If you intend to set up an LLC in Rhode Island, you have to accomplish certain steps for the business to be approved by the state.
Because I’ve assisted countless clients on business formation for years, I’ll provide you with all pertinent information you need to start your limited liability company.
Apart from my expertise, I also consulted LLC experts and legal advisors in Rhode Island.
Quick Summary:
- To start an LLC in Rhode Island, members should comply with statutory requirements, file all legal documentation and create an operating agreement.
- After the limited liability company is approved by the state, owners must decide on the LLC’s management structure, open a bank account, acquire an EIN, obtain licenses and permits and apply for a business insurance policy.
- LLCs offer personal liability protection and single taxation.
How Do I Set Up an LLC in Rhode Island?
You can set up an LLC in Rhode Island by complying with the requirements set forth by the state, as well as preparing and filing all LLC paperwork.
Before you can form an LLC in Rhode Island, you must first choose the best business structure for your company.
You can choose between a Sole Proprietorship, General Partnership, C Corporation (C-Corp), S Corporation (S-Corp), and Limited Liability Company (LLC).
These options will be of value taxes-wise because they are classified differently under the business law and are treated differently by the Internal Revenue Service.
Once you have decided on an LLC as your business structure of choice in Rhode Island, here are some things to keep in mind when forming one. Take note, that you can get a registered agent to help you with the process.
Step 1: Choose Your Business Name
In Rhode Island, there are extremely stringent regulations for LLC name compliance
Small business owners looking to establish an LLC should ensure that their preferred LLC name is available and not used by other companies in the state.
Your company's name is its official title for all business activities, including business bank accounts and taxes.
In Rhode Island, the names of LLCs must meet the following guidelines:
- The legal name of the business entity must contain the word "Limited," "Ltd.," or any other variation of the words "limited liability company."
- The name of your company should not include words that might be connected with any government agency.
- If you want to use a business name that includes the word "bank," "banking," "trust," "cooperative," or any variations of these terms, you must obtain special permits.
To discover whether a certain business name is available, look up the Rhode Island Secretary of State's company name database.
The Rhode Island Secretary of State Business Services Division is responsible for all LLC name inquiries and demands. It is possible to reserve a company name for 120 days at a $50 filing fee.
Read More: How to Look Up an LLC in Rhode Island
Step 2: Appoint a Rhode Island Resident Agent
A Rhode Island LLC is obligated to have a physical address in the state, but it has to appoint a resident agent (also known as the registered agent) who has a physical street address in the state.
You can find a registered agent service in Rhode Island starting at $40 per year, or you can also appoint an individual or business entity.
The LLC must indicate on file whether the registered agent services are an individual or other business, and should provide its complete name and physical street address where it can be served with court processes.
If no such information is provided, the Rhode Island division will not mail legal documents thereon upon request from another party to process against you as an LLC member/manager.
Rhode Island law requires that the LLC designate a registered agent who is a Rhode Island resident.
They should also be available during the state's normal Monday through Friday business hours, except for Rhode Island holidays.
Step 3: File Rhode Island LLC Articles of Organization
In Rhode Island, starting an LLC requires filing articles of organization with the Rhode Island Secretary of State's office.
The application for this business entity type also has a list of information that must be included:
- Your name
- The name of the LLC
- Physical address
- Nature and purpose of the business
- Resident agent contact information
- Members
A $150 filing fee must accompany the application. Check our article for more information on how much a Rhode Island LLC costs.
Rhode Island Articles of Organization will be the official document filed with the Secretary of State to create a business entity.
Once your articles have been accepted and entered by the state, you will receive an official filing acknowledgment from the Rhode Island Secretary of State's office. You can also access this information online for free on their website.
Step 4: Make an LLC Operating Agreement
Create an LLC operating agreement.
Operating agreements outline how you will conduct business with other members of your LLC.
You can find great examples online of how the operating agreement should be drafted, or even hire an attorney if needed.
Here are some questions you may want to be answered in the operating agreement:
- How much money has each member invested into the LLC?
- How many votes does each person have? What happens if someone wants out completely of the business?
- Can they sell their shares back to other members at any time, or do they lose them forever once sold?
This will be an internal LLC document that isn't required to be filed with the Secretary of State.
