directors, or officers of a professional corporation must all practice the same profession. In other words, people who are not physicians cannot hold these positions in a professional service corporation for physicians.
How will the professional corporation to be managed?
Corporations have two layers of control. The first layer is the Board of Directors. Directors are elected by the shareholders and meet periodically (as a “Board”) to make key decisions and set the strategic direction of the company.
The Board of Directors appoints “officers” who are responsible for carrying out the Board’s initiatives and managing the corporation’s day-to-day activities. Directors and officers can be (and often are) the same people. Before forming your corporation you should determine who your initial director(s) will be.
Step Two) Choose a Name
One of the most important aspects of the incorporation process is naming your business. There are three major elements to consider when choosing a name:
When naming a professional corporation in the state of Washington, you will need to include the words “professional service corporation” or the abbreviation “PSC.” Your professional corporation’s name also cannot include any words or abbreviations that indicate other business types, like the phrase “limited liability company” or the initials “LLC.” You also are not allowed to include words that refer to certain types of businesses (like “bank” or “law office”) unless your business fits those descriptions.
In addition to the legal considerations, you might want to identify your line of business or your mission in your company name. For example, you can display any closely held values in your name, like using the word “green” for environmentally friendly businesses.
A Name You’re Proud of
Keep in mind that this is your business, so you should choose a name that you’re proud of, and that you enjoy sharing with potential customers. You should also make sure it sounds good when spoken aloud, and also looks good when written down.
Check Whether Your Preferred Name is Available
Visit the Washington Secretary of State’s website and use the Corporation Search tool to check whether it is already in use. If it’s not unique enough, you may need to tweak it or come up with a new name altogether.
Consider reserving a name
For a $30 fee, you can instantly reserve a name online for up to 180 days. This will ensure that your name is not taken by another company during the incorporation process.
Step Three) Select a Registered Agent
Washington professional corporations must designate a person or business to receive legal notices on behalf of the company. This important point of contact is known as the registered agent. You will be required to list the registered agent’s name and address when filing the Articles of Incorporation in step four.
Who can be my registered agent?
A registered agent must have a physical address within the state of Washington where mail and legal notices can be served during regular business hours. You can hire a service to act as your registered agent, serve as your own registered agent, or even use an accountant or other business professional’s address – with their consent, of course.
The Washington Secretary of State says that,
All Corporations, LLC’s, and Limited Partnerships doing business in Washington must have a Registered Agent with a physical Washington State address. The Registered Agent may be an individual or a business. The Registered Agent receives annual reports, notices, and service of process on behalf of the organization they represent. The Registered Agent must provide a physical address at which the agent is available for service of process. The agent may provide a PO Box address in addition to a physical address for receiving notice.”
We recommend hiring a professional service to act as your registered agent. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off the public record. For a list of the top 5 registered agent services, check out our guide.
Step Four) Complete Your Articles of Incorporation
This is THE document that formally registers your professional corporation with the state of Washington. The Articles of Incorporation must be filed online through the Washington Corporations and Charities Filing System.
Keep in mind that you are acting as the incorporator when you fill out and submit the Articles of Incorporation. You should sign as the incorporator before submitting the document.
|Cost to File||$200|
|Time to Complete Filing||2 business days|
|Agency||Washington Secretary of State|
Washington Secretary of State
|Agency contact info for filing questions||360-725-0377|
Step Five) Establish a Corporate Record
Professional corporations are required under Washington law to document and keep a permanent record of all important company decisions.
The official corporate record may be kept at the professional corporation’s principal place of business, or stored in a safe location elsewhere. You should take the opportunity to set up a secure digital or physical location for storing company records as soon as possible.
Step Six) Designate a Board of Directors
The incorporator is responsible for selecting initial director(s) of the professional corporation. The incorporator should record initial director appointments in a signed document and file it to the corporate record. This document is known as the “incorporator’s statement.” A sample incorporator’s statement can be found here.
The initial directors will serve until new directors are elected at an annual shareholder meeting, or as otherwise indicated in the bylaws. The incorporator may also serve as an initial director. Keep in mind that your directors must all share the same profession as the one the professional corporation was formed for.
Step Seven) Create Corporate Bylaws
Corporate bylaws set out the rules and procedures for how the professional corporation will operate. Some important topics typically covered in the bylaws include:
- How shareholders will conduct votes
- The total number of directors and how each director will be elected
- How often the board of directors will meet
- The types of officer roles that will be appointed
- Procedures for resolving internal disputes
Washington professional corporations are required to adopt bylaws.
Bylaws help your business run smoothly, and are sometimes required by financial institutions for opening business bank accounts or acquiring loans.
Either the incorporator or the initial directors may prepare the company bylaws. The bylaws should be recorded in an internal company document, signed by the incorporator or a director, and filed to the corporate record. The bylaws are not filed with the state of Washington.
Popular Strategies for Preparing Bylaws:
- Use a free online template. Northwest Registered Agent has a great free template you can download.
- Hire a lawyer to draft the bylaws. If your business has investors, is already profitable, or has multiple co-owners, we strongly encourage you to hire a lawyer experienced in Washington corporate law to help you draft suitable bylaws. Look through Avvo’s directory of KY attorneys you can work with.
