LLC is short for the Limited Liability Company. It is a business structure where it combines the functions of a legal partnership and corporation. It provides the owners limited liability protection. What does that mean? If the company is in a financial crisis or gets into a lawsuit, the members are not personally accountable. Their assets will be protected.
You have decided to form your LLC in Rhode Island; before that, you must get all the details about the legal requirement. It is easy to create an LLC; you have to follow a few steps. Let us take a look at all that you have to do to start your business.
Step 1: Pick a name
The first step is to select a name for your LLC. It might look more straightforward, but it’s not that. You have to be careful in picking up the name to cause any problem in the future. You have to be sure that the name you choose must be unique, distinct; one can pronounce it easily. One crucial point is that the selected name must be different; it should not be similar to any other name. You can check the Secretary of state database to detect if your name is available or not. You can check under the Rhode Island business entity database. Also, perform a trademark search. You can visit the US patent and trademark office (USPTO) to check whether the name is trademarked or not.
There are some rules for naming:
- The name of your LLC must be unique and distinct.
- The name must consist of the terms Limited Liability Company or its abbreviations.
- You cannot use vulgar words.
- The title should not in any way imply that it is connected to a government or its authorities.
- Certain words are restricted to use, such as a bank, university, insurance, and architect.
After doing all the above, you finally came up with a name that you love. But due to some reasons, your LLC is taking time to launch. One thing that is worrying you is that what if someone else registered with the same name before you. Then all your hard work will be gone. But fear not, as Rhode Island lets you reserve the name of your LLC for 120 days. So, you can lock the title and your worries. For that, you have to submit a form; you can do so online or send the hard copy. For the online system, go to the Business services online portal filing system and apply. Or you can deliver the name reservation application via postal mail or hand-delivery to the following address:
Office of the Secretary of State
148 W. River Street Providence
Rhode Island 02904-2615
Whatever option you choose, you have to pay $50. Now you have a name for your company; it is time to move on to the next step.
Step 2: Assign a Resident Agent for your LLC
A resident agent is an integral part of the company, so much that it is mandatory to have one. The resident agent is also known as a registered agent in some states. The resident agent is the legally appointed person or an entity to receive the legal correspondences, notices, or lawsuits. All the posts go through the agent, and he/she will make sure that it reaches the owner. In that way, you will not miss any important mail. It is mandated by the State to appoint a resident agent. The resident agent becomes official after you enter the name in the formation documents. You also have to mention the resident agent’s address so that the State knows where to send the correspondence. It is like a middle point of contact between the State and the LLC. The primary requirement to be a resident agent is that:
- The agent must be able to collect the correspondences during business hours.
- The resident agent also has a street address in Rhode Island.
- If the resident agent is a person, then they must be 18 years old or over
- The resident agent can also be a business entity as long as it is authorized to do business in the State and have an address in the State.
The work of the agent is vital, so appoint wisely. If the agent misses giving you important notices or the lawsuit, it might not be suitable for your LLC.
You can hire your friends, family, or any acquaintances. You have to make sure that you have consent before writing down their name in the Articles of Organization. You can also be your resident agent. But it has some drawbacks as you cannot leave the office. The details of the resident agent are on the public records, so if you don’t want your details to be general, you can opt out of this option. If this feels too intimidating to you, you can also take the help of the resident agent services. It is totally up to you.
In short, we can say that the resident agent is an essential part of the company and plays a vital role.
Step 3: Register the Articles of Organization
Now you know your company’s name and the registered agent, it is time to make them official. Before that, also decide which management structure you want. Whether it is a member-base or manager-managed, these details are entered in the Articles of Organization, making it official. The Articles of Organization makes your LLC legal and authorized with the Secretary of State. Once you file the Articles of organization, your LLC will be ready to open its door. Some details are mentioned in the Articles of Organization:
- The name and address of the company: in the first step, you have selected the name of the company. You have to mention the name and address in this document that will make it official.