However, it is advisable to draft one because in the absence of an operating agreement, state laws will apply.
Other Steps to LLC Formation
To form an LLC in Rhode Island that will be legally allowed to conduct business in the state, you must also choose a manager, open a separate business bank account, obtain an EIN from the IRS, and potentially acquire business licenses and permits.
1. LLC Management
LLCs in Rhode Island can choose their management because LLCs can be either member-managed or manager-managed. If members of an LLC are also managers, that is considered a member-managed business.
If members manage the company themselves, they are allowed complete control over important decisions related to filing taxes or being sued.
For example, when changes need to be made to employment contracts or agreements, member-management companies must obtain votes from each owner before moving forward on any issue.
On the other hand, manager-managed LLCs are those where a single person is responsible for making all business decisions.
In these cases, members have more limited control over important matters concerning their company.
Any changes to operating agreements or employment contracts need only be approved by one manager rather than everyone equally involved in the LLC.
A multi-member LLC will usually choose to be manager-managed because delegating a manager can be time-efficient. It is often much simpler to ask just one person for their input rather than all members.
2. Open a Business Bank Account
It is advisable to open an LLC bank account to keep funds separate from your personal asset. This way, you could have a clear distinction between personal and business assets, and don’t risk piercing the corporate veil.
Opening a business bank account also ensures that you can keep track of any cash flowing out for expenses or taxes.
Before opening accounts with banks under their business name, businesses must acquire an Employer Identification Number (EIN) from the Internal Revenue Service.
If you run several business entities under one LLC umbrella, make sure each company has its own EIN rather than using a single number for all of your enterprises.
3. Acquire an Employer Identification Number
LLCs require a federal EIN in Rhode Island in order to start a business bank account or hire employees.
Businesses use this nine-digit number to file taxes, report salaries, and submit other documents to the IRS. It's also known as the federal employer identification number or federal tax identification number.
An LLC can apply for an EIN as soon as it files its Articles of Organization with the Secretary of State.
However, applying before receiving legal status may cause delays in processing your application, resulting in bank accounts being opened without appropriate documentation on file at the financial institution holding them.
You can file online through the IRS website or apply by fax or mail to get an EIN. This service is free of charge.
4. Obtain the Required Business Licenses and Permits
A business license is usually required in order to operate a company on both federal and state levels.
You may learn more about licensing rules by going to the U.S. Small Business Administration's website or calling the Rhode Island Department of Business Regulation for state licensing information.
Local business licenses are obtained by completing an application with the city or county where the firm intends to operate.
Industry type determines licensing requirements, but some typical examples include a general business license, general sales and use tax license, and so on.
Look up the Rhode Island Department of Business Regulation's website for some sales-related licenses.
Licenses are even more important if you want to provide professional services in Rhode Island through a professional LLC.
A professional limited liability company planning on providing general contracting, general law, medical care, or legal advice will need to obtain a qualified license from the state's professional regulatory agency.
5. Apply for a Business Insurance Policy
Insurance, in general, is a required component of any entrepreneur's business. Many small businesses overlook insurance when they start up because it isn't as obvious as commercial or health insurance provided by an LLC.
Business insurance protects your company from lawsuits and claims from clients, which might result in financial damages if you or a customer is injured, damaged property, or suffer an unexpected event.
Manufacturers will require commercial general liability insurance, while professional service providers, such as contractors, may choose errors and omissions coverage depending on their sector and company size.
How are LLCs Taxed in Rhode Island?
LLCs in Rhode Island are taxed as a pass-through entity. The business income of an LLC will be reported on its members' personal tax returns.
This can often save business owners money because they are able to claim more deductions than if the business was taxed directly by the state.
An LLC in Rhode Island is treated as a disregarded entity for tax purposes.
Whether Rhode Island taxes an LLC business depends upon how many owners are in the company, what type of business it is and whether they have employees or business property to claim deductions against their business income.
LLCs are obligated to pay federal and state taxes accordingly.
1. Single-Member LLC
A single-member LLC in Rhode Island is treated as a disregarded entity for tax purposes.
If there's only one member in a single-owner LLC business, then that owner would pay taxes according to their individual filing status, in most cases as a sole proprietor.
