How To Start an LLC in Rhode Island
Deciding how to start an LLC or limited liability company is an important decision that comes with multiple steps. The first thing to do is file the proper paperwork through the secretary of state. Most often, this form is called the Certificate of Formation.
Aside from filing the proper paperwork, small business owners must follow several other steps to ensure that they can publicize their LLC. The most crucial factors to consider when starting an LLC are the type of LLC you wish to establish, your management structure, and your finances.
Every state varies with required legal documents and regulations. However, this article is a basic guide for those looking to start a limited liability company. When looking to set up an LLC, follow these steps for a successful formation.
Factors to Consider Before Forming an LLC
Before you decide to set up an LLC, there are various factors to consider.
What Is an LLC?
An LLC is a limited liability company that combines pass-through taxes with corporate liability structure. An LLC is a popular business structure as it protects owners from business liabilities, saves money on taxes, and makes things simpler overall.
The main difference between an LLC and a corporation is that corporations have shareholders, whereas LLCs have either a sole owner or a partnership.
When deciding to set up an LLC, it is essential to consider which type of company you want to establish.
How do you get a LLC online.
A single-member LLC, or sole proprietorship, puts all of the business responsibilities into the hands of the business owner. These responsibilities include business debt, the operating agreement, business filings, taxes, and business transactions.
Small businesses that file as a sole proprietorship choose not to be a corporation. This ultimately means less paperwork and a reduced LLC cost.
Although this type of LLC is the least expensive, it also leaves small business owners with the most liability.
General Partnership LLC
Also known as limited partnerships, small businesses that file as general partnerships operate similarly to a single-member LLC. However, in this case, personal liability and small business operations are in the hands of all registered business partners and owners involved.
As the name implies, family partnership LLCs operate similarly to a general partnership, but they are for families who share ownership. Family limited partnerships can adjust membership and alter who controls the property or business.
Find an Ideal Location
Aside from the name and paperwork, establishing an official location for your business structure is one of the most important decisions you can make. The type of business entity you establish and the available real estate will often factor into your LLC’s physical location.
Those looking for a business location should first refer to their state’s legal requirements, as many states regulate company and industry locations.
Determine Whether or Not You Need Investors
Receiving funds from investors has both pros and cons. On the pros side, it helps fund your business and gives you more financial opportunities. On the other hand, investors typically expect a certain return on their investment which can often complicate operations.
When deciding to go with investors, be sure to establish terms and provide an operating agreement. An operating agreement outlines the operational responsibilities of your LLC to give investors a clear picture of your company’s structure and operational plans. Negotiating and establishing terms ensures that every involved party knows what to expect.
Give Your Limited Liability Company an Official Name
Establishing your company’s official LLC name is the first and most crucial step when starting a limited liability company. Creating a company name not only establishes brand recognition but sets your LLC apart from the others.
In most states, no two companies can share the same LLC name even if located in different cities. A simple internet search can help you narrow down company names and ensure that yours is unique. It is also important to remember that some states do not allow LLC names to contain specific words.
To make sure that your company’s name falls within the required guidelines, search your state’s requirements for naming a limited liability company.
Aside from a distinguishable name, your company’s name must include the term “limited liability company” or “LLC” at the end. For example, if you wanted to name your company “Megan’s Cookies,” the official name would have to be “Megan’s Cookies, LLC.”
Choosing a unique name creates brand recognition, avoids infringement claims, and can help you establish a recognizable domain name for your website. It is also essential that your business name does not refer to or confuse with government organizations. For example, your business name cannot include terms like “FBI” or “state treasury.”
To summarize, establishing a name for your LLC requires coming up with a unique name, avoiding certain words or phrases in accordance with your state, and including either “limited liability company” or “LLC” in the official name.
Reserve Your Name
If you have a unique business name but aren’t ready to officially file the paperwork, you should still reserve the name. Most states will allow you to file and reserve your business name for a small filing fee. The length of the reservation and renewals will vary in each state.
Articles of Organization Files
After establishing a business name, the next step is to file an Article of Organization. This form is also known as the Certificate of Formation. Whichever your state goes by, this form must be filed through your secretary of state to be official. This often includes state filing fees.
In general, your Rhode Island Article or Organization or Certificate of Formation forms should include the following information.
The signatures of the LLC’s owner, and sometimes the registered agent, are required to submit the organization form to the state.
These forms are often easy to complete online. However, to submit a Certificate of Formation or Article of Organization, you will most likely need to pay a filing fee, which can range from $100 to $300, depending on the state.
Find a Registered Agent in Rhode Island
A registered agent, or statutory agent, is the person designated to manage official LLC documents such as lawsuits, personal tax returns, employer taxes, and legal documents on behalf of the company. Essentially, your company’s registered agent’s responsibility is to maintain constant communication with the state.
Who Can Be a Registered Agent?
Generally, your company’s registered agent must be at least 18 years old and live in the same state as your LLC. A registered agent can be a member within your company, including yourself, or through an agency that will offer registered agent services for a fee.
Establish an LLC Operating Agreement
An LLC operating agreement is an official legal document that outlines and defines your company’s operating procedures. This includes a list of various business activities, such as:
LLC Tax Requirements
Aside from your company’s Employer Identification Number, there are various other tax regulations to follow for your LLC to remain in compliance with the state. As an LLC, you are exempt from double taxation; double taxation is when taxes apply to both your profit reports and tax returns. The only exception to this is if you list your company as a corporation.