- The resident agent’s name and address: the agent you decided in the second step his/her details are also added here. If it is a business entity, you have to mention their office address.
- Tax structure: LLC comes with a flexible tax structure. You can choose your company to be taxed like a corporation. So you have to mention the tax structure of your company.
- The management structure: as mentioned earlier, you can opt for member-managed or manager-managed. Member-managed means the members will manage the company; they will take all the decisions. However, in manager-managed, a manager is appointed who takes care of the LLC. So, you have to mention the structure in your LLC.
There are two ways through which you can submit the Articles of Organization: online or submitting the paper-form
This method is the quickest; you can go to the Business services online filing system. From there, fill in the Articles of Organization and submit them.
You can also mail the form or even personally deliver it. For that, you have to download the application, take a print out and send the completed form to the following address:
Division of Business Services
148 W. River Street
Providence, Rhode Island 02904-2615
If you want, you can also personally deliver the form to the address mentioned earlier.
Step 4: Draft an Operating Agreement for your LLC
An operating agreement for your LLC is a set of rules and guidelines that determines how your company should work. You can mention the responsibilities of the members, the management structure, and many more. An operating agreement is not legally required, but it is the most critical document. So, you must draft one; you should not run your company without an operating agreement. Operating agreement ensures that all the members are serious about the company, and they all agree with the rules. In the time of internal dispute or conflict, the operating agreement plays a vital role. Written directions hold a terrific weightage than verbal ones. Suppose a dispute occurs within the company. Some members are demanding a larger share of the profit. But if you have an operating agreement with the rules stating that the profits are distributed under the contribution, it can resolve the issue.
As all the members have signed it, that means they all agreed with that. Now, if somebody is altering their way, this agreement can be used as a piece of evidence. The operating agreement works as a foundation for your company. Also, keep in mind that the State will decide for your company if you do not have an operating agreement. The States rules are general, they are not meant for a specific company, so it might not be your favorite. Like in the above example, if you do not have an operating agreement, the State will decide. There is a provision for an equal share of profit in most of the State, so now you know the decision will not be in your court. So that is why the operating agreement is essential. With this agreement, you can set your rules for the company with the agreement of all the members.
An operating agreement is flexible; you can add or delete any information you want. Try to cover all the essential points. Some of the issues that you can consider are:
- The share of the members: you can mention the contribution of the member and, depending on that contribution, how much profit share he/she should get. This information will avoid any conflict regarding the claim in the future.
- The roles of each member: you have to mention that what is the part of each member
- Management structure: mention the management structure. The operating agreement should outline your management structure and how your company will be run.
- Voting rights: there might come a time where you have to make a decision, and you might need to vote. So it will be managed better if you have all the rules regarding the voting process.
- Addition or removal of the member: there will come a time where a member might resign, or there is an entry of a new member. These changes do come in any business. You should be prepared as to what procedures should be followed during that time. So, mention it in your operating agreement.
Now, you know the importance of the operating agreement. It is time to draft one. You can write the operating agreement for your company. You know your company, you can add all the rules you want. And don’t worry, it is not difficult. There are several templates available online that you can use. You can also ask a lawyer to do it for you. As a professional, the lawyer was well aware of all the rules. He/she will help you to draft a fantastic operating agreement covering all the sections.
Step 5: Obtain an EIN for your company
EIN or Employer identification number is similar to your SSN- Social security number. EIN is used to file taxes for your business, open a business bank account, or hire employees. In the absence of EIN, you have to use your Social security number, which might pose a risk of a privacy breach. So, do apply for the employer identification number. The name consists of the word employees; it doesn’t mean if you have employees, then only you should have EIN. EIN is also used for other purposes, as mentioned above. Internal revenue service provides employer identification numbers. You can get this nine-digit number in three ways:
You don’t want to wait? Then online is the option for you. It is the quickest method. You will get your EIN immediately. For that, you have to go to the official website of the IRS. From there, fill out the form. But you can do so from Monday to Friday between 7 am and 10 pm.
