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Are you an entrepreneur starting a company of your own? Then you’ve come to the right place. This article will dive into the best way to set up a new LLC and inform you of all the requirements. Keep reading if you have trouble remembering all the steps you need to take before establishing your LLC or want to get your business going within the year.
What is an LLC? That’s a good question. It’s important to distinguish exactly what an LLC is before determining if this business structure is suitable for your needs. An LLC is simply a business structure that offers more flexibility and fewer formalities than a corporation, but a sole proprietorship is much more flexible and less formal than an LLC. An LLC is a good option for businesses with more than one founder. LLCs are uncomplicated, with strong legal protection and (typically) lower tax rates than other corporations (tax rates depend on the tax treatment adopted by the LLC).
However, setting one up can be a hassle depending on the state and its corresponding formation process, fees, and legal obligations. The good news is that Iowa is cheaper than most states. That said, are you ready to move on to the first step? Let’s get started.
If you want help forming your LLC, ZenBusiness is our top pick for fast and affordable LLC setup, all online.
Step 1: Choose a Name For Your LLC
The first and most critical step is to name your LLC. This step sounds easy, but there are several hoops to jump through before deciding on your company’s name. It should be easy enough that clients can search the name without issue. You need to confirm that what you choose complies with Iowa naming requirements.
Furthermore, the name must include limited liability company, LLC, or L.L.C. You can shorten limited and company to Ltd. and Co. if you so choose. The name cannot include any words that could confuse your company with a government agency. Additionally, restricted words need more paperwork or a licensed professional to register correctly.
You want to conduct a name search via the State of Iowa website. You should also verify that your business name is available as a web domain. You can buy the corresponding URL if you want to prevent others from using it until you establish your business.
What about a trading name? The LLC serves as your company’s brand name, meaning you can accept checks and other payments as is. However, if you want to register a DBA (doing business as) and do business under another business name, you can.
Finally, you can submit an Application for Reservation of Name for up to 120 days either online or through the mail. The fee is inexpensive, costing only $10 if you wish to keep the name for your LLC within a specific time.
Step 2: Assign a Registered Agent
You must nominate an agent registered in Iowa. What is a registered agent? They are an individual or business responsible for receiving essential documents on your business’s behalf. In other words, a registered agent is the point of contact with the state, in this case, Iowa. A registered agent could be a corporation or a registered agent service.
Can you assign yourself as the registered agent? Yes, you can opt to take this role or assign another employee as the registered agent. They perform multiple services, but the most important is that they accept legal mail for the company and owner and forward the documents appropriately. They also must have a physical address in Iowa and hold regular business hours if someone contacts them.
What if you want to change your registered agent after forming your LLC? No problem; all you have to do is submit a Statement of Change of Registered Agent to the Secretary of State. There is no fee for LLCs to submit this form.
Step 3: Submit a Certificate of Organization
Step three: you have to submit a Certificate of Organization to the Iowa Secretary of State. This process can be done online, through the mail, or faxed over as a hard copy. There is a $50 fee for domestic LLCs and $100 for a certificate of authority for a foreign LLC. Unlike other states, Iowa doesn’t provide a template, and you have to draft your own. Don’t worry; it’s not super complicated to write a Certificate of Organization, as long as you keep the state statutes and the provided requirements in mind.
When you submit a Certificate of Organization, consider if your LLC will be member-managed or manager-managed. Is there a difference? Yes, the owners manage day-to-day operations in the former, while members hire managers to oversee operations in the latter.
Your Certificate of Organization should include:
- Your LLC name
- Your LLC address
- The registered agent’s name and address
- The organizer’s name and signature, or who completes the Certificate of Organization
The information in the certificate will become a public record. You can include other important details, such as management information and your business purpose. A lawyer can prepare one if you’re unsure about forgetting anything crucial for your LLC approval.
Step 4: Write an Operating Agreement
While Iowa doesn’t require an operating agreement, it’s good to have one regardless. An operating agreement outlines the ownership and operating procedures of your LLC. Think about it this way: an operating agreement ensures that everyone agrees with the daily operations, meaning that you reduce later conflict. Keep this document on file for future reference; the Secretary of State doesn’t need the agreement submitted.
Not only that, but an operating agreement also describes your LLC’s business structure and establishes the responsibilities and obligations of individual LLC members. An operating agreement organizes how the LLC will run and reduces operational difficulties. If you don’t have an operating agreement, Iowa will govern how your LLC functions.
What happens if your business doesn’t work out? Hopefully, everything will go smoothly. But in that hypothetical scenario, an operating agreement will detail how the profits will be distributed.
Overall, an operating agreement discusses the investments and a summarized plan for any important situation your LLC might face. Iowa restricts certain things included in an operating agreement, such as you can’t change your LLC’s ability to sue or be sued. Single-member LLCs need an operating agreement.