2. Multi-Member LLC
Multi-member LLCs also benefit from pass-through taxation. The LLC is not subject to taxes at the corporate level. Profits are taxed on the individual returns of the company’s members.
3. LLC Taxed as C-Corporation
LLCs can choose to be taxed as C-Corporation, in which case members are subject to double taxation. This means that the company is subject to corporate taxes and the owners’ pay individual tax returns.
4. LLC Taxed as S-Corporation
LLCs taxed as an S-Corp are considered disregarded entities by the IRS. The company is not taxed at the corporate level, but rather on the members’ individual tax returns.
Sales tax is imposed on those LLCs that provide taxable business services in Rhode Island. The rate is currently set at seven percent (0.07).
If you run a Rhode Island LLC that has employees, you must register for the Unemployment Insurance Tax and Employee Withholding Tax on the state of Rhode Island's Taxation website.
What is a Rhode Island LLC?
A Rhode Island LLC is a business entity that is separate from its owners.
This implies that if you are sued or go bankrupt, your personal assets will not be targeted as they would with a single-owner firm.
For example, an LLC in Rhode Island protects LLC owners while also reducing tax obligations and making it easier to keep track of all transactions between all parties involved in the company.
Setting up an LLC also cuts down on paperwork required by businesses since you only need one annual report rather than ongoing reports on income and costs throughout the year.
In a nutshell, an LLC is a form of limited liability that enables you to operate your own business with limited liability protection. In Rhode Island, LLCs are run by their owners, who are known as "members."
What Are the Benefits of an LLC in Rhode Island?
The benefits of an LLC in Rhode Island are personal asset protection and pass-through taxation.
This implies that you can benefit from protection against business liabilities and lawsuits while still taking advantage of pass-through taxation, which is available only to a sole proprietorship or partnership.
This is a plus since LLC members don't have to pay taxes on their company earnings. They only report profits (or losses) if they submit their own income taxes yearly around the same time.
Another advantage of LLCs is that they provide personal liability protection, which lowers the risk to LLC members in personal bankruptcy.
Because LLC members are not responsible for company debts or other obligations (such as court judgments), they will only be required to reimburse their company's debt if nothing is left over after liquidating all assets.
What Are the Downsides of Rhode Island LLCs?
The downsides of Rhode Island LLCs is that LLCs have more paperwork and filing requirements than other business entities,
like sole proprietorship or general partnership. Consequently, an LLC costs more to form and maintain.
Rhode Island imposes fees on yearly report filing apart from charging annual franchise taxes [1].
Related Articles:
Rhode Island LLC FAQs
Can I Be My Own LLC Resident Agent in Rhode Island?
You can be your own LLC registered agent in Rhode Island, as long as you are qualified to be one.
A Rhode Island resident must be of legal age and a state resident or a company authorized to operate in the state, such as a registered agent service.
Can I Have a Foreign LLC in Rhode Island?
You can have a foreign LLC in Rhode Island by filing an Application for Registration with the Rhode Island Secretary of State, Corporations Division.
You can then submit this application by mail or in person at a $150 filing fee.
Does Rhode Island Have an Annual LLC Fee?
Rhode Island has an annual LLC fee of $50 and is required to be filed with the Rhode Island Secretary of State online or with the Rhode Island Business Services Division by mail.
Does Rhode Island Allow Domestication of LLC?
Rhode Island does not allow domestication of LLC. If you want to relocate your LLC to Rhode Island, you may qualify it as a Rhode Island Foreign Entity or dissolve it in the mother state and establish a new company there.
When Should I Create My Rhode Island LLC Operating Agreement?
You should create your Rhode Island LLC operating agreement right after the business is officially registered with the state.
It is important to have a written operating agreement because it will make the LLC more legitimate and protect the rights of its owners.
Starting an LLC in Rhode Island
It is important to note that forming an LLC isn't a difficult process, and it doesn't take long. It becomes easier if you follow statutory requirements and have a competent registered agent by your side.
Suppose you have any questions about how to start or what steps are needed for formation, you should never hesitate to talk with a professional such as ZenBusiness who can provide legal, and tax advice tailored to your needs.
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References:
- https://tax.ri.gov/sites/g/files/xkgbur541/files/notice/Notice_2019_LLC_obligations_04_22_19_final.pdf
