Do you want to set up an LLC in Rhode Island?
If so, you should know that the process is fairly straightforward, and there are many benefits to doing so.
This blog post will discuss setting up an LLC in Rhode Island, how much it costs, the steps involved in the process, and some of the pros and cons of setting up an LLC.
What is a Rhode Island LLC?
A limited liability company in Rhode Island 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 targets 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."
Because you become the company's single-member and owner when you start up operations for it with this entity type, this implies that you are entirely in charge of how your company is run and how its assets are used.
What Are the Benefits of Rhode Island LLCs?
The advantages of LLCs in Rhode Island are the same as those offered by LLCs in other states.
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?
Although LLCs are attractive for many business owners, there are some downsides to forming one in the state of Rhode Island.
First off, LLCs have more paperwork and filing requirements than other business entities.
Additionally, taxes on profits will be higher because profits can not be transferred directly from an LLC to a member's personal tax return.
Finally, suppose you need or want financial assistance from your company while it is still active but don't have the money yourself to contribute right away. In that case, you may face restrictions when withdrawing funds from your LLC account.
Rhode Island LLC Formation
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, 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; therefore, it's critical that small business owners are looking to establish an LLC satisfy all essential legal criteria before submitting paperwork as well as ensuring that their new LLC name isn't already taken by someone else who registered first or even reserved your desired business name.
Your company's name is its official title for all business activities, including business bank accounts and taxes.
In Rhode Island, 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 in Rhode Island 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 is 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.
A registered agent should be located in the state because 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, its purpose, and a members list.
A $150 filing fee must accompany the application.
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 office. You can also access this information online for free on their website.
Step 4: Make an LLC Operating Agreement
LLC formation is easy enough with filing Articles of Organization, but you need to take it one step further and create an LLC operating agreement.
This is where all business owners in your limited liability company must come together to decide on some very important things that will affect their future as a company.
You can find great examples online of how the operating agreement should be set up 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 from the business?
- Can they sell their shares back to other members at any time, or do they lose them forever once sold?
Operating agreements outline how you will conduct business with other members in your LLC.
This will be an internal LLC document that isn't required to be filed with the Secretary of State.
However, it is as important as any other legal document you will ever sign because if someone decides to sue your LLC for some reason and this agreement wasn't created, then a judge may throw out all your arguments just based on that one fact alone.
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.
LLCs in Rhode Island can choose their management because LLCs can be either member-managed and 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 so no person can take unilateral action without first receiving approval from others equally invested in the success of the business.
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.
A Business Bank Account
You'll want to ensure that the LLC bank account you establish serves as a source for all funds entering your company.
This ensures that you can keep track of any cash flowing out for expenses or taxes, and it distinguishes these charges from personal ones if there are any disputes among members of the LLC about how profits are shared out at year's end.
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.
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 with 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.
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.
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.
Rhode Island LLC Taxes
A Rhode Island LLC business is not taxed as a business. Instead, the business income of an LLC will be reported on their 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.
This means business income will be reported on the members' personal tax returns.
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.
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. LLCs can choose to be taxed as corporations, in which case business income will be taxed by business type (e.g., S corporation or C corporation).
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.
Related Article: How to Dissolve an LLC in Rhode Island?
Rhode Island LLC FAQs
Can I Be My Own Resident Agent in Rhode Island?
A Rhode Island resident must be a state resident or a company authorized to operate in the state, such as a registered agent service. You may pick an individual within the LLC, such as yourself.
How Much Does It Cost to Register LLC in Rhode Island?
Apart from the $150 filing fee, there are also additional costs involved, such as legal help for creating operating agreements and selecting managers, which would be another $100-$1000 depending on where you get this service from (it's usually recommended to hire someone who specializes in LLCs).
Your lawyer should definitely know these things, but it never hurts to ask about all the details before hiring them, so there aren't any surprises later down the road when you receive invoices after invoices because something wasn't done properly.
What Happens When There Is No Operating Agreement?
If no operating agreement exists, you and the other members of your Rhode Island LLC will not be able to reach any compromises regarding issues of management and finances.
In addition, your LLC will be obligated to adhere to any of your state's statutes that won't always be in favor of your company.
Can I Have a Foreign LLC in Rhode Island?
Yes. To establish a foreign LLC in Rhode Island, you must first file 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?
Yes. Rhode Island LLCs are required to file an annual report with the Rhode Island Secretary of State if they choose to file online or mail their report to the Rhode Island Business Services Division. Both are charged $50.
How Long Does It Take for a Rhode Island LLC to Get Approved?
It depends on how you file. If approved, it will take up to 2 business days to receive the Articles of Organization from the Secretary of State's office.
Does Rhode Island Allow Domestication of LLC?
There are no laws in Rhode Island regulating entity domestication. 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 LLC Operating Agreement?
LLCs should start creating their operating agreement right after they are officially registered. It is important to have a written operating agreement because it will make the LLC more legitimate and protect the rights of its owners.
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 have a competent registered agent by your side.
Suppose you have any questions about how to start or what steps are needed for formation.
In that case, you should never hesitate to talk with a professional such as an attorney or accountant who can provide legal and tax advice tailored to your needs.