Federal Tax Requirements: Get a Rhode Island EIN
An EIN, or Employer Identification Number, is a nine-digit number assigned by the Internal Revenue Service (IRS). The IRS uses this number to identify your company for tax purposes. Basically, the EIN is your LLC’s social security or tax ID number.
Thankfully, getting an EIN is free and easy to complete online or through the mail. Achieving this is an essential step towards managing your LLC’s finances.
What Can I Do With an EIN?
Aside from being your company’s primary identification when you pay taxes, you will use your Rhode Island EIN for various other business filings and company-related tasks, including:
- Opening a bank account for your company
- Hiring new employees
- Filing and managing federal taxes
- Filing and managing state taxes
A social security number is required to file for a Rhode Island EIN unless you are an international applicant.
State Tax Requirements
State tax requirements will vary depending on the type of LLC you have. For example, a sole proprietorship LLC is not responsible for paying income taxes. Instead, they record their pass-through taxes on the Schedule C section of their personal taxes form.
Similar to that of a sole proprietorship, partnership LLCs use pass-through taxes rather than income taxes. These tax implications require employees to fill out a Form 165 with the state of Rhode Island. The only exception to this rule applies for LLCs that choose to be taxed as corporate organizations; in this case, the LLC is subject to the Corporate Income Tax of Rhode Island or in whichever state the LLC is located.
Businesses who partake in the hospitality, restaurant, or retail industry are likely subject to the state’s sales tax, although this will vary depending on the state.
Another state tax to be aware of is the use tax. The state imposes this tax on limited liability companies who purchase goods for their business out of state. Some products, such as alcohol, will include an additional luxury tax.
LLC owners will report the use tax on the same form that they report their sales tax.
Local Tax Requirements
Aside from state and federal taxes, your company is also subject to local taxes based on the county where your limited liability company is located. This typically includes property taxes; however, you can find the complete list of local LLC tax requirements on your county’s website.
Acquire the Proper Business Licenses and Permits
Although not all states require LLCs to obtain a general business license, the particular products and services that your company offers typically will. For example, businesses such as restaurants that sell alcoholic beverages will require a liquor license.
Companies that sell products or services in Rhode Island are subject to the Transaction Privilege Tax, or TPT. Applying for a TPT ensures that your company sells and operates in good standing with the state of Rhode Island.
In summation, you will need to apply for the proper licenses and permits that apply to your particular business. For example, hair salons will require different licenses or permits than a construction company.
File Your Annual Report
Most states require a limited liability company to file an annual report. This often comes with a filing fee, the amount of which will vary from state to state.
Register for Out-of-State Business Operations
Although this step is optional, it is required for businesses that want to operate outside their state of residence. You will need to file your limited liability company in the state of desired operations to do this. You will also need to find a registered agent to act as your legal entity in that state.
Overall, the procedure to register for out-of-state business operations is similar to that of your initial LLC registration.
What Happens After Forming an LLC?
After you form an LLC, there are still steps to maintain a proper business structure.
Open Your Business Bank Account
As a business owner, you want to keep your business and personal finances separate. Therefore, after you form an LLC, the first step should be to establish a business bank account in Rhode Island.
This is where your EIN comes in. As previously mentioned, a bank will require you to provide an Employer Identification Number to open a company bank account.
This not only makes filing taxes more straightforward, but it also protects and separates your personal finances. Managing your student loans separately from your business loans allows company operations to run much more smoothly.
Find Insurance for Your Business Structure
However big your company is, all businesses must have worker’s compensation insurance to protect their employees in case of work-related accidents. If your limited liability company utilizes company vehicles, you must also get auto insurance. The type of vehicle you use and what you use it for will determine which type of auto insurance you should obtain.
Worker’s compensation and auto insurance are the legally required policies in Rhode Island; however, it is highly beneficial to obtain other business insurances. For example, general liability insurance offers liability protection for small business owners or a single-member LLC. You can also find policies specific to your industry for added liability protection.
In Rhode Island, you must record and report your business earnings every year, regardless of whether or not you earn a profit. Your company will file this report along with your Transaction Privilege Tax form.
If your company has only one location, you will file your income reports through the mail. If you have multiple locations, you will file it online.
Hire an Accountant
As a small business owner, you have several responsibilities. Hiring an accountant is one way to reduce your daily tasks while ensuring that the financial aspects of your business are handled properly.
Hiring a professional to manage your finances reduces error and ultimately saves you money in the long run. Accountants know the best money practices to protect and allocate your business funds effectively.
If hiring a full-time accountant is not currently within the budget, it is a good idea to consult one when you first set up your accounting software. It is also helpful to meet with an accountant throughout the year to double-check your work and make sure your finances align with your company objectives.
How To Start an LLC in Summary
To summarize, starting a limited liability company involves several crucial steps that are in line with the state’s regulations. First, establish an LLC name that is unique and follows Rhode Island guidelines. Next, prepare an operating agreement and determine your management style.
Next, identify your LLC’s registered agent to act as a communication line between your company and the state. Finally, is it critical that all small business owners follow federal, state, and local tax laws while acquiring the necessary business licenses?
After you form an LLC, the most crucial task to address is managing business operations. This includes financial reports, managing personal assets, and finding insurance. Hiring accountants or lawyers can highly benefit your business operations.
Meeting with a lawyer a few times a year can offer you necessary legal advice when facing liability issues. In addition, hiring or regularly meeting with an accountant keeps your business’ finances in check, which is essential when you form an LLC.