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If you are starting a business in Rhode Island, one of the best and easiest ways to officially start your legal entity is to form an LLC or limited liability company. As an LLC, your company will enjoy the tax benefits of being a business while still having the flexibility that being a sole proprietorship or partnership offers. For this reason, many small business owners choose to form an LLC over other business entity forms.
In this article, you will find everything you need to know about how to form LLCs in Rhode Island, including a step-by-step guide, the recommended tax structure, costs, and how long it will take.
Step 1: Pick a Name For Your LLC
Choosing a name for your business is the first step in forming any company, including an LLC. There are several requirements to keep in mind when choosing a name in Rhode Island.
Here are the Rhode Island naming guidelines:
- The chosen name must include the following phrases or abbreviations: ‘Limited Liability Company”, L.L.C., or LLC
- The chosen name and URL name cannot be used if it has already been registered with the state. To check if the name has already been used, visit the State of Rhode Island’s website. To check if the URL name is available, you can visit a domain website like godaddy.com.
- The chosen name cannot contain words used for government facilities or departments.
You can visit the State of Rhode Island’s website for more information on naming requirements.
Once you have chosen your business name, you can reserve the name for up to 120 days for a fee of $50 by filing the Reservation of Entity Name with the Rhode Island Secretary of State.
There is also the option to operate your business under a different name. This is known as a DBA, Doing Business As. To register this fictitious name, you can use Form 624B. This can be filed online, via mail, or in-person for a fee of $50.
Step 2: Choose a Resident Agent
Before submitting the Articles of Organization to officially form your business, you must appoint a resident agent, also known as a registered agent in other states. This resident agent will accept all legal documents for your LLC. They are a direct point-of-contact with the State on behalf of your business, and it is a legal requirement in the State of Rhode Island to appoint one.
When choosing a Rhode Island resident agent, there are several things to keep in mind:
- The agent appointed must be a legal resident of Rhode Island or a business entity authorized to do business in the state.
- They must have a physical street address in Rhode Island.
- They must be on-site during business hours to accept any mail or legal documents on your LLC’s behalf.
You can appoint anyone or any third-party business to act as your resident agent as long as they meet the above criteria. This means that you can even appoint yourself or another member of the LLC. However, if you do this, remember that your physical street address will be on public records.
Step 3: File the Articles of Organization
Once you have chosen a name and appointed a resident agent, you can file the Articles of Organization. Use Form 400 to file the Articles and pay the non-refundable fee of $150 via online payment services, credit card, cash, or check. This form can be sent to the Rhode Island Secretary of State online or by mail.
The Articles of Organization will include the following information:
- The name of the LLC
- The name and physical address of the resident agent
- The physical address of the LLC’s principal office
- The management structure – member-managed or manager-managed
- The name and physical address of the manager if manager-managed
- The effective date
- The signature of the organizer
Step 4: Receive the Certificate From the State
Once your application for an LLC is approved, you will be issued a certificate from the State of Rhode Island to authorize that your LLC is officially formed, meaning you can legally do business in the state.
Step 5: Obtain an EIN
Using filing the Articles of Organization and receiving the certificate from the state, you can apply for an Employer Identification Number or EIN for short. This number is issued by the IRS and is used for tax purposes.
An EIN has many purposes. You will need one to:
- Open a new business bank account
- Hire new employees
- Pay state and federal taxes
Obtaining an EIN is not required if you are the only member of the LLC with no employees. However, since you will need one for any of the steps above, it is helpful to get one if you decide to open a bank account or hire an employee.
You can apply for this number online or via mail. There is no fee to obtain an EIN.
Step 6: File Your Annual Reports
Once your LLC is formed, you must file your annual report with the state to ensure you can continue to legally operate in Rhode Island. This form must be filed between 1 September and 1 November, one year after the Articles of Organization are filed. The fee for filing this report is $50 and can be filed online or by mail.
Cost to Start an LLC in Rhode Island
You need to be aware of some costs involved in starting an LLC in Rhode Island. Saving a name or registering a fictitious name will cost $50. The cost of filing the Articles of Organization is $150.
So, at the base level, if you only file the Articles of Organization, you will be spending $150 to officially form your LLC. However, this number can go up by even hundreds of dollars if you consider lawyers’ fees if you choose to hire a lawyer.
Hiring an LLC formation service is another cost to consider for some.
