Filing A Claim Against A Washington Registration Bond

Who must have a bond?
All contractors operating within the State of Washington must register with the Contractor’s Section of Department of Labor & Industries. RCW 18.27.040(1); WAC 296-200A-025. All registered contractors must maintain a bond in the amount of $12,000.00 if they register as a general contractor and a bond in the amount of $6,000.00 if they register as a specialty contractor. RCW 18.27.040(I); WAC 296-200A-030.

Who can file a claim against a contractor’s registration bond?
Anyone with a valid claim against a contractor can bring in action in the appropriate superior court. RCW 18.27.040(3); WAC 296-200A-080. The claim must fall within the conditions of the bond. The appropriate superior court is typically in the county where the work was performed.

What must I include in the claim?
Washington statutes are very specific in what you must include in your claim. These items include: the name of the contractor exactly as it appears in the contractor’s registration file, the contractor’s business address, the name of the owners, partners or officers of the contractor, if known, the contractor’s registration number, the name of the bonding company that issues the contractor’s bond, the bond number and effective date of the bond. WAC 296-200A-080(3)(a)-(d) and (4)(a)-(c).

In addition, you will want to list the background facts that gave rise to your dispute as well as the legal elements of the claim you are brining. It is highly advisable that you seek the guidance of an attorney when drafting your claim.

How do I serve the contractor with the claim?
After you or your business law attorney Vancouver, WA has drafted and filed your summons and complaint in the appropriate superior court, you must send three conformed copies of the summons and complaint and a required fee of $50.00 to the Contractor’s Section of the Department of Labor & Industries by certified mail, return receipt requested. RCW 18.27.040(3); WAC 296-200A-080. The Department will keep one copy of the summons and complaint and mail one copy to the contract and the other copy to the contractor’s surety. You must serve the contractor through Department or you risk losing your claim rights.

When must I bring my claim?
If you are a residential homeowner filing a breach of contract claim, you must bring your claim within two years. If you are any other authorized party, you must bring your claim within one year. RCW 18.27.040(3).
For breach of contract claims, the time period beings when the contract is substantially completed or abandoned. For all other claims, the time period begins running from the date the claimed labor was performed, the benefits accrued, the materials and/or equipment furnished or when the taxes and contributions became due. Consult your business law attorney Vancouver, WA if you need help.

Can I claim attorney fees?
 If you are a party to a construction contract that have prevailed in bringing a claim for breach of contract you may claim reasonable attorney fees and costs. RCW 18.27.040(6). However, a surety’s liability is limited to the aggregate penal sum of the bond. RCW 18.27.040(4). This limit includes a prevailing party’s claim for attorney fees and costs. RCW 18.27.040(4)(e)(5)-(6).

This means if your general contractor has a registration bond for $12,000.00 and you have a been awarded $10,000.00 for your claim and $3,000.00 for attorney fees, the surety is only liable for $12,000.00, the amount of the bond, not $13,000.00 the total amount of your judgment.

What do I need to do after receiving a judgment?
If you receive a final judgment against the contractor, you should forward a copy to the Contractor’s Section of the Department of Labor & Industries for their records.

Construction Bonds In Washington

What is a bond?
A bond is essentially a guarantee of performance. A surety essentially makes a guarantee to the owner that the contractor will perform under the contract or the surety will step in and perform for it. Insurance, on the other hand, indemnifies the contractor for loss or damages incurred.

Do I need a bond?
If you are a registered contractor in Washington State, you are required to have a proper bond. The bond amount for a general contractor is $12,000.00 and for a specialty contractor the amount is $6,000.00. WAC 296-200A-030 and RCW 18.27.060. Consult a business law attorney in Vancouver, Wa is you need help.

Are there different types of bonds?
Generally, there are four types of bonds: performance bonds, payment bonds, bid bonds, and retainage bonds. A performance bond protects the owner from the contractor's failure to do the work under the contact. A payment bond protects the owner from the contractor's failure to pay its subcontractors and suppliers. A bid bond protects the owner from a contractor's refusal to honor its bid for a project. A retainage bond protects contractors on a public works project where they do not have rights to place liens on real property.

Useful Links
Here's a sample bond: http://www.lni.wa.gov/forms/pdf/625003af.pdf
Here’s an overview on bond claims: http://www.lni.wa.gov/IPUB/625-088-000.pdf

Filing A Lien In Washington

Who can file a lien?
If you provide "professional services, materials, or equipment for the improvement of real property" then you have lien rights on the improvement and the real property per RCW 60.04.021. For instance, if you are a tile subcontractor and you complete a $750 remodeling contract (let's say $300 in labor and $450 in materials) you have a lien rights against the home for $750. Consult with your business law attorney Vancouver, WA to be sure.

