Montana strives to provide a favorable business environment to entrepreneurs and it remains a significant market by virtue of its location. It’s particularly favorable for those with expensive and exotic cars as Montana has no sales tax on car purchases. That’s primarily why you see so many supercars in other parts of the United States with Montana plates.
Whether you want to establish a business there or want to reduce the tax bill on your latest luxury ride, you’ll need to learn how to start an LLC in Montana. Follow the eight simple steps in this guide to do just that.
What Is a Montana LLC?
A Montana LLC or Limited Liability Company is a business entity that provides the liability protections that corporations normally have with simplified pass-through taxation requirements of sole proprietorships. Setting up an LLC in Montana is a cost-effective exercise and the efficient process makes it easy to get your entity up and running in just a couple of days.
What to Consider Before Forming an LLC in Montana?
You’ll need to sort out a few things before forming an LLC in Montana. For starters, you need to be certain about the type of business you want to pursue. Once you’ve decided on the business you want to be in, you’ll then need to put together a business plan with comprehensive market and customer research to get a true sense of the potential that exists in the niche as well as the competition that your business will have to face.
It’s only when you’ve figured all of this out will it become clear which business structure you need to choose. For example, you may want to consider setting up a corporation if you intend to raise capital from shareholders or to take the company public in the future.
If you prefer a simpler approach, an LLC would be better, as it would provide adequate liability protection and require minimal regulatory compliance. This allows you to keep your personal assets insulated from the debts of the business.
8 Steps to Start an LLC in Montana
It’s important to follow a well-thought-out plan as you set out to create a business entity so that the entire process goes smoothly. There are important filings to be made, which if done incorrectly, could end up causing problems in the future. By following these eight steps, you can nail the LLC formation process and start focusing on growing your business.
Step 1: Decide on a Business Name
Your first decision will be to figure out what you’re going to call your business. It’s important not to get too hung up over the name, but it should be one that truly encapsulates your vision for the business. The name must be different from other entities in the state you’re operating as you can’t have the same business name as someone else. It’s always a good idea to check business name availability first.
The state you’re incorporating in will have a business name database that you can check. You should also search on Google to check if the name that you’ve decided on is already trademarked.
You do have to put limited liability company or an abbreviation like LLC in the business name as well. It doesn’t need to be the trading name, though, as you can use a DBA or fictitious name to carry out business under that LLC.
Step 2: Choose a Registered Agent
A registered agent acts as a liaison between you and the Secretary of State. It accepts legal documents on behalf of your business and assists in ensuring compliance with filing requirements. These are just a couple of reasons why you need a registered agent.
You can either be your own registered agent or use a service provider. However, since the registered agent for a Montana LLC must have a physical address in the state and be available during business hours to accept service of process, you can’t act as your own registered agent if you don’t live in the state.
Step 3: Prepare and File LLC Articles of Organization
Think of the Articles of Organization as the foundation upon which your business is structured. This is a key foundational document that lays out all the important information about the business. This will include the business name, address, the names of any and all members, business purpose, and more.
It’s only when this document is filed with the Secretary of State does the LLC become a legal entity separate from its owner. The entity then shields the personal assets of the owners from its financial liabilities, enabling them to conduct business more efficiently.
Step 4: Draft an LLC Operating Agreement
The operating agreement is another essential legal document that you must create during the LLC formation process. It lays out the responsibilities, rights, and operating procedures of the LLC. It’s effectively a contract that all members of the LLC sign to regulate the internal affairs of the entity.
This agreement provides a framework for the business to be run, with clear directions on how profits and losses will be distributed, what the management structure will be, how equity will be divided between the partners, what would be the dispute resolution method, etc.
What’s Next After Filing an LLC in Montana?
Congratulations! You’ve now created a business entity that’s almost ready to start doing business. There are still a few steps you need to take, such as obtaining an EIN and opening a bank account, before your business can well and truly be underway. Any relevant licenses and permits also need to be obtained so that the business is compliant with all regulations applicable to it.
Step 5: Apply for EIN
You’ll need to apply for an EIN or Employer Identification Number as all businesses need one. It’s required to open a business bank account and hire workers. If you have multiple businesses, you’ll need a separate EIN for each one, as you can’t have multiple LLCs under one EIN.
It’s a very simple process to obtain an EIN. File form SS-4 with the IRS either online or through mail. If you applied for one in the past but lost your EIN, you can recover it by getting in touch with the IRS. If you have the confirmation letter sent after your application is approved, it will also mention the EIN.
Step 6: Open a Business Bank Account
Efficient financial management is key to running a good business. The first step is to avoid using your personal bank account for business transactions. Not only does this reduce your liabilities but it also makes bookkeeping a lot easier. The main things you’ll need to open a business bank account will include the incorporation documents, your ID, and EIN.
Once you open a business bank account, it becomes much simpler to track transactions and keep accurate records. It also reflects nicely on your business as clients and suppliers see that the entity is legitimate.
Most banks offer many different types of accounts. Pick one that suits the needs of your business. Look at the offerings, fees, and service charges and compare them with other banks to choose the right one. The staff tends to be helpful so your questions about business bank accounts will be answered effectively.
Step 7: Obtain Licenses or Permits
Montana requires most businesses to obtain a license or a permit. This may require registration with state and local authorities. Some might even require registration with the Secretary of State. Much of this can be done online easily and you’ll find tons of information about the permits that may be required. There are typically some filings to be made to obtain these licenses and there are likely going to be fees that you need to pay as well.
