Affectionately called the “Ocean State,” Rhode Island is fast becoming a preferred destination for entrepreneurs to create new business entities. There are several benefits that encourage them to find out how to start an LLC in Rhode Island. The lack of business franchise taxes is certainly one of them. LLCs are also given considerable protection against creditors in this state.
If you’re also interested in setting up an entity in Rhode Island, this guide is all you need to hit the ground running.
What Is a Rhode Island LLC?
A Limited Liability Company or LLC in Rhode Island brings together the asset protection that a corporation offers with the flexibility of a sole proprietorship. The LLC may have one or multiple owners and all the profits of the business will flow through to the owners for them to report on their tax returns. The primary advantage of an LLC is that it shields the members’ assets in case there’s a lawsuit or financial setback for the company.
What to Consider Before Forming an LLC in Rhode Island?
You only reach the stage of forming the business once you’ve worked out what kind of business you want to start. By now, you should already have a detailed business plan that includes all your customer and market research. It’s an important due diligence since you’ll position your products and services based on that. This is also going to provide you with clarity as to why an LLC is going to be the suitable business entity for your endeavors.
How to Start an LLC in Rhode Island in 8 Steps
When you follow a step-by-step plan that lays out how to start an LLC in Rhode Island, there’s no need to guess anymore. You know exactly what needs to be done at every part of the process, thereby eliminating the unknown and allowing you to complete the process with ease. The steps provided below will be your guide through it all.
Step 1: Decide on a Business Name
If you’ve selected a name already, it would be best to check the business name available first, since it’s likely that someone else may have been using it already or have a trademark on it. Since you can’t use the same business name as someone else, you’ll need to come up with a new one.
You always have the option to use a DBA or a fictitious name. This provides you with the flexibility of having a trading name that’s different from the one that your business is registered under. Make sure that your business name is unique and enables your company to stand out from the crowd.
Step 2: Choose a Registered Agent
A registered agent in Rhode Island is required for LLCs. This can be an individual or a business that’s designated to receive legal documents and the service of process on behalf of your company. The registered agent must be available at a physical location during normal business hours.
So you can be your own registered agent if you meet these criteria. Those who aren’t physically located in Rhode Island can rely on an agent service. It will meet the requirement for physical presence in the state and availability during regular business hours.
Step 3: Prepare and File LLC Articles of Organization
The Articles of Organization is a foundational document for your business. It includes important details about your entity such as its name, purpose, address, the names of all members and managers, etc. You can’t incorporate an LLC in Rhode Island without filing this document with the Secretary of State.
It’s only when this filing is made that the process begins and your LLC is incorporated. It then becomes a legal entity separate from its owners, thereby providing liability protection for their personal assets from the liabilities and debts of the business.
Step 4: Draft an LLC Operating Agreement
The operating agreement is a similarly important document, even though it’s an internal document between the LLC members. It outlines several important aspects of the business, such as how the company will be operated, how the profits and losses will be distributed among members, what the dispute resolution mechanism will be, etc. It also lays down the equity percentage of all members in the LLC. Rhode Island doesn’t require the operating agreement to be filed with the Secretary of State.
What’s Next After Filing an LLC in Rhode Island?
Simply setting up an LLC is not enough. There are ongoing compliance requirements with both state and federal regulations that you need to meet so that your LLC can remain active. Ensure compliance by going through the following steps:
Step 5: Apply for EIN
The IRS issues a nine-digit unique number to all businesses called the EIN or Employer Identification Number. That’s how it identifies businesses for taxes. Once you’ve filed an application with the IRS, it usually takes a few days for the EIN to be issued. You need to have a separate EIN for each LLC as it’s not possible to have multiple LLCs under one EIN.
You’ll need to quote the EIN when filing taxes. It’s also going to be required for opening a business bank account. You can easily find your EIN on the confirmation letter that the IRS sends after your application is approved.
Step 6: Open a Business Bank Account
It’s not good business sense to use a personal bank account for business transactions. They must always be separate. This will make it easier to track the income and expenses of the business and also report them on the tax returns. As for how to open a business bank account, take your LLC formation documents, EIN, and identification to a bank and they’ll sort you out.
Most banks offer different business bank accounts to choose from. It’s important to understand what the various offerings are and what they provide that can help support your small business. Make sure they don’t bog you down with unnecessary fees and charges.
Step 7: Obtain Licenses or Permits
The Department of Business Regulation is the regulator for a wide variety of businesses in the state. You can check with it whether the work you want to do will require a license or permit of some sort. Keep in mind that this department isn’t the regulator for all types of businesses in the Ocean State, so it would be best to consider checking other sources of information as well.
The Secretary of State can also help provide guidance about the types of permits that may be required. Based on the specific requirements of your industry, there may be some federal licenses or permits that you may need to apply for as well. The application process can typically be done online and doesn’t take too long. There tend to be filing fees for these licenses and permits.
Step: 8: Get Business Insurance
Rhode Island is similar to many states and requires businesses to maintain workers’ compensation insurance coverage if they have one or more employees. Depending on the unique needs of your business, additional business insurance may also be required.
It’s a good idea to get a general liability insurance policy for your business as it will keep the LLC protected for most eventualities. At least your business won’t be facing financial ruin as a result of a workplace incident. Consider working with an insurance advisor if you feel that your business has specific needs that need to be covered.
3 Types of LLCs to Consider in Rhode Island
LLCs are not a one-size-fits-all business structure. There are different types of LLCs, each with their own set of advantages and disadvantages, that are available for incorporation in Rhode Island. You should pick the one that you feel will best suit the unique needs of your business.
A single-member Limited Liability Company is similar to a sole proprietorship. It’s formed by one owner who requires personal asset protection. LLCs are pass-through entities for tax purposes, so all the income flows to the owner and it’s for them to report on their tax returns. Asset protection is the primary advantage of LLCs. A disadvantage is that single-member LLCs can’t exist in perpetuity, so they will be dissolved upon bankruptcy or the death of the owner.
The only major difference between single-member and multi-member LLCs is that the latter has two or more members. It’s the preferred business entity for people who want to come together and start a business. They all enjoy a similar level of personal asset protection while the income also flows through to them.
Multi-member LLCs are easier to establish and ongoing compliance requirements are also minimal, making it an easy structure to manage. Members can decide amongst themselves through an operating agreement what the equity percentage will be and how the profits will be distributed.
L3C or Low Profit Limited Liability Company is an entity that doesn’t have income generation through business or appreciation of property as its primary purpose. The primary purpose of an L3C can only be a charitable mission. Profit generation is only allowed as a secondary objective.
It’s a suitable structure for private foundations that want to keep their tax-exempt status while investing in charities and qualifying businesses. L3Cs can raise funds from private investors as well. All members of the L3C have their liability limited to the amount of capital that they’ve put into the company.
Get Your Rhode Island LLC Incorporated Easily
Rhode Island is becoming an attractive destination for entrepreneurs to set up their LLCs. The business environment is favorable and the lack of franchise taxes continues to be a major draw for business owners.
Setting up an LLC in Rhode Island need not be difficult. By simply opting for doola’s LLC formation services, you can go through the entire process easily since everything is done for you by professionals, leaving you free to focus on what matters most.
Why should I file an LLC in Rhode Island?
You should file your LLC in Rhode Island because it’s a thriving business hub and the lack of franchise taxes makes it an enticing destination for businesses to set up.
How long does it take to get an LLC in Rhode Island?
It doesn’t take too long, usually a couple of days, to get an LLC in Rhode Island once all the required documents have been filed with the Secretary of State.
How much does an LLC cost in Rhode Island?
A Rhode Island LLC is going to cost you $150 in filing fees if you’re doing the entire process yourself. It may cost a bit more if you’re taking the help of an agent service, which not only serves as your registered agent but also makes the filings for you.
How is an LLC taxed in Rhode Island?
LLCs in Rhode Island are taxed as pass-through entities, in which all the profits flow to the owners of the LLCs who are then required to report them and pay taxes on them through their personal returns.
Can I change the name of my LLC in Rhode Island after it’s formed?
Yes, you can easily change the name of your LLC in Rhode Island after it’s formed. It’s a simple process that requires filing the Articles of Amendment with the Secretary of State and paying the filing fee of $50.
Can an LLC in Rhode Island be taxed as an S-Corporation?
An LLC in Rhode Island can be taxed as an S-Corporation if it elects to do so. This can be done by filing the Form 2553 with the IRS. Once approved, the election to be taxed as an S-Corporation can potentially deliver tax benefits to the LLC.
Do I need to have a physical office for my LLC in Rhode Island?
You don’t need a physical office for your LLC in Rhode Island if you’re designating a registered agent. If you want to serve as your own registered agent, you’ll need to have a physical office in the state.
Can I dissolve or close my LLC in Rhode Island if I no longer need it?
Closing or dissolving an LLC in Rhode Island that you no longer need is easy. You just need to file the completed Articles of Dissolution with the state and pay the filing fee of $50.