Step 5: Obtain an EIN
An EIN, or an employer identification number, contains nine digits assigned by the Internal Revenue Service (IRS). The EIN identifies businesses for tax purposes, similar to a social security number. EINs are sometimes referred to as Federal Employer Identification Numbers or FEINs.
Having an EIN is important to open business bank accounts, file and manage taxes, and hire employees. You get this number for free from the IRS after logging on, and you don’t need a social security number to obtain an EIN.
Cost to Start an LLC in Iowa
To send in the Certificate of Organization to the Iowa Secretary of State costs $50. This cost is nonrefundable, but you can apply online, by mail, or fax. Of course, this cost fluctuates depending on your methods to establish your LLC in Iowa.
What To Do After Forming Your LLC in Iowa
This section will break down a few steps you should take after getting the approval for your LLC from the state.
Separate Your Business and Personal Assets
If your Iowa LLC is sued, your assets could be at risk. The way to prevent this is to open a business checking account to separate and protect your valuables. Additionally, by doing so, you make accounting and taxes easier. To open a business bank account, you need a copy of the Certificate of Organization, the operating agreement, the EIN, and a Resolution to Open a Bank Account.
You can also apply for a business credit card that makes the end-of-year taxes easier by categorizing what you spent for your business. You will build your credit score, so if you need to apply for a business loan, they can consider your past payments. Having separate business accounts also ensures that you can keep track of department expenses. You can assign multiple cards with multiple budgets for employees to use.
Hire a Business Accountant and Get Business Insurance
By hiring a business accountant, you not only reduce your work amount, but these representatives prevent you from overpaying on taxes and avoid penalties. Bookkeeping and payroll will be easier with their guidance, and you can fund your LLC more effectively.
Business insurance manages risks, and there are a few options to choose from depending on what your LLC offers. General liability insurance protects you from lawsuits. Professional liability insurance is what service providers like consultants or accounts need before practicing. Workers’ compensation insurance covers any job-related illness or injury or, in the worst cases, deaths. Businesses with more than one employee are required to have insurance.
Create a Business Website and Send Out a Press Release
Having a website will legitimize your business and open the door to more potential customers. Setting up a website nowadays is extremely simple, and there’s no need to hire a web developer.
A press release is a great, simple way to promote your business. You’ll get more publicity, brand presence, and increase your search engine optimization (SEO). You only have to pay once, but you’ll forever reap the benefits.
How to Keep Your LLC Compliant in Iowa
Permits and licenses and their prices vary depending on the state. All you need to make sure you do is comply with federal, state, and local government regulations. Be sure you read these laws carefully.
You will also need to complete an Iowa LLC Biennial Report. You can do this form online for $60. These fees are non-refundable, and the report is due by March 31 of every odd-numbered year.
The government will not charge you late fees. However, they may administratively dissolve your LLC after a few months if you do not file this report.
Lastly, if you intend to hire employees, you must confirm they can work in the U.S. and report employees as new hires to the state. You also need to provide workers’ compensation, submit employee taxes, and hang compliance posters somewhere visible.
Tax Filing Requirements for LLCs in Iowa
If you sell a physical product, then Iowa has a sales tax, and you will need to obtain a seller’s permit. The Iowa Department of Revenue collects sales tax on taxable sales, such as goods or services your LLC sells. Furthermore, as the owner, you will have Iowa Employer taxes.
You will have to file for Unemployment Insurance Tax through the Iowa Workforce Development website. Additionally, Iowa has Employee Withholding Tax. Here are a few forms as an example of what you can expect to fill out:
- Form 1065 Partnership Return (multi-member LLCs)
- Form 1040 Schedule C (single-member)
Frequently Asked Questions
If you still feel a bit lost regarding forming an LLC in Iowa, no worries. This section will tackle some common inquiries.
How long does it take to register an LLC in Iowa?
If you file online, your LLC registration will be immediately processed. Nonetheless, if you mail or fax your form, the processing time can reach up to two weeks. Sometimes, owners forming an LLC can wait up to three weeks, but this time varies depending on how you send over the required information from above.
What tax structure should I choose for an LLC in Iowa?
When you get your EIN from the IRS, you will have different available tax classification options to choose from. Most owners elect the default tax status, but some choose an S corporation to reduce federal tax obligations. Regardless, you’ll have lower taxes by choosing LLC at the start.
Should you hire an LLC formation service in Iowa?
Filing your LLC on your own is the cheaper option. That said, completing all the forms and filing them yourself can get complicated. A lawyer can cost hundreds or thousands of dollars. Formation services can complete all the hassle for you at a reasonable price. If you want the assurance that you completed the LLC formation process correctly, hire a formation service. Feel free to try it yourself if you feel confident after reading this article.
Filed under: Iowa Business Guides