So, you're finally ready to start your new business. How do you go about doing that? If you live in Indiana, then there are a few options that will help get the ball rolling for your new endeavor.
The first option is to look into forming an LLC in Indiana. This article is going to cover everything you need to know about starting an LLC, including what it entails and how much money it costs.
You'll also learn more about the advantages of this type of legal entity as well as some disadvantages so that you can make the best decision for yourself. Every current or future business owner should find this step-by-step guide quite handy.
What Is an LLC?
So, what exactly is an LLC? The limited liability company (LLC) was introduced in 1977 and became a famous legal business structure.
It's basically like any other type of corporation except that it contains many components of a partnership.
This means you'll be able to protect your personal assets from debts or claims against your company while simultaneously enjoying limited liability.
The limited liability company structure is governed by state law, but there are some commonalities between each type of country's LLC laws.
For example, the federal government recognizes all LLCs as unique legal entities rather than just another business branch under its parent corporation.
Why Form a Limited Liability Company?
The main reason to create a limited liability company is for the protection of personal assets.
An LLC allows you to protect your personal assets from claims against the business and its managed property, such as lawsuits and debts.
Limited liability companies are also excellent for personal liability protection in any state, including Indiana.
Many people form an LLC because it offers them more flexibility when choosing a business name, and it's simple to create.
You might not even need a business license to operate it.
The Indiana Secretary of State website has more information and instructions for future LLC owners.
How to Form an Indiana LLC
Starting an Indiana LLC is very similar to starting one in other states. Filing the Articles of Organization with your county (the Secretary of State's office can provide you with these forms) is the first step.
You'll need to include basic information like the name and address of your business, as well as a Registered Agent for service on all legal documents that are sent to you.
But before you do any of that, your business will need a unique name.
Step 1: Every LLC Needs a Name
You can use almost any business name you want, so long as it's not already in use.
There are a few exceptions - your business name must be distinguishable from the records of the Secretary of State and cannot imply that an entity is organized for a purpose other than for which it was created.
An LLC name also can't impersonate or imitate another business. This is where doing business as (DBA) comes in - if you choose to operate under a name other than your legal business name, that's completely fine.
To check whether or not your LLC name is available in Indiana, visit Business eFile.
Step 2: Hire a Registered Agent
Every new business needs a registered agent to be compliant with state law.
A registered agent is an individual or business entity that agrees to accept legal papers on behalf of the LLC and has a physical address for service of process (the place where court documents are delivered).
Indiana registered agents can also be any business with a physical street address in Indiana - so long as that business agrees to accept documents on your behalf.
To find an Indiana registered agent, you can use a registered agent service. However, you are not required to hire a registered agent service.
You can also hire your own registered agent who is willing to accept legal papers on behalf of your LLC and have them sent over to you.
Step 3: Filing Articles of Organization in Indiana
The most important document that you must file to form an LLC is the Indiana articles of organization.
It's a document that you have to file with the Indiana Secretary of State Business Services Division and pay the filing fee.
Indiana LLC articles will need to include the name and address of your business and its purpose (what it plans on doing or how it's going to make money).
Besides including your business address, you also need to include the name and address of your registered agent.
You should also mention your LLC's duration, that is, if it's perpetual or lasting for a certain amount of time.
Once you've filled in the necessary information, file articles with the Indiana Secretary of State. The filing fee is $95, plus a $3 service fee if you're filing online.
This document that you have to file with the Secretary of State Business Services Division is also known as the Indiana Certificate of Organization. It's the only government agency that can get you an Indiana LLC certificate.
Step 4: Create an Indiana LLC Operating Agreement
If there is more than a single member in your LLC, you should create an operating agreement.
Operating agreements will state the rights and responsibilities of all members if there is more than one person in your business. It's highly advisable to have an operating agreement in place.
Your operating agreement needs to include:
- Member contributions and allocations (if any)
- Rules for withdrawing money from the company account
- Right and responsibilities of LLC members and managers
- How operating expenses will be paid (if you don't want to split them equally)
- Voting rights of members and percentages for determining a vote if it's close.
You should also include how profits are distributed, what happens in the event that one member dies or leaves early on, and so on.
Operating agreements are not mandated by law. However, an operating agreement will help you run your business with more than a single member.
Step 5: Get an Employer Identification Number (EIN)
After you whip up an operating agreement, you will need a federal employer identification number (FEIN, or EIN).
You can use your Social Security number if you're the only member of the LLC.
However, there are some benefits to getting an EIN for your business rather than using your own.
For example, the company will be able to file federal tax returns on its own without you having to include your personal information (such as income).
This protects your privacy and anonymity while allowing the LLC some protection under federal law.
It's also important if someone else becomes a member of the LLC at any point in the future.
You'll be able to keep track of who owns what percentage by federal law, which requires each member to have their own identifying number.
You can apply for an EIN online, through the mail, or over the phone with the Internal Revenue Service (IRS), and it's quick and easy - you should receive your new federal tax identification number within just a few minutes.
You can also use the IRS website for this purpose.
The Indiana Department of Labor has more information for employers.
Don't Forget to File Biennial Reports
Indiana law requires that all LLCs file a biennial report every two years.
If you don't receive any correspondence from the Indiana Secretary of State within 30 days, it means that your LLC is in good standing and has no outstanding reports or fees to pay. There's a filing fee of $32 attached to biennial reports.
Your business entity report should disclose both new member information as well as changes in manager details on all forms.
Biennial reports need to go out in the same month when you formed your business.
You have two years after the month of formation to file the next biennial report, so if you miss this deadline by even one day, your LLC will be in default and subject to dissolution.
What Kind of Taxes Do You Need to Pay in Indiana?
Depending on the nature of your business, you may be required to register for one or more forms of federal and state taxes.
Indiana LLC Sales Tax
If you're actually selling something, you need to collect sales tax from your customers and pay it over to the appropriate state authorities. You must also register with the Indiana Department of Revenue.
Sales and Use Tax is levied by the state at a rate of 7%. It's collected from the consumer at the time of purchase by your business.
Indiana LLC Employer Taxes
An Indiana LLC that has employees is responsible for withholding federal and state income tax from their employees' paychecks.
It's important to note that you are required by law to sign up for the Employee Withholding Tax Program.
Your business is responsible for filing an Employer Withholding Tax Return every quarter.
A Business Bank Account for Your Indiana LLC
Every LLC needs a separate business bank account. The account should be in the name of your business only and not a personal business owner's name.
To open an account for the LLC, business owners should visit a bank and present the following:
- Articles of Organization or Application for Authority as an LLC
- Federal Tax ID Number from IRS
In addition to these items, business owners will have to fill out additional forms depending on their business type.
Why You Should Separate Your Personal and Business Assets
It's a good idea to keep business and personal assets separate from one another.
This is why every business should have its own bank accounts.
When you create an account, make sure to use the name of your LLC, as this will help protect yourself down the road if someone files a lawsuit or bankruptcy against you personally.
Advantages of an Indiana LLC
There is more than a single benefit of starting an LLC.
The state tax rates for a single-member LLC are at least half the rate of a sole proprietorship, and it's lower than that of a corporation or S Corporation if both business owners live in the same state. Other benefits include:
- Protection from personal liability
- Pass-through taxation
- No double taxation like for corporations and S Corporations
Disadvantages of an Indiana LLC
LLCs aren't perfect business entities. For one, there is no tax deduction for social security and medicare taxes in the state.
Also, if you want to attract outside investments or need a loan from your bank that requires collateral, an LLC might not be the best option you have.
Lastly, there are several disadvantages of starting an Indiana LLC compared to other types of businesses:
- Foreign investors can't invest in an LLC
- An LLC cannot be taxed as a corporation and must file taxes under pass-through taxation. For this reason, foreign tax credits are limited to only 90% of the federal credit, and there's no option for carrying back losses as corporations have.
- A generally higher tax rate compared to other business entities
- If you hire an independent contractor, they are still considered employees under the IRS guidelines.
How Long Does It Take To Get an LLC in Indiana?
It takes approximately four to six weeks to form an LLC in Indiana. In general, you'll have to wait for about a month.
Is There an Annual Fee for an LLC in Indiana?
Yes, there are annual fees for LLCs in the state of Indiana. It's due every two years.
Can I Open a Foreign LLC in Indiana?
Yes, it's possible to open a foreign LLC in Indiana. However, there are some steps you'll need to take before doing so.
You will need to make sure that the LLC has a physical address within Indiana. You can use your home, office, or another property as long as it's in the state.
Is It Smart to Start an LLC?
Yes, it's a good idea to start an LLC in Indiana, as it is relatively cheap, easy, and time-effective to form an LLC within the state.
What Is the Difference between a Foreign LLC and a Domestic LLC in Indiana?
A foreign LLC is a business entity formed out of state, while domestic LLCs are those formed in the same state.
There are some additional requirements for opening up an account with a foreign business type because you will need to make sure it's registered within Indiana as well.
Indiana LLC Formation: Conclusion
Indiana has a great pro-small business climate that can be seen in the number of small businesses it supports.
The state wants you to succeed and is doing everything possible to help you get on your feet, which includes forming an LLC and getting necessary business licenses in a couple of steps. Not all Indiana LLCs need business licenses, however.
Here's what we outline for those interested in starting their own company: first, there are some legal requirements such as having at least one member and setting up registered agent services with the Indiana Secretary of State.
You also need an operating agreement in place. With an LLC, you'll be protected from business debts (business debts can't become personal debts), so there's no reason to postpone. Start your Indiana LLC today.
Always check the Indiana Secretary of State website for additional information.