The second method is to send a fax. You have to go to the official website, download the Form SS-4, take a printout. After filling the form, send it to (855) 641-6935. In four working days, you will get the EIN.
The third method, which is also the slower of the two, is the postal mail. You have to download the Form SS-4 from the official website and mail the printed form to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Step 6: Business Taxes and Licensing
You should always pay the taxes, never try to avoid it as it is illegal. Up to step 5, you have completed all the steps required to put LLC on the floor. But you also have to be aware of the other essential aspects too; that includes taxes and licensing. First, let us take a look at the taxes.
Suppose you don’t want to lose your good position with the government, then never avoid the taxes. You pay taxes at the three levels: Federal, State, and local. There are some additional taxes too.
Federal income taxes
Limited Liability Company has a flexible tax structure. You have the option to file the taxes as an LLC or as a corporation; you have this freedom to choose. If you opt to pay the taxes as a corporation, you have to pay the separate corporate income tax. Also, another tax advantage that an LLC offers is that the LLC does not directly pay the income taxes to the government. It means that the income tax is passed through. The owners, in their income tax returns, mention the losses and profits of the business. So, if you pay the taxes on time, it will maintain good standing with the State, and that will help you in getting new clients and vendors.
State and local taxes
You don’t have to worry about the state taxes as they are the same as the federal ones. In-State also the business incomes and losses are passed through the owner’s tax returns. But there is one addition, you have to pay $450, a business corporation tax. You can get more information about it on the Department of Revenue official site.
Also, there are some local taxes too. These taxes depend upon the location of your company. Some local governments have their own tax rules. You have to get in contact with your local bodies to get more information.
We have seen the federal, state, and local tax; now it’s time to know about the additional taxes. These taxes depend upon your business. Some circumstances might require you to pay some other tax. For example, the tobacco industry has to spend some extra tax. In the same way, if your company sells goods, you have to file for the Sales/Use tax. Or, if you have employees, you have to file the unemployment tax and the withholding tax. You can go to the combined online registration services to get registered for these taxes. You can register yourself by mailing the form.
A license is required if you want to open your business. Different fields have different license requirements. It might be a possibility that your company might need a license or a permit. If you want to open a hair salon, you will need a hairdressing license, a cosmetology license. Similarly, it depends on your business type. A restaurant will need a food service license and a health permit. You can get all the information regarding these permits and approvals from the Department of the business registration page.
Just like tax, some local governments also have their provisions for the licenses and permits. So, contact the local government before opening your doors and get the required permissions.
Step 7: Annual report
Your LLC is settled up, it has opened its door, and it is running. But every year, you do have to make one stop and submit an important document with the State, the annual report. Every year you have to submit this report to the state department. You have to pay $50 along with the information. The report must be submitted between 1 September and 1 November. Remember to submit it within the deadline as if you are late; you have to pay a fee of $25. Also, it will affect your standing with the government.
You can submit the report online or send the paper form. For the online method, visit the state department official site, and for the hard copy, mail the form to the following address:
Division of Business Services
148 W. River Street
Providence, Rhode Island 02904-2615
Before finishing off, there are some things that you might take a look at that are important to take after the formation of the LLC.
- Open a business bank account for your company. It is essential to separate the personal expenses and the business ones.
- You have to get a credit card for your LLC. A company’s credit card will help you keep track of your business expenses, and also you can get a loan for your business.
- It is essential to have insurance for your business. In times of any calamity, insurance will help you get back on your feet.
- For the marketing purpose, you have to create a website and your business cards. These will help the customers to get in touch with you.
- Also, last but not least, don’t forget to hire an accountant as the accountant will help you with tax purposes and make sure that you do not overpay.
At last, we have reached the end. Congratulations, now you are ready to form your LLC. It might seem like a lot, but the end is all worth it. One might feel intimidated but worry not that forming LLC is easy, and in no time will you be the owner of your company. So it is time to spread your wings, get amazing deals, get profit, and grow the business.