What To Do After Forming Your LLC in Rhode Island
You still need to do many things after forming an LLC in Rhode Island to ensure that your business can legally operate.
Create an Operating Agreement
The State of Rhode Island does not require LLCs to create and submit an operating agreement. However, it is strongly recommended to draft one up anyway.
An operating agreement is a document that lists all information about the business, its members, and the day-to-day operation of the business. An operating agreement can also settle disputes in and out of the courtroom. You or a lawyer can create this agreement, and all members should accept and sign the document.
A good operating agreement should have, but is not limited to, the following:
- The name and address of the LLC
- Names and contact details of all members
- A brief summary of information that was provided in the Articles of Organization
- General operating practices
- How losses and profits are divided
- Procedures for hiring and firing employees
- Any clauses – indemnification or liability
Apply for Relevant Permits or Licenses
Certain licenses and permits may be needed depending on what sector your business falls under. You can check what you need to apply for on the Rhode Island Professional License Renewal website. On top of any state licenses, you should also check if you need to apply for any federal or local licenses.
Open a Business Bank Account
To open a business bank account, you will need an EIN. It is a good idea to separate your business and personal assets. To do this, you will need to open a business bank account. Having one will make things easier during tax season and will make it easier to keep track of all expenses. If you would like, you can even apply for a business credit card.
Hire an Accountant
Tax season can be confusing for even the best of us. The last thing you want to do as a business owner is to worry about something that can quickly be taken care of by hiring an accountant. You can either put one on your payroll or hire a third-party accounting firm to care for your business expenses and taxes. This is highly recommended for all businesses to avoid costly legal mistakes.
Get Business Insurance
Investing in good insurance for your business is a good way of managing risks. In Rhode Island, it is a legal requirement that LLCs with more than one employee have Worker’s Compensation Insurance. On top of that, you should consider getting general liability insurance to protect your business from lawsuits and disputes. There are many other types of business insurance on the market that you can choose from, so consider talking to a broker or attorney if you’re unsure where to begin your research.
How to Keep Your LLC Compliant in Rhode Island
To keep your LLC in good standing with the State of Rhode Island, you must ensure it remains compliant. You can do this by:
- Filing the annual report on time
- Ensuring all permits and licenses are up-to-date
- Paying all state and federal taxes on time
- Keeping up-to-date with state regulations
Tax Filing Requirements for LLCs in Rhode Island
LLCs in Rhode Island should pay all federal and state taxes. All LLCs will automatically be considered a pass-through entity, so the LLC itself does not need to pay taxes. Instead, the members of the LLC will need to report their income on their personal tax reports to the IRS each year.
If your business sells goods or services, you must register for a seller’s permit and collect and submit sales tax online via the Rhode Island Department of Revenue website. This tax must be submitted every month, typically on the 20th of each month. However, if your tax collections are less than $200 for six consecutive months, you can request to file quarterly instead of monthly. Currently, the tax rate is 7%.
If your LLC has more than one employee, you will also be required to pay employer taxes such as Unemployment Insurance Tax and the Employee Withholding Tax. To clarify, if the owner is the only employee, then these taxes won’t be due, but if there is an employee in addition to or other than the owner, then they will be due.
Frequently Asked Questions
How long does it take to register an LLC in Rhode Island?
Rhode Island does not have an official turnaround time for the Articles of Organization. However, the State will generally process your certificate within 5 to 7 business days. Registering an LLC online is the fastest option. If you apply by mail, you will need to consider the processing time and mailing time, which can add an additional week.
Unfortunately, no expedited service is available in the State of Rhode Island.
What tax structure should I choose for an LLC in Rhode Island?
All LLCs in Rhode Island are automatically treated as pass-through entities. This tax structure is recommended because of its ease as well as flexibility. By using this tax structure, the LLC itself does not need to file any taxes. Instead, the profits are split amongst the members who submit their earnings in their personal tax income returns. This tax structure prevents double taxation and is the best option for first-year LLCs.
However, sometimes, being taxed as a corporation can be an advantage. Talk to an attorney or an accountant to better understand what tax structure you should choose for your particular situation.
Should you hire an LLC formation service in Rhode Island?
Forming an LLC on your own is easy. However, if you are unsure of how to do so or would prefer someone else to file the paperwork, you can hire an LLC formation service to do this for you. We list some of the best options in our LLC services research.
Filed under: Rhode Island Business Guides