Do I have to give notice before filing a lien?
Yes, if you wish to file a lien then you must give proper notice. A general contractor must give proper pre-claim notice to: (a) residential owners for four or fewer units or contract value of $1,000.00 or greater; and (b) commercial contracts between $1,000.00 and $60,000.00. RCW 18.27.114. Subcontractors or material and equipment suppliers must give notice to single-family residential construction pursuant to RCW 60.04.031. If proper notice is not given then the lien is invalid. If you are a contractor make sure you give proper notification of your lien rights before the project begins.

When can I file a lien?
You must file a lien 90 days after you last worked or supplied materials to the project. RCW 60.04.091. This lien must be filed and record in the county in which the work was performed or the materials provided. If you do not file the lien within this timeframe, you lose your lien rights. Consult a business law attorney Vancouver, Wa to make sure.

Do I have to give notice of the lien after I record it?
Yes, you must give post-claim notice within 14 days of recording the lien to the owner of the project. RCW 60.04.091.

How long do I have to foreclose on the lien if I am not paid?
After your lien is filed, you have eight months to either remove your lien or start the foreclosure process. RCW 60.04.141. If you file a lien and then settle the claim with the owner, you can drop your lien suit. If the owner still refuses to pay the amount claimed, you will have to begin the foreclosure process before the eight month window closes. You must file the lien foreclosure action in a court that has jurisdiction over the property where you supplied materials or work. You will likely need to consult an attorney to file a foreclosure action. Such actions are expensive and time-intensive so make every effort to settle the matter first!

What do I do if I am the owner and the lien is frivolous or excessive?
If you are the owner and you feel that a general or subcontractor has filed a lien for an amount that is frivolous or excessive, you may move the Court to hold a hearing in which the general or subcontractor has to show that they are making a reasonable claim. If the Court agrees with you, the Court may reduce the lien amount or award you attorney fees and costs.

Registering As A Contractor In Washington State

STEP ONE
First, determine the appropriate business entity for your company. Most construction companies in Washington are either a Limited Liability Corporation or an S-Corporation although your options include C-Corporations, Sole-Proprietorships, General Partnerships, Limited Partnerships, Limited Liability Limited Partnerships. You will want to become familiar with the pros and cons of each business structure and determine which one best fits your business goals. It is highly advisable that you consult a business law attorney, Vancouver, Wa for help.

STEP TWO
After selecting which your business entity you will have to register with the Washington Secretary of State. This typically includes filing Articles of Incorporation (for an S-Corporation or C-Corporation) and a Certificate of Formation for a Limited Liability Company. You must also pay a $180.00 filing fee. Note that you do not have to register with the Secretary of State if you are forming a Sole Proprietorship or General Partnership.

STEP THREE
You will next need to obtain a master business application from the Washington Department of Licensing. This is when you will receive your Washington State Unified Business Identifier (UBI) number. This application will also allow you to open your business, add a license, register your trade name, hire employees and obtain some state and city licenses.

STEP FOUR
If your company plans on hiring employees, you will then need to apply for an IRS employer ID.

STEP FIVE
Next, you will need to apply for contractor registration with the Contractor’s Section of the Department of Labor and Industries. You can do this by completing the application for the contractor registration, signing it and having it notarized.

STEP SIX
You will then need to purchase a bond. Washington law requires that general contractors have a bond limit of $12,000.00 and specialty contractors have a bond limit of $6,000.00. If you do not wish to purchase a bond, your only other option is to file a deposit consisting of cash or other security acceptable to the department. However, it is much simpler to purchase the bond.

STEP SEVEN
You will then need to purchase general liability insurance coverage. You will need limits of $50,000.00 for property damage and $200,000.00 for a public liability policy or you can purchase a $250.000.00 combined single limit policy.

STEP EIGHT
You will then need submit your application for the contractor registration, proof of your bond and insurance (originals are required) to the Contractor’s Section of the Department of Labor & Industries along with the filing fee (currently $113.40 for 2 years). If you need help, consult a business law attorney, Vancouver, Wa.

STEP NINE
After you’ve completed these steps, it’s time to get to work!

How To Set Up A Corporation In Washington

So you have reviewed the pros and cons of several business structures and decided to form a Corporation. Now what? Here's a step-by-step guide to form your Corporation. It is highly advisable that you consult a business law attorney when forming your Corporation to ensure that you follow all the steps properly.

