How to Start an LLC in Alaska? (11 Steps Guide)
Starting a business in Alaska isn't uncommon, as this legal structure offers personal asset protection in case of lawsuits.
While an LLC is a great choice for many small businesses, it's not the only option.
As a business law expert, I've created a guide with five straightforward steps to help you navigate the process. With our team's experience in forming numerous Alaska LLCs, we aim to share our knowledge and simplify the journey for you.
If you are ready for an Alaska-based business, know that forming an LLC is relatively easy with the right help and advice from an Alaska LLC service provider, who, from our experience, will make business formation fast, clear, and well-organized.
Quick Summary
- Starting an LLC in Alaska involves steps like choosing a business name, appointing a registered agent, and filing Articles of Organization.
- An LLC in Alaska offers LLC owners pass-through taxation, personal liability protection, and a flexible management structure.
- According to the 2023 US Small Business Administration, with 71,781 small businesses making up 99.1% of all businesses in Alaska, forming an LLC is a crucial step for entrepreneurs looking to tap into the state's robust economic landscape.
- From my perspective, the investment in professional guidance for forming an LLC in Alaska pays dividends in legal security and operational efficiency.
How to Form an LLC in Alaska
Forming an LLC in Alaska provides personal liability protection and offers flexibility in managing your business. Below, we will walk you through the process of starting an LLC in Alaska, from choosing the type to filing the necessary paperwork.
1. Choose the Type of Your LLC (Mandatory)
You can choose between two types of LLCs: a single-member LLC and a multi-member LLC.
- Single-Member LLC:
Advantages:
- Simplicity: Easier to set up and manage as there is only one owner.
- Control: Complete control over decision-making.
- Flexibility: More flexibility in managing business affairs.
Disadvantages:
- Limited Resources: Only one member's skills, knowledge, and financial resources.
- Liability: If the LLC’s liability shield is pierced, the single member could face personal liability.
Multi-Member LLC:
Advantages:
- Diverse Skills and Resources: Access to more capital, skills, and business connections.
- Shared Responsibility: Workload and responsibilities can be divided among members.
Disadvantages:
- Complex Management: Requires more complex management structures and decision-making processes.
- Potential for Disputes: More members can lead to conflicts and disagreements.
2. Choose a Name for Your Alaska LLC (Mandatory)
The second phase in forming an LLC is choosing a business name.
When I consulted for an upcoming tech startup, selecting their business name was a pivotal moment. We brainstormed ideas that reflected their innovation and market niche.
After shortlisting a few, we checked for uniqueness on the Alaska Division of Corporations website. We chose a name that was not only unique but also resonated with their brand identity.
There are a few things to bear in mind when naming your Alaska LLC:
- Check the availability of your desired name on the Alaska Division of Corporations website.
- Your LLC name cannot contain words restricted by the state of Alaska, such as "Bank," "Insurance," and "Bail".
- Your business name must end with "LLC" or "Limited liability company."
- It cannot contain the words "city," "village," "borough," or any other word that could refer to the company being a part of the government or municipality.
- Your LLC name must not contain words used in a government agency [1].
Take a look at the complete listing of Alaska's naming rules. Check which LLC names are available in Alaska through the Corporations Database on the Alaska Department of Commerce, Community, and Economic Development website.
Once you have chosen a business name, you have the option to file a "name reservation" with the Alaska Division of Corporations [2].
This way, you will ensure that no one else can use your desired name in the state. The fee for filing a name reservation is \$25.
It would be wise to look for a domain name at this stage as well. A website is a useful marketing tool.
It will enable customers to discover more about you and your company. Make sure to verify the availability of the URL including the name of your company.
Applying for a DBA: A BA (“Doing Business As”) Name
A "trade name" in Alaska is a separate name under which you can register and conduct business. If you want to do business under a name different than your LLC's legal name, you'll need to get a trading name.
A trade name can be registered online or by mailing the Alaska Department of Commerce a completed New Business Name Registration form. The filing fee is \$25.
3. Select a Registered Agent (Mandatory)
An Alaska registered agent is the point of contact for your business.
They receive legal and tax notices on behalf of your LLC, and they are responsible for forwarding these legal documents to you.
When selecting a registered agent, bear the following in mind:
- They must be located in Alaska.
- They must have a physical street address in Alaska. PO boxes are not allowed.
- They must be available during regular business hours.
You are free to appoint anyone as your LLC registered agent. You can also be your own registered agent. However, most people prefer a professional registered agent service.
In my role as a business consultant, I've advised several clients on this decision. One client chose to be their own registered agent for cost-saving reasons, but soon faced challenges managing legal notices and maintaining privacy.
I generally recommend professional registered agents for their expertise and reliability.
The name and address of the registered agent are made public, resulting in a loss of privacy. For some entrepreneurs, this is important, primarily if they work from home or are self-employed.
If you use a reliable registered agent service, the number of unsolicited phone calls and mailings will be reduced.
