How to Start an LLC in Rhode Island? | In 10 Easy Steps

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.

Since I have assisted countless clients with business formation for years, I’ll provide you with all the pertinent information you need to start your limited liability company.

Moreover, for those who prefer a professional touch in establishing their LLC, we suggest you explore these reputable Rhode Island LLC formation services.

Quick Summary

How to Form an LLC in Rhode Island?

You can form an LLC in Rhode Island by complying with the requirements set forth by the state, as well as preparing and filing all LLC paperwork.

1. Choose the Type of Your LLC (Mandatory)

Considering the vibrant business landscape in Rhode Island, where, according to U.S. Small Business Administration data, 105,320 small businesses constitute 98.9% of all enterprises, selecting the right structure is crucial for tapping into the state’s dynamic market [1].

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 valuable tax-wise because they are classified differently under business law and 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.

2. Choose a Name for Your Rhode Island LLC (Mandatory)

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.

From my professional standpoint, ensuring your LLC name complies with Rhode Island's strict regulations is crucial. I guide clients through this process, ensuring their chosen name is not only unique but also aligns with these state guidelines:

• The legal name of the business entity must contain the words "Limited," "Ltd.," or any other variation of the word "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 words "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 for a \$50 filing fee.

Read More: How to Look Up an LLC in Rhode Island

3. Select a Registered Agent (Mandatory)

With Rhode Island's small businesses employing 228,107 individuals, or 51.2% of the state's labor force, according to U.S. Census Bureau statistics, ensuring legal compliance through a registered agent is pivotal for maintaining a thriving business [2].

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 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 or 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.

4. File Articles of Organization (Mandatory)

In my consultancy, filing the articles of organization is a critical step I guide clients through, ensuring accuracy in providing all necessary information for their Rhode Island LLC.

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 out our article for more information on how much a Rhode Island LLC costs.

The 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.

Steps to Take After Forming an LLC in Rhode Island

To form an LLC in Rhode Island that will be legally allowed to conduct business in the state, you must also draft an operating agreement, open a separate business bank account, obtain an EIN from the IRS, and potentially acquire business licenses and permits.

5. Create an LLC Operating Agreement (Optional, but Recommended)

Operating agreements outline how you will conduct business with other members of your LLC.

Here are some questions you may want answered in the operating agreement:

• How much money has each member invested in the LLC?
• How many votes does each person have? What happens if someone wants out of the business completely?
• Can they sell their shares back to other members at any time, or do they lose them forever once they are 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.

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

Obtaining an EIN is a process I guide my clients through, as it's crucial for tax purposes and legitimizes the business in the eyes of the IRS and other institutions.

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.

7. Open an LLC Bank Account (Optional but Recommended)

It is advisable to open an LLC bank account to keep funds separate from your personal assets. This way, you could have a clear distinction between personal and business assets, and you wouldn'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.

8. File your Rhode Island LLC Annual Report

In Rhode Island, LLCs are required to file an annual report.

This requirement starts in the calendar year following their registration with the state. The annual report is a straightforward form that captures basic information about the business but does not include financial or ownership details.

LLCs must file their annual reports between February 1 and May 1. The filing can be done online, by mail, or in person at the Rhode Island Department of State's office.

The filing fee for LLCs is \$50, and there is a late filing penalty of \$25 applied after June 1​.

9. Obtain 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, a 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.

10. Choosing Your Tax Structure

LLCs in Rhode Island are taxed as pass-through entities. 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.

• 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.

• 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.

• 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’ individual tax returns.

• 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.

A 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.

Benefits and Drawbacks of an LLC in Rhode Island

Benefits:

• Limited Liability Protection: Members are typically not personally liable for business debts and lawsuits.
• Flexibility in Taxation: LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation.
• Ease of Formation and Maintenance: Compared to corporations, LLCs have fewer formalities and requirements for start-up and ongoing operations.
• Management Flexibility: LLCs can be managed by members or managers, providing flexibility in how the business is run.

"Rhode Island's geographical position offers significant benefits for businesses, similar to other key commercial hubs, providing straightforward access to prominent enterprises. The state boasts convenient transportation options."

- Jon Morgan, Co-Editor & Co-Founder of Venture Smarter

Drawbacks:

• Self-Employment Taxes: Members may be subject to self-employment taxes on their share of profits.
• Limited Life Span: In some cases, LLCs may have a limited duration or may dissolve upon the departure of a member, unless otherwise specified in the agreement.
• Annual Report and Fee: LLCs in Rhode Island are required to file an annual report and pay a fee, which is an additional ongoing obligation.
• Fewer Incentives for Investors: LLCs often have a harder time raising capital as investors typically prefer corporations for investment opportunities.

Related Articles:

• How to Cancel an LLC in Rhode Island
• Best LLC Services in Rhode Island
• How Long Does It Take to Form an LLC in Rhode Island
• Changing an LLC name in Rhode Island

DIY vs. Professional LLC Formation

DIY (Do-It-Yourself) LLC Formation

Advantages:

• Cost-Effective: Generally cheaper as it avoids professional service fees.
• Complete Control: Allows for direct handling of all formation aspects, offering personal satisfaction and learning opportunities.

Disadvantages:

• Time-Consuming: Requires significant time investment to understand and complete all legal formalities.
• Risk of Errors: Without legal expertise, there's a higher chance of mistakes in the formation process, which can be costly in the long run.

Professional LLC Formation Services

Advantages:

• Expertise and Efficiency: Professionals are knowledgeable about Rhode Island-specific requirements, ensuring a smooth and compliant formation process.
• Time-Saving: Delegating the process saves time, allowing you to focus on other aspects of your business.

Disadvantages:

• Cost: Professional services can be more expensive than the DIY route.
• Less Personal Involvement: You may have less involvement in the process, which could lead to a lack of understanding of some business aspects.

FAQs

References:

1. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-RI.pdf
2. https://www.census.gov/programs-surveys/susb.html