Step: 8: Get Business Insurance
All businesses face risks and maintaining adequate insurance coverage is a great way to mitigate that. The state also requires a Montana LLC to have workers’ compensation insurance if they have one or more employees, and commercial auto insurance is also required for business driving. It’s better to opt for additional coverage such as general liability and property insurance to ensure prudent risk management for your entity.
5 Types of LLCs to Consider in Montana
As you begin the LLC formation process, you’ll need to decide which type of LLC you want to create for your business in Montana. There are different types of LLCs that you can create in Montana. Let’s explore them in detail:
1. Single-member LLC
A single-member LLC is a registered entity that has a single owner. It blends the ease of sole proprietorship with the liability protection of a limited liability company. It’s treated as a pass-through entity for taxation. Setting up a single-member LLC is easy and requires minimal paperwork.
The single member exercises total control over all business decisions. Single-member LLCs are best for small business entrepreneurs and for those who want to protect their personal assets from business liabilities.
One disadvantage is that the owner will typically be required to pay self-employment taxes on the profits generated by the LLC. The single-member structure also makes it difficult to raise capital from outside investors.
2. Multi-member LLC
A multi-member LLC is the appropriate structure for a business with two or more partners. There’s no limit to the number of members that an LLC can have. This provides an easy way for multiple people to come together and start a business.
The same liability protections are enjoyed by all members of the LLC and they also share in the profits and losses of the business. Multi-member LLCs also provide pass-through taxation with simplified paperwork requirements.
The Low-Profit Limited Liability Company (L3C) is a new type of LLC that provides a hybrid structure with both for-profit and nonprofit characteristics. They must have a social mission as their primary objective, while profit generation can only be the secondary objective. This makes them great for private foundations that want to retain their tax-exempt status while investing in qualifying businesses and charities.
L3Cs can attract investments from foundations and private investors. All members of the L3C have limited liability, limited to the capital they’ve contributed to the entity. They’re not personally liable for any debts or contracts of the business.
Since profit generation can only be the secondary objective of a L3C, it’s disadvantageous to choose it if you’re not primarily going to be focusing on a charitable cause.
4. Series LLC
Montana is one of the few states that allows Series LLC. This entity is unique in that it enables you to establish multiple LLCs and group them under one parent LLC. It’s an effective way to separate different parts of the business into separate LLCs. This further improves asset protection as liabilities of each segment of the business are isolated.
Each subsidiary of the LLC carries out a different business activity and has its own assets and liabilities. It’s particularly useful for businesses in the real estate industry as they can manage multiple properties separately under one parent LLC.
It also provides business owners with a cost-effective way to manage various business ventures. It can be a bit tedious to keep up with all the regulatory requirements for Series LLCs as they can vary by jurisdiction. This added complexity is also why many states still don’t recognize Series LLCs.
A Montana PLLC is a unique business structure for licensed professionals such as lawyers, architects, therapists, doctors, etc. Only professionals who require a Montana state license to practice can opt for a PLLC.
It provides them with all the benefits of an LLC while also providing personal liability protection. The biggest advantage of a PLLC is that it protects the members from personal liability stemming from professional malpractice. They can thus run their practice as a separate legal entity.
Simplifying the LLC Formation Process in Montana
Montana remains a preferred destination for business owners to set
up their LLCs. However, the LLC formation process may appear daunting to someone who has no experience with it. The regulations and paperwork can be difficult to comprehend.
That’s why doola’s LLC formation service makes it very easy for new business owners to get up and running quickly. With everything sorted for you, all you need to do is focus on taking your business to new heights.
Why should I file an LLC in Montana?
You should file an LLC in Montana because it provides many benefits, particularly for those who are acquiring luxury cars. Montana is also one of the states where a Series LLC can be set up, making it a great option for real estate investors in particular.
How long does it take to get an LLC in Montana?
It can normally take a few days to a couple of weeks to get an LLC in Montana. The processing time can be reduced when filings are made online as it then largely depends on how quickly the Montana Secretary of State’s office can process the application.
How much does an LLC cost in Montana?
The cost to form an LLC in Montana can vary based on several factors. For example, if you opt for additional services such as expedited processing, there may be an extra fee. At the bare minimum, you’ll need to pay $35 which is the initial filing fee for a Montana LLC. Once formed, you also need to pay $20 to file the annual report every year.
How is an LLC taxed in Montana?
LLCs in Montana are required to file both state and federal taxes. Single-member LLCs are treated as pass-through entities so members will report the income on their tax returns. Members may also be liable for sales, payroll, and self-employment taxes. Montana allows LLCs to elect to be taxed as corporations.
Can I change the name of my LLC in Montana after it’s formed?
Yes! It’s easy to change the name of your LLC in Montana after it has been formed. You’ll need to file the Articles of Amendment form with the Secretary of State, outlining the name change. There’s a $15 fee for this. Once it’s approved, you can officially change the name of your LLC.
Can an LLC in Montana be taxed as an S-Corporation?
Yes, an LLC in Montana can elect to be taxed as an S-Corporation. It requires the filing of a form with the IRS, Form 2553 to be particular. Depending on the nature of the business, electing to be taxed as an S-Corporation can deliver tax benefits, but it’s important to consult with your tax professional first before making this change.
Do I need to have a physical office for my LLC in Montana?
No, you don’t need a physical office for your LLC in Montana. However, you will need a registered agent that has a physical address in the state. They must be available during regular business hours to accept legal and tax documents on behalf of your business.
Can I dissolve or close my LLC in Montana if I no longer need it?
Yes, you can dissolve an LLC in Montana by filing the completed Articles of Termination form with the Secretary of State. There’s a $15 filing fee and there’s an option to request one day of service for an additional $20.