Incorporating an LLC is the first step you take, as a small-business owner, towards setting up your business in Alaska. An LLC will provide you with the limited liability protection and tax advantages of a corporation and the operational freedom of a partnership. This flexible structure will be a perfect fit for your business. Alaska, in particular, is an attractive destination to incorporate your LLC, given the sales tax exemption for LLCs and the low corporate tax rates.
However, the procedure can seem daunting and often filled with legal jargon. In this article, we will break down the jargon, and walk you through the process of incorporating an LLC in Alaska.
Name your LLC
The name of your LLC helps you attract new consumers while establishing legitimacy with the State government. The name that you decide on will appear on all documents, contracts, and essentially all the other places. So ensuring that it accurately represents your brand and business is crucial.
While selecting a name, you must be mindful of the Business License name requirements of Alaska. The requirements are –
You will need to choose an LLC designator for your business that includes the phrase Limited Liability Company or a form of its abbreviation. (Sec. 10.50.020).
Your LLC’s name must be distinguishable from all the other registered or reserved names under the departments’ records (Sec. 10.50.025).
Names of cities, boroughs, and villages can be used in your LLC name.(Sec. 10.50.020) However, the LLC name should not contain the words “city”, “borough”, or “ other similar names.
Your LLC name must not contain prohibited terms that may create confusion between your name and government agencies. i.e., the State Department, FBI, CIA, etc.
Certain restricted words, such as a bank, attorney, school, etc., require additional paperwork or the presence of a licensed individual (like a doctor or a lawyer) to be a part of your LLC.
Reserving your LLC’s name:
After deciding a name for your LLC, you would want to get the name reserved. You can reserve your name with the Secretary of State for 120 days by filling out an application for a business name reservation. (Sec. 10.50.030). Even if you are not prepared to launch your company just yet, it is a good idea to reserve the name for your LLC.
Does your business require a DBA?
DBA is the abbreviation for Doing Business As (“DBA”) or trade name. It is a name that consumers can publicly recognize as your brand and is different from your legal name. If your LLC chooses to enter a new market, or change its marketing strategy, your LLC’s registered name may no longer be appropriate. You can file for a DBA with the Department of Commerce, and operate under a trade name, giving you the freedom to pursue your business under a different, more suitable name.
Choosing a registered agent
The law of Alaska mandates you to nominate a registered agent for your LLC (Sec. 10.50.055). A registered agent is a person or business entity who is the LLC’s official contact. They are responsible for receiving essential government and legal paperwork on behalf of your LLC. The name of this registered agent is made official by listing them in your Articles of Organization.
Who can be your registered agent?
For an individual, anyone with a physical street address in Alaska and over the age of 18 years can be appointed as a registered agent, as long as they agree to be accessible during regular working hours to accept documents on your behalf. Anyone including you or your family/friends can be appointed your registered agent. However, a lawyer or a consultant would make an excellent choice as they might be aware of the modalities involved in maintaining an LLC.
Individual Registered Agent vs Commercial Registered Agent
You can also avail the services of a Commercial Registered Agent. This option is preferable if you lack a physical address in Alaska or want another company to take this responsibility. In addition, having a professional registered agent ensures you don’t miss any important communication regarding your LLC.
The FAQ section of the Department of Commerce, Alaska contains a courtesy partial alphabetical list of commercial agents. You can also lookup websites online specifically providing commercial registered agent services.
File Your Alaska Articles of Organization
You have to file your Alaska Articles of Organization to register your LLC with the Department of Commerce, Community, and Economic Development. The Articles of Organization are the documents that establish your LLC in the State Records and give your business entity its legal status. Once your Articles of Organization are approved by the Secretary of State, your LLC will be formally incorporated.
You can file the application online or by Fax/Mail. We recommend applying online since the approval process is much faster online. The process via Fax/Mail usually takes 10-15 working days.
Note: However, if you already have an LLC and want to expand to the State of Alaska, you need to incorporate it as a foreign LLC, the filing can be done directly on the website of the Department of Commerce, Alaska.
Create an Operating Agreement
An operating agreement essentially lays down how your LLC will function. It maps out the roles and rights of all the managers and members. It also lays down who and how much of the LLC is owned by a person. Although an operating agreement is not needed in Alaska, creating one is always a good idea. This helps in managing taxes and splitting the profits. If a legal dispute arises relating to the functioning of the company then the state LLC laws or default laws determine the operations of your LLC if an operating agreement does not exist.
The default laws are the laws that will dictate the course of action in the event of a particular aspect not being addressed in the operating agreement. For example, if your operating agreement has no mention of the distributions of the profits. In that case, Alaskan laws will govern the outcome if there is a conflict, which may be against the best interests of your business as these laws tend to be broad and fail to cater to specific businesses. Hence, a comprehensive agreement helps you and your LLC avoid expensive law-suits and provides clarity on the day-to-day working of the company.
You could create it yourself by looking at one of the many sample operating agreements available online. But given the importance of the operating agreement, if you are hesitant about leaving out crucial details, then you can hire a commercial agent to formulate or review your agreement. Most commercial registered agents also provide this service. This can help ensure that the agreement aligns with all the prevailing laws and is out of scope for the State’s default laws.