4. File Articles of Organization (Mandatory)
Once you have chosen a registered agent, it's time to file your Alaska LLC Articles of Organization with the Department of Commerce, Community, and Economic Development.
You can file online, by mail, by fax, or in person. This is the document that officially creates your LLC. The filing fee for LLC Articles of Organization is \$250.
There are a few things you will need to include in your Articles of Organization:
- The name of your Alaska LLC.
- The name and address of your registered agent.
- A primary purpose of the LLC. A reason for the LLC formation. It can be a general statement.
- Duration of the period over which the LLC will exist. Usually, LLCs are perpetual, meaning the duration is indefinite. A perpetual LLC in Alaska can be dissolved willingly or involuntarily. If your LLC exists for a purpose that will end at a specified date, you will write that date here.
- What is the management structure of the LLC: Is it managed by managers or by its members? LLC owners usually opt for a member-managed LLC.
- NAICS (North American Industry Classification System)
- The person forming the LLC needs to sign the Articles.
NAICS (North American Industry Classification System)
The NAICS (North American Industry Classification System) is a six-digit number that categorizes and classifies the types of commercial operations your limited liability company conducts.
This information is used to report statistical data for each of the United States industries. Remember this number because you'll need it when filing your annual tax returns.
Choose the closest activity if your business's activities aren't listed.
Steps to Take After Forming an LLC in Alaska
After building an LLC, you must fulfill these essential steps.
5. Create an LLC Operating Agreement (Optional, but Recommended)
Compose an LLC operating agreement to keep things easier in the long run.
Operating Agreements are not a requirement in Alaska, but it's a good idea to have it in mind when you calculate the cost to start an LLC in Alaska.
This document spells out the rights and responsibilities of the members of your LLC. It also clarifies how profits and losses will be divided, how the LLC will be managed, and what happens if someone leaves the LLC or dies.
You can include details about how the LLC will operate, how members will contribute money and property to the LLC, and what happens if someone wants to sell their interest in the LLC.
It also prevents disputes between members and provides a roadmap for the LLC's future.
If you don't have one, the courts will rule on how the LLC should operate based on Alaska law. This can be a costly and time-consuming process.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
An Employer Identification Number (federal tax identification number), a nine-digit number, is used to identify businesses for tax purposes. The Internal Revenue Service uses it to track income and employment taxes.
You'll need an EIN if you want to hire employees, open a bank account for your LLC, or file Alaska LLC business taxes. You can apply for an EIN online on the IRS website or by mail.
In one instance, a client overlooked applying for an EIN, thinking their small size exempted them. This led to complications during tax season, especially with payroll taxes.
I emphasize to all my clients the importance of obtaining an EIN early in their business setup.
"The Internal Revenue Service will provide you with an EIN for free. Obtaining an EIN is a simple procedure that can be completed online or via mail."
- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions
7. Open an LLC Bank Account (Optional, but Recommended)
Opening a business bank account for your LLC is necessary for liability protection because it isolates the business's funds and business income from the owners' personal funds.
To open a bank account, you'll need a few documents, including:
- A banking resolution (a document that authorizes the members of the LLC to open a business bank account on behalf of the LLC.)
- Copies of the state's original LLC formation documents.
- Driver's licenses of the members.
- Depending on the age of the LLC, an Alaska Certificate of Compliance may be needed to prove the LLC is active and in good standing with the state.
8. File Your Alaska LLC Biennial Report (Mandatory)
Alaska LLCs must file a biennial report with the Alaska Division of Corporations, Business & Licensing every two years, in addition to the initial report. It costs \$100 to submit a biennial report.
The purpose of this report is to keep the state updated on your LLC’s current information. Failure to file this report can result in penalties and may even lead to the dissolution of your LLC.
A penalty of \$37.50 is added to your report if the LLC biennial report is more than a month late.
9. Obtain Business Licenses and Permits
Before starting your firm, you'll need to register for several business licenses and permissions, depending on what your company does and where it's located.
The following are some examples of standard registrations:
- Alaska Business License - In addition to requiring a state business license for all enterprises operating in Alaska, many cities also require businesses to be licensed to operate in their specific field
- Professional licenses are required for certain services such as barbershops, accountants, and home inspectors.
Related Articles:
- Best LLC Services in Alaska
- How Long Does It Take To Form an LLC in Alaska
- How to Register a Business Name in Alaska
10. Initial Report (Mandatory)
The Initial Report is required to be filed within six months of the LLC's formation. The good news is that there is no cost associated with filing this Initial Report in Alaska; it can be filed online without any fee.
It is intended to keep the LLC’s contact information up to date with the state. It typically includes details like the LLC’s name and entity number, mailing and physical addresses, and the names and addresses of the LLC's members.
However, it's important to note that this report cannot be used to change your Registered Agent. If a change in the Registered Agent is needed, a separate filing with a fee of \$25 is required.
