Montana is a popular state for people to form an LLC in. This type of business structure has many advantages, including liability protection and tax benefits.
Business owners often use them to shield their personal assets from liability, which is why they're popular among entrepreneurs.
So, how are you supposed to form an LLC in Montana? There are several steps that need to be completed before your new business can start taking advantage of these benefits.
What Is a Montana LLC?
An LLC in Montana is a limited liability company formed under the laws of the State of Montana. An LLC has many advantages over other business types, including flexibility in management and tax treatment.
Montana, like most states, allows individuals to form an LLC easily by filing Articles of Organization with their Secretary of State.
A Montana LLC can be owned by one or more persons who are known as LLC members; all owners have full rights to participate in its operation without additional documentation or filings required.
Members may include corporations and foreign entities, but they must appoint a registered agent for service before establishing an office within state boundaries.
Furthermore, each member enjoys unlimited personal liability protection from creditors due to this entity's legal status as separate from individual owners.
The Benefits of Montana LLC
A limited liability company in Montana offers several benefits over other business structures. To name a few, an LLC is easy to set up, requires fewer formalities than other business structures, and ensures limited liability for all members.
LLCs are treated as separate entities from their owners, meaning that the creditors of members are not able to reach into or take assets away from the LLC.
Montana has many benefits for forming an LLC, including:
- No state corporate or personal income taxes on profits
- Low annual fees for registering your business
- Quick formation time with minimal paperwork required
- Easy transferability of ownership interests without triggering a capital gains tax liability
- Flexible management structure (i.e., members may serve as managers)
Flexible management increases flexibility in running the company's day-to-day operations while protecting them from personal liability by having limited legal responsibility to creditors if something goes wrong.
Montana LLC Formation
To officially form an LLC in Montana, future LLC owners need to file formation documents, which include the Articles of Organization and the Operating Agreement, with the state's Secretary of State.
These legal documents are filed online or by paper. The Annual Report must also be filed every year to keep your LLC in good standing as a legal entity under Montana law.
You will also need to find a suitable business name, appoint a registered agent, and complete a few other equally important steps.
Step 1: Pick a Business Name
Choosing an LLC name is the first step in the process of forming an LLC in Montana. The name must follow the Montana LLC naming guidelines, and it cannot be misleading to potential clients about your business operations or services.
You also need to make sure there are no existing names on record with the Montana Secretary of State because the state will reject your filing if you submit an LLC name that's already in use. Montana Secretary of State website will provide a list of all registered business entities within the state, allowing you to quickly see whether or not your desired name is available.
However, the Montana Secretary of State will not pre-approve your name before you file for an LLC in Montana, so it's best to review this list throughout your business formation process.
The name of a Montana LLC must not contain language that indicates the company is a public body or an association organized by law.
The name of your Montana LLC must include "Limited Liability Company" as part of its designation, for example, ABC LLC.
You cannot use designations such as any government agency within your name either. For instance, you can't register your LLC in Montana with the name of "Department of Justice" or "City Council."
The state also prohibits any names that contain words that are deceptive, confusing, misleading, obscene, or scandalous. Any business name that is considered to be a public security interest may not be registered either.
You can also reserve a business name in advance by filing a "Name Reservation" form with the Montana Secretary of State. The filing fee is $10.
Step 2: Appoint a Montana Registered Agent
A registered agent is an individual or business that agrees to accept legal papers on behalf of the LLC.
A registered agent is required for any business entity formed in Montana. The registered agent must be a resident of Montana.
The Montana Secretary of State does not provide this service, so an LLC in Montana will need to appoint a suitable individual or business entity for the role by filing an Appointment of Registered Agent with the state.
While it is possible to make arrangements directly with the selected company, most business owners choose instead to use one that specializes in providing registered agent services for companies across many states.
This allows them access to quality legal support without having local ties, which could limit their options should there be any changes required down the line.
A reliable registered agent service will help the LLC in Montana avoid any issues with missed filings, notices, or other legal documents sent to their business address. It will also ensure that there are always valid addresses on file for all members of management and directors should this ever be required.
The registered agent service can go a step further by providing additional support services (such as document storage, shareholder meetings, and corporate record ceremonies), which may allow them to work more closely with clients depending upon what they have agreed together at the outset.
Any fees charged for these kinds of activities will vary widely, so it is important to establish exactly how much each company makes available before agreeing to use one specifically.
Step 3: File Montana LLC Articles of Organization
Articles of Organization represent the agreement between all of the LLC members. It is in these documents that you define your business name, the names and addresses of each member, number of votes needed for major decisions to be approved by membership meetings, management structure (e.g., who manages day-to-day activities), allocation of profits/losses within the company, etc.
The Montana Articles of Organization are typically filed with the Montana Secretary of State office. There will also need to be a filing fee paid at this time as well ($70).
Once submitted, it could take up to 15 days before they come back from review and approval. If everything looks good, then you should receive an email confirmation saying so.
You can file Articles of Organization either by mail or online. If you are in a rush, you can opt for expedited processing at an additional cost. This will allow you to receive your Articles of Organization within one business day.
Step 4: Create an Operating Agreement
An LLC operating agreement is a legal contract between the members of an LLC. It outlines how the business will be conducted and managed so that there is no disagreement about it later on.
Montana does not require LLCs to have an operating agreement, but having one can lead to reduced conflict and better management of your Montana Limited Liability Company.
Operating agreements are not filed with the state but are kept with the LLC's records. The importance of an operating agreement is that it is legally enforceable.
Even if you have a copy of the LLC's articles, this does not replace operating agreements and can be revoked by members at any time.