Limits of Operating Agreement
You don’t require the approval of any government agencies for your operating agreement as the members of your LLC will draw up the operating agreement and decide on the matters of your company according to the terms of the agreement. However, you cannot include something prohibited by the laws of Alaska into your operating agreement.
Obtaining an EIN
The Employer Identification Number (“EIN”) is a 9-digit number that the Internal Revenue Service (“IRS”) identifies a business with for tax purposes. If you plan on hiring employees for your business, you must get an EIN.
An EIN serves three purposes:
- It is required while opening a business bank account.
- It is necessary for hiring employees.
- Helps in filing tax returns.
Note: Keep in mind that the online service is only available between 7 am-10 pm EST during the weekdays. This process requires a Social Security Number (“SSN”) or an Individual Taxpayer Identification Number (“ITIN”). If you do not have either SSN or ITIN, you must send the SS-4 Form via Fax or email.
Additionally, while getting an EIN, you will see the different options for tax classification. While most LLCs go for the default option, you may want to check if your LLC falls under a category like S corporation, which can help you get tax benefits by passing on the taxes on profits to shareholders instead of the LLC.
File Initial and Biennial Reports
After all the organizational work for your LLC is completed, you are responsible for filing an Initial Report within six months of your LLC formation. There is no fee for this, and it can be done online or via mail. The initial filing has to be done once within six months of your LLC formation.
An LLC is legally required to file a Biennial Report before 2nd January once every two years. The fee for filing this report is $100 for an Alaska-based LLC and $200 for foreign LLCs.
If you filed your initial report in an even-numbered annual year, let us say 2016, then your Biennial Report will be due on 2nd January 2018 (the subsequent even-numbered annual year).
Similarly, if you filed your initial report during an odd-numbered annual year like 2017, then your Biennial Report will be due on 2nd January 2019 (the subsequent odd-numbered annual year).
Post this, you must file your Biennial report every two years from the first date you submit it.
In both reports, you must submit any changes to their address, ownership, officers, and registered agent. You may also include additional information about revenue, assets, stock, and paid-in capital.
- Filing your initial and biennial reports must be taken seriously as the State of Alaska has the power to impose penalties for non-compliance.
- Failing to file the initial report, the State of Alaska can shut down your LLC based on the State’s discretion.
- Failing to file the Biennial report, the State can impose a penalty of $37 and/or shut down the LLC based on the State’s discretion.
Tax Liability For Your Alaska LLC
The taxes can be broadly placed under three categories: Federal, State, and additional.
Federal Tax Liability
Alaska LLCs by default are taxed under two brackets – sole proprietorship (Form 1040 Schedule C) for single members, or a partnership (Form 1065 partnership return) if they are multi-member. In both these cases, the profits will be classified as “flow-through.” Therefore, income taxes will not be directly paid to the government but will be channeled through the owners, i.e., it will be listed alongside your tax return.
State Tax Liability
The State of Alaska does not impose any sales or income taxes on LLCs at the state level, however, sales tax is levied at the local level instead. The tax rates across the municipalities vary from 0% to 7.6%. You can contact individual municipalities to check if they have any special tax compliances that your LLC should adhere to.
You must pay an Unemployment Security Tax if you hire any number of employees. Having an accountant is always helpful to assist you with the various tax compliances.
Licenses and Permits
Procuring the appropriate business licenses and permits for your LLC is a crucial step to operate your LLC in Alaska. The laws of Alaska make it mandatory to obtain a license from the state government.
Depending on the kind of business you run, your LLC may require additional professional licenses. The State laws also require location-specific business licenses depending on the location and occupation, that need to be obtained from the local municipalities.
We recommend that you contact the Division of Corporations, Business, and Professional Licensing if you want to know more information in this regard.
Business Bank Account & Phone Number
After forming your LLC, creating a separate bank account, email address, and phone number, for your LLC is a good idea. Mixing your company and personal accounts could jeopardize the protection of your personal assets if a legal dispute arises in the future.
There are two benefits of creating a business bank account:
Differentiating your assets from the assets of your LLC; and Accounting for taxing and booking purposes.
Opening a bank account will get you a credit and a debit card. The credit card helps build the credit history of your LLC, which is incredibly useful for raising capital for your LLC or when applying for loans. Hiring a business accountant to manage your LLC’s bank account is also a good idea since it will guarantee that your book-keeping is in order.
You could set up a separate phone number for your LLC or acquire an inexpensive “virtual business number” exclusively for your Alaska LLC instead of utilizing your home or cell phone. You can then configure this business number to forward calls to your smartphone. Use any service that can help you customize call forwarding, set up pre-recorded prompts, etc. This different phone number also helps protect your privacy from constant calls from public record websites.
With the last step, you will complete all the procedures required to form an LLC in Alaska. Double-check all the documents and information before you file your application, and if you’re still hesitant about the process, you can always use an LLC registration service that suits your needs. Enjoy your new LLC!