STEP ONE
You first need to choose a name for your business. After you have decided on potential candidates, search the business name registry at the Washington Secretary of State's website. If your business name does not come up, then you are free to register it in Washington. If it does, you will need to think of a new name.
You will also want to do conduct an adequate search to make sure that no other company outside of Washington is using your name. This is because you do not want to use a name that is already established (let's say Microsoft or Nike) because you will likely be infringing on their tradenames and trademarks. You can conduct this search by searching for your business name in Google or other search engines.

STEP TWO
You will now need to complete the Articles of Incorporation and file them with the Secretary of State along with the $180.00 filing fee. Other than your basic corporate information (name of corporation, number and class of shares, officers, etc.) You will need to have a registered agent with a Washington address (no P.O. boxes). This can be your personal or business address if you live in Washington and if you do not live in Washington you can have someone, such as your business law attorney, serve as your registered agent as long as he or she lives in Washington.

If you are plan on doing business in other states, you will need to register in those other states as well.

STEP THREE
Draft and execute your corporate documents. The first document you will want to draft our your Bylaws. These will include how your company runs its day to day operations and will plan out the life of your company. The Bylaws typically include: how to appoint directors and officers, when and where annual meetings occur, how profits and dividends are dispursed, the class and par value of shares as well as restrictions on the transfer of shares, how to dissolve the corporation, etc. You can find a form for Bylaws online but it is essential that you understand and protect all your rights so it is advisible that you consult a business law attorney when drafting your Bylaws.

You will also need to establish your corporate minute book and stock ledger. I recommend ordering these materials online from Blumberg Law Products. They have several corporate kits that include stock certificates, transfer sheets, corporate minutes, etc.

STEP FOUR
Next you will need to set up the corporation's bank account. You can contact a representative from just about any bank and they can walk you through the process. It is best practices to conduct all business transactions through the corporation's business account to make sure you have no bookkeeping issues down the road.

STEP FIVE
If your corporation will have employees, you will need to apply for a Employer ID Number with the IRS.This number will allow your corporation to file its employment and business taxes.

STEP SIX
If you wish for your corporation to be an "S" Corporation you must elect to be taxed as one by completing IRS Form 2553. If you do not complete this form, you will have formed a "C" Corporation and be taxed as such. Keep in mind the distinction between an "S" and "C" corporation is only made by the IRS for tax purposes, the distinction is not made at the State level. If you need more information on the differences between an "S" Corporation and a "C" Corporation, you can read more about it here.

STEP SEVEN 
Obtain all county and city business licenses. Depending on which County and City your corporation is operating out of, you will need to obtain several licenses. You can call your city or county directly for more information or your business law attorney can assist you.

STEP EIGHT
Get to work!

Choosing A Business Structure

Which Business Entity Do I Choose?
You have many structures to choose from when forming your business. Your choice is an important one and will depend on your business model and long terms goals. It is advisable to consult with a business law attorney before selecting your business structure. Here are a few pros and cons of each:


Sole Proprietorship
A sole proprietorship is not a legal entity and no filing with the Washington Secretary of State is necessary. An individual or married couple may form a sole proprietorship simply by running a business. The sole proprietor has full control and management and operations of the business. However, the person or persons running the business are personally liable for all debts and obligations of the business. The sole proprietorship is not a taxable entity. This means that the taxes flow-through from the business to the owner. A sole proprietor has to pay self-employment tax on all income.


General Partnership
A general partnership is also not a legal entity and does not need to register with the Washington Secretary of State. A general partnership is composed of two or more persons who agree to invest money or contribute labor to the business. Each partner shares in the profits and losses of the business. Each partner also shares in the management of the business and is personally liable for all debts of the partnership. This means that essentially, one partner could be liable for the debts or obligations incurred by another partner.
It is highly advisable to consult with a business law attorney to draft a partnership agreement that can further define the obligations of each partner. In this agreement, you can indicate how much each partner is to initially invest in the business, which partners will have control over the operations of the partnership, how income and losses are shared, how ownership can be transferred and much more.

Like a sole proprietorship, a general partnership is not a taxable entity. Taxes flow-through from the business to the owner. Each partner pays taxes on their share of the income and can realize their share of the losses against other income.


Limited Liability Company
A Limited Liability Company, or LLC, is one of the most popular business entities and with good cause. A LLC consists of one or more members who may be individuals or other legal entities such as a corporation or another LLC. A Board of Directors and Offices are not required and neither are annual meetings and the accompanying paperwork.

To form an LLC, you must file a Certificate of Formation with the Washington Secretary of State and pay the $180.00 filing fee. You must have a registered agent with an office located within the State of Washington.

An LLC can either be member-managed, where each of the members work together in running the business or manager-managed, where the members elect a manager to run the business. Member-managed LLCs are the most common. Whereas it is not required by the Secretary of State, it is advisable that you hire a business law attorney to draft an operating agreement outlining how the business of the LLC will be run.