The process of filing the Initial Report is straightforward and can be completed online. You will need your LLC's Entity Number, which can be found by searching for your LLC in the Alaska Division of Corporations database.
Once you enter your LLC’s Entity Number or search by name, you can then proceed to file the report online.
This initial filing is crucial for maintaining compliance with state regulations, and it helps in establishing the legitimacy of your LLC in Alaska.
11. Choosing Your Tax Structure
When selecting a tax structure for an LLC, you have several options:
- Sole Proprietorship:
- Pros: Simple to manage, no separate tax filings for the business.
- Cons: Personal liability for debts and legal actions.
- Partnership:
- Pros: Profits taxed once, at the individual level.
- Cons: Partners are personally liable for business debts.
- C-Corporation:
- Pros: Owners are not personally liable for business debts; potential for lower tax rates on retained earnings.
- Cons: Double taxation, as profits are taxed at both the corporate and individual levels when dividends are distributed.
- S-Corporation:
- Pros: Avoids double taxation of C-Corporation, limited liability.
- Cons: Stricter operational requirements and eligibility criteria.
Drawing from experience, I prefer the S-Corporation structure. It offers a balance between the simplicity of a pass-through entity and the limited liability of a corporation, without the double taxation associated with C-Corporations.
For changing your tax structure, the key deadline is March 15 for entities wanting to elect S-Corporation status for the current tax year.
The process typically involves filing specific forms with the IRS, such as Form 2553 for S-Corporation election. It's crucial to plan ahead, as these changes can impact your tax strategy significantly.
Benefits and Drawbacks of an LLC in Alaska
Benefits:
- Limited Personal Liability: Members of an LLC in Alaska enjoy protection from personal liability for business debts and claims, safeguarding personal assets. This protective measure is becoming increasingly important as the business landscape grows, highlighted by the 2,514 new Alaska establishments that opened from March 2021 to March 2022 [3].
- No State Income Tax: Alaska's unique position as one of the few states without a personal income tax benefits businesses that operate within the state This tax advantage can lead to considerable savings for LLCs, enhancing Alaska's appeal as a business-friendly environment.
- Flexibility in Management: LLCs in Alaska can be managed by members or managers, offering flexibility in how the business is run.
- Pass-Through Taxation: By default, LLCs benefit from pass-through taxation, where profits are taxed only at the member level, avoiding the double taxation common in corporations.
- Ease of Formation and Maintenance: Forming an LLC in Alaska is a relatively straightforward process, with fewer formalities and compliance requirements compared to corporations.
Drawbacks:
- Limited Growth Potential: Unlike corporations, LLCs in Alaska can’t issue stock, which may limit opportunities for raising capital and attracting investors.
- Annual Fees and Filings: LLCs must pay an annual fee and file annual reports, which can be seen as an administrative burden.
- Transferability of Ownership: Transferring ownership interests in an LLC can be more complex compared to corporations, often requiring approval from other members.
- Less Precedence in Law: Since LLCs are a relatively newer business structure, there's less legal precedent compared to corporations, which might lead to uncertainties in complex legal situations.
DIY vs. Professional LLC Formation
DIY LLC Formation:
Pros:
- Cost-Effective: Generally cheaper as it avoids professional service fees.
- Control: Full control over the formation process and direct involvement in every step.
- Educational: Opportunity to learn about the legal aspects and inner workings of your business.
Cons:
- Time-Consuming: Requires more time to research and understand legal requirements.
- Risk of Errors: Potential for mistakes due to lack of legal expertise, which can lead to compliance issues or delays.
- Limited Legal Knowledge: May not fully understand all legal obligations or benefits, potentially missing out on important aspects.
Professional LLC Formation:
Pros:
- Expertise: Professionals are knowledgeable about legal requirements and can navigate complex situations.
- Time-Saving: Less time-consuming for the business owner, as the service takes care of most steps.
- Peace of Mind: Confidence that the LLC is set up correctly, reducing risks of non-compliance.
Cons:
- Cost: More expensive due to service fees.
- Less Hands-On: Some business owners may feel disconnected from the process.
The choice between DIY and professional LLC formation depends on your specific needs, expertise, time availability, and budget. Consider your individual requirements and circumstances to make the best decision for your business.
FAQs
What Is a Foreign LLC?
A foreign LLC is physically located in a state other than the one in which it was created. It is physically operating if it has an office or an employee. All LLCs must register as foreign LLCs in each state where they intend to do business.
Can a Non-Resident Form an LLC in Alaska?
Yes, a non-resident can form an LLC in Alaska. There are no citizenship or residency requirements for members or managers of an LLC in the state. Non-residents need to follow the same process as residents, including appointing a registered agent with a physical address in Alaska.
References:
- https://www.commerce.alaska.gov/web/cbpl/Corporations/DistinguishableBusinessName.aspx
- https://www.commerce.alaska.gov/web/
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-AK.pdf