Step 5: Obtain an EIN
Every LLC in Montana that plans to hire employees need to have an EIN. EIN is a tax ID number that the company uses when dealing with taxes. It is also called the Federal Tax Identification Number or Federal Employer Identification Number. The LLC needs to apply for an EIN by filing an EIN form, which is available on the IRS website, which is why some call it the IRS employer identification number too.
The application has to be submitted online or through paper mail using the appropriate form. However, many agents of the company recommend applying for this number online as it saves much time and effort than completing a paper application.
To obtain an EIN, you need to visit a local Internal revenue Service office and fill out the form.
An employer identification number (EIN) is also necessary if you wish to open a business bank account or get loans from banks at some point in time in the future.
Step 6: Acquire LLC Business Licenses and Permits
A Montana business license is a legal requirement, especially for a professional LLC.
Applicants will need to complete the appropriate forms and submit them along with other required documents.
Applicants should expect the process to take two weeks at most. In some cases, applicants may have to pay an additional fee for expedited service, but this does not apply in every case.
In addition, professional LLCs must acquire any relevant business permits from local authorities that deal with issues like payroll taxes and zoning regulations, among others, depending on their line of work.
Local licenses can usually be acquired through a simple online application submission that takes about 48 hours maximum to process so long as all necessary information is provided correctly and professionally.
To obtain business licenses, you will have to inquire about the federal, state, and local requirements. Not all Montana LLCs will require a business license, but it is generally advised to acquire one even if you are not obliged by the laws of your state.
Step 7: Open a business bank account
A Montana LLC needs a business bank account. A personal checking or savings account is not enough because it does not show that your business as an LLC has its own separate existence from yourself as a business owner.
You may want to use a business credit card instead of opening business financial services such as a business line of credit, merchant services, payroll accounts, and more.
Opening a separate LLC business bank account allows owners to use business credit cards. This is the best option for business owners who are looking to take advantage of business rewards, cashback, and other great benefits that these types of accounts offer.
Step 8: Acquire business insurance
Business insurance protects the company when you are unable to. It provides legal protection and financial coverage in case of accidents or lawsuits, among other things. For this reason, it is important that your LLC has the appropriate business insurance for its activities.
If you have a professional LLC, you might be required by law to obtain insurance. If you do not provide it, your company could be fined and penalized.
To get started with this process, we recommend that you speak to a specialist of business insurance for LLCs in Montana.
The expert will review the risks associated with your activity and offer recommendations on how much coverage is necessary depending on each case. Your policy can include general liability insurance (errors or omissions), property damage, automobile coverage, workers' compensation protection, and more.
Montana LLC Taxes
A limited liability company is treated as a pass-through entity for federal tax purposes.
This means the income and expenses of a Limited liability company are passed to its members, who then pay taxes on their share of those earnings at their individual rate. Basically, an LLC is treated as a sole proprietorship or a partnership for federal tax purposes.
The sales tax is paid by the LLC at a rate of four percent. This sales tax can be paid towards other taxes, if necessary.
LLCs that sell goods or services need to pay sales tax. Some examples of these types of sales include sales for resale (i.e., sales such as those made by a wholesaler), sales where the goodwill be used partly outside the U.S., sales of certain telecommunication services, exports not taxed at source, and sales to various state agencies like public schools and state universities.
In order to avoid paying federal self-employment taxes, an LLC in Montana needs to pay estimated taxes throughout the year or make one large payment at the end of each quarter. In either case, this money should then be given back to its members as dividends for their individual taxation purposes.
Federal taxes are paid on the net taxable income of an LLC in Montana.
This is determined by adding up all revenue and subtracting out any expenses, deductions, allowances, or other items that are used to reduce their sales tax liability.
Income from federal grants also counts towards taxable income since they do not contain special provisions exempting them from taxation. An LLC needs to pay federal taxes on its gross amounts minus business expenses.
Employer taxes are also paid since the LLC is viewed as a separate taxable entity from its members. The employer's contributions to Medicare and Social Security are due, based on the number of employees working for them at any given time during that quarter.
The Montana Department of Revenue is responsible for collecting all of these taxes.
Montana LLC FAQs
How Much Does It Cost to File an Annual Report in Montana?
Montana requires LLCs to file annual reports. The filing fee for the Montana LLC annual report is $20.
How Do I Register a Foreign LLC in Montana?
A foreign LLC is registered by filing a Certificate of Authority with the Montana Secretary of State and paying a $70 filing fee.
Is an Operating Agreement Required for an LLC in Montana?
No, an operating agreement is not required for an LLC in Montana. However, an operating agreement provides a written record of the members' business arrangement, and it can be useful to have one even.
Can I Be My Own Registered Agent in Montana?
Yes, you can. A registered agent can be anyone who is at least 18 years old and be anyone from your LLC, too, including manager, member, or beneficiary to the company. The registered agent must also reside in Montana and be available during normal business hours.
How Long Does It Take To Set Up an LLC in Montana?
Setting up a Montana LLC usually takes about a week to complete. You'll need to file your articles of organization with the state and pay any filing fees, but you can also speed up the process by opting for expedited processing at an additional cost.
How to Add a Member to an LLC in Montana?
To add a member to your Montana LLC, you must file the Articles of Amendment with the Secretary of State accompanied by a filing fee.
Can You Use a Po Box for an LLC Montana?
No, a PO box cannot be used for a Montana LLC, nor can it be used for the address of your Montana registered agent.
Forming an LLC in Montana is a simple process, but it takes knowledge and effort.
It's best to consult with a professional before making any decisions about your company, especially if you are unsure of the steps involved or what may be required for compliance purposes.