One of the most beneficial aspects of an LLC is that each member is NOT personally liable for the debts and obligations of the LLC. The only instance where a member will be held personally liable is if he or she did something that constituted gross negligence or a knowing violation of the law.

Typically, the profit or loss of an LLC flows-through to the members in proportion to their percentage ownership in the LLC. This allocation can be altered by the operating agreement.

If an LLC has a single member, it is taxed as a sole proprietorship with profits and loses flowing-through to the member. That is, the profits of the LLC are taxed once at the individual’s tax bracket rate. In this instance, the single member can file IRS form 8832 which allows pass-through taxation as if the LLC did not exist. If the LLC has more than one member, it is taxed like a partnership and must file an IRS 1065 partnership tax return. The profits flow-through to each member and each member paying taxes at their individual tax bracket rate. An LLC may choose to be taxed like a corporation but this only occurs in rare circumstances.


C-Corporation
A C-Corporation is typically formed if you are starting a large organization with a large amount of employees that needs to raise a large amount of capital. A C-Corporation is also typically formed if you are planning a publicly traded large company. This is because the shares of stock of a C-Corporation are easily transferable. There is no limited to the amount of people who can own shares in a C-Corporation.
A C-Corporation is formed by filing Articles of Incorporation with the Washington Secretary of State and paying the $180.00 filing fee.

In a C-Corporation, the owners of the company, the shareholders appoint a Board of Directors to manage the company. The Board of Directors then elects Officers (President, Vice-President, Secretary, etc.) who run the everyday business of the company. Annual meetings are required as is the accompanying paperwork such as meeting minutes.

Like in LLC, a C-Corporation offers protection from personal liability to its directors and officers. The “corporation veil” as it is called, can only be “pierced” in instances of gross negligence, knowing violation of the law, or intentional misconduct.

The major disadvantage of a C-Corporation is that it is subject to double taxation. That is, the corporation is taxed once at the corporation’s tax bracket rate when the business makes a profit and a second time at the individual’s tax bracket rate when those profits are distributed to the shareholders. Some tax benefits for employees and certain deductions are available to C-Corporations but the double-taxation deters most business from forming a C-Corporation.


S-Corporation
An S-Corporation is another popular business structure. An S-Corporation is very similar to a C-Corporation except that an S-Corporation is not subject to double taxation. The shareholders of an S-Corporation are taxed once at their individual tax bracket rate. Losses also pass through to the shareholder and the shareholder may take these losses against other income.

Forming an S-Corporation is almost identical to forming a C-Corporation. You must file Articles of Incorporation with the Washington Secretary of State and pay the $180.00 filing fee. The shareholders appoint a Board of Directors and the Board of Directors appoints officers. Annual meetings must be held and meeting minutes must be taken. The shareholders, directors and officers are not personally liable for the debts and obligations of the company.

To avoid double taxation, you must “check the box” as an S-Corporation on IRS Form 2553. If you do not, you will have essentially formed a C-Corporation. Certain tax-deductible benefits, such as health and life insurance benefits, are available to employees of an S-Corporation. It is important to note that unlike a C-Corporation, an S-Corporation is limited to 100 shareholders, all of whom must be individuals.


Nonprofit Corporation
A Nonprofit Corporation is often referred to as a 501(c)(3) corporation after the IRS code section that governs them. A Nonprofit Corporation enjoys a preferred tax status and in return is required to further an ideal or goal other than the interests of profit.


Limited Partnerships
To form a Limited Partnership, or LP, you must file a Certificate of Limited Partnership with the Washington Secretary of State and pay a $180.00 filing fee.

A LP consists of one or more general partners and one or more limited partners. The general partners manage the business, share fully the profits and losses and have personal liability for the LP’s debts and obligations. A limited partner shares in the profits of the business but their losses are limited to the extent of their investment in the company. That is, limited partners can only lose what they put in and they are not personally liable for the debts of the LP.

In the past, limited partners could not be involved in the daily operations of the LP. If they participated in the daily operations of the LP they would lose their limited liability protection. However, the Washington Uniform Limited Partnership Act, codified in RCW 25.10.321, states that limited partners may maintain their limited liability even if they participate in the business.

LPs are taxed the same as general partnerships in that each partner is taxed on their share of profits at their individual tax bracket rate.


Limited Liability Partnership
A Limited Liability Partnership or LLP is the same a general partnership except that one partner is not personally liable for the negligence of another partner. Many law firms and accounting firms form LLPs. To form a LLP you must file a Limited Liability Partnership Registration form with the Washington Secretary of State and pay the $180.00 filing fee.