How to Form an LLC in Alaska: The Affordable Way

Registering Your Business Domain

With the increasing popularity of online businesses, it would be prudent for you to plan to set up an online presence for your business. For this, you will need to register a domain name. The address of your website is how customers find you online.

Remember, your business’s website address needs to match your LLC’s name. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available. 

You can check currently available domain names.

Choosing a Registered Agent in Alaska

The laws of Alaska mandate the appointment of a registered agent for your LLC (Sec. 10.50.055). A registered agent can be a person or another business entity. They are responsible for receiving essential government and legal paperwork for your LLC. The name of this registered agent is made official by listing them in your Articles of Organization. You must select a registered agent before your company can start functioning.

Who can be a registered agent?

You may appoint any individual or even another entity as your registered agent so long as they meet the requirements laid down under the law.

The agent you select for your LLC must be:

• An individual State resident (above 18 years) or
• A business entity that has obtained authorization to conduct business in the State. 

The registered agent should be available during business hours on all working days. You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service.

Individual v. Registered Agent Service

While you can appoint yourself as the registered agent, it may not be advisable for all businesses. You can also avail the services of a registered agent service. This option is preferable if you lack a physical address in Alaska or want another company to take this responsibility. In addition, having a registered agent service ensures you don’t miss any important communication regarding your LLC.

A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.

Also, having a registered agent service helps you focus on growing your business without worrying about missing official communications or deadlines.

The FAQ section of the Department of Commerce, Alaska, contains a courtesy partial alphabetical list of commercial agents. You can also look up websites online specifically providing commercial registered agent services.

Filing the Articles of Organization with Alaska

You must file a legal document known as the 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 the Secretary approves your Articles of Organization of State, your LLC will be formally incorporated.

You can apply 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.

If you already have an LLC and want to expand to the State of Alaska, you must incorporate it as a foreign LLC. You can do the filing directly on the website of the Department of Commerce, Alaska.

Expedient Filing

As of now, the State does not have any provisions pertaining to expedient processing of your Certificate of Organization.

Public Notice of Formation

As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.

Create an Operating Agreement for your Alaska LLC

An operating agreement essentially lays down how your LLC will function. It maps out the roles and rights of all the managers and members.

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. Suppose a legal dispute arises relating to the company’s functioning. In that case, the State LLC laws or default laws determine the operations of your LLC if an operating agreement does not exist.

For example, let’s assume you don’t have an operating agreement or that your operating agreement does not mention the distributions of the profits. In this 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 lawsuits and clarifies the day-to-day working of the company.

There are no prescribed templates for an operating agreement in Alaska, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Dissolution

Writing the Operating Agreement Yourself v. Hiring a Service

You could create it by looking at one of the many online sample operating agreements. But given the importance of the operating agreement, if you are hesitant about leaving out crucial details, 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. The members of your LLC can draw up the operating agreement and decide on the matters of your company according to the terms of the agreement.

However, the terms are limited to the law, and you cannot include something prohibited by the laws of Alaska in your operating agreement.

Obtaining an EIN for your Alaska LLC

The Employer Identification Number (“EIN”) is a 9-digit number that the Internal Revenue Service (“IRS”) uses to identify 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.

The IRS issues an EIN, and you can apply for it online or through the mail. Remember that the online service is only available between 7 am-10 pm EST on 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 an S corporation, which can help you get tax benefits by passing taxes on profits to shareholders instead of the LLC. 

File the Initial and Biennial Reports in Alaska

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; it can be done online or via mail. The initial filing is required to be done only once within six months of your LLC formation.

Additionally, an LLC must legally file a Biennial Report every two years before the 2nd of January. 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 the 2nd of January 2018 (the subsequent even-numbered annual year).

Similarly, if you filed your initial report during an odd-numbered annual year like 2017, your Biennial Report will be due on the 2nd of January 2019 (the subsequent odd-numbered annual year). After this, you must file your Biennial report every two years from the first date you submit it.

Filing your initial and biennial reports must be taken seriously, as the State of Alaska has the power to impose penalties for non-compliance.

If you do not file your initial report by the deadline prescribed, the State of Alaska can shut down your LLC. If you miss the deadline for the Biennial report, the State can impose a penalty of $37. You are also at risk of being shut down by the State

Tax Liability For Your Alaska LLC

The taxes can be broadly placed under three categories: Federal, State, and additional. There are four ways in which LLC will be taxed:

• Sole proprietorship: a business owned by a single person
• Partnership: a business owned by multiple people
• C – Corporation: income is split or segregated for taxation
• S – Corporation: tax liability is split between the business and its owners

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.

You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions like business expenses. You are also liable to pay Federal Income Tax. The income tax you have to pay will vary depending on your income, filing status, deductions, etc.

However, federal corporate taxes must be paid if