Step Eight) Hold First Board Meeting
After designating a board of directors and preparing bylaws, the new professional corporation should call for an initial board meeting. The incorporator often arranges and attends this first meeting. During the first board meeting, the initial directors should plan to cover the following topics:
- Review and approve corporate bylaws
- Designate officers to manage day-to-day business affairs
- Choose a bank
- Approve issuance of stock certificates
- Determine whether the company should elect to be taxed as a C corporation or S corporation (see step nine for more details)
Recording Meeting Minutes: a detailed record of all key discussions and decisions during the board meeting should be prepared and distributed to all board members for their review and approval. This record is known as the “minutes.” A copy of the minutes should be sent to each director for review and filed in the company record.
Step Nine) Handle Tax Obligations
You’ll need a federal tax ID number (EIN) to operate a professional corporation in Washington. You can obtain your EIN from the IRS for free, and it’s a fairly painless and simple process. An EIN enables your professional corporation to hire employees, file corporate taxes, open business bank accounts, and more.
A major decision for any professional corporation is determining whether to be taxed as a C corporation or an S corporation. Take a look at how these two formats differ:
- C Corp: The majority of professional corporations are C corporations, as they are subject to far fewer restrictions than S corps. With a C corp, profits are taxed at the corporate level, and again on the personal tax returns of the shareholders, resulting in what’s commonly referred to as double taxation.
- S Corp: This is only an option if your professional corporation has fewer than 100 shareholders, only issues one class of stock, is not owned by another business entity, and does not have any foreign shareholders. If your corporation meets these requirements, you can select the S corp’s pass-through taxation which eliminates the double taxation issue of C corps. S corp dividends are not taxable.
Most businesses in Washington state are subject to the business and occupation tax, which is based on gross income. Your professional corporation may also need to pay other Washington state taxes, such as sales and use tax, depending on its business activities. For more information about business taxes in Washington, visit the Department of Revenue’s website. Washington allows taxpayers to file and pay many types of taxes online through the Department of Revenue’s website.
Note that your professional corporation will not be subject to income tax in Washington. However, if your professional corporation’s shareholders reside outside of Washington, they may be subject to income taxes in their state of residence.
In addition to state level taxes, your professional corporation may also need to pay city and/or county taxes. To confirm your local tax obligations, you should contact the city and county tax authorities where your professional corporation does business. If your professional corporation does business in one of the four largest cities in Washington, the following links may be helpful:
Step Ten) Obtain Business Licenses and Permits
Your professional corporation will likely need to obtain one or more licenses in Washington in order to legally operate. The Business Licensing Service issues a number of state specialty licenses, a list of which can be found on online. If you need help identifying the licensing requirements for your business, you can use the Business Licensing Wizard on the Department of Revenue’s website. The Washington State Department of Licensing’s website also includes a list of professional licenses.
City and/or county licenses, permits, or registrations may be required for your business as well. You should be sure to contact your local government to confirm the licensing requirements for your professional corporation.
Step Eleven) Acquire Insurance
If you plan to hire employees for your professional corporation, keep in mind that Washington requires employers to provide workers’ compensation insurance for their employees. You will need to open a workers’ compensation account with the Department of Labor & Industries, or L&I, and purchase insurance through L&I. To learn more about workers’ compensation in Washington, visit L&I’s website.
In addition, you should also pursue general liability insurance and other more industry-specific types of insurance. Because professional corporations are specialized businesses, you will most likely require insurance policies based on your occupation.
Step Twelve) Open a Business Bank Account
To operate a professional corporation and receive the limited liability protection that comes with it, you have to keep your personal assets entirely separate from your business assets. Due to this requirement, it’s strongly advised that you acquire a business bank account for your corporation.
Get Help Forming a Professional Corporation
The process of forming a professional corporation in any state can be a lengthy one. If you run into any trouble along the way, remember that there are plenty of organizations that can help you navigate the incorporation process.
Online Incorporation Services
If you would like to hire an affordable business incorporation service to create your professional corporation for you, services like LegalZoom and MyCorporation can help you out. These service providers can handle most of the formation process, while still charging much lower rates than a business attorney’s fees.
There isn’t the same level of personalization that a lawyer can provide, but online incorporation services can still be a tremendous help. The only major issue with these service providers is the fact that they can’t provide any actual legal advice, so you need to know what you want ahead of time.
Washington Business Attorney
There are some situations where hiring a business lawyer is a preferable route to using an online incorporation service. The professional corporation as a business structure can be highly complicated and specialized, and if you want to have the peace of mind that every single step was taken care of by a true expert, hiring a business attorney to form your Washington professional corporation is the way to go.
If you would like to pursue this route, there are some convenient services that can help you choose the right lawyer for your business. We like to use Avvo, which has extensive reviews and ratings for hundreds of Washington business lawyers, which can make it much easier to select an attorney who has your best interests in mind, and also has the expertise to get the job done right.
If you need additional help with your professional corporation, business advisors are available across the state of Washington through the Washington Small Business Development Center, or WSBDC. These advisors can provide one-on-one assistance on a variety of business topics. The WSBDC also offers in person and online training. Information about training and other local business resources are available on the WSBDC website.
The Seattle District Office of the U.S. Small Business Administration is another helpful resource for small businesses in Washington. Visit its website to find local business resources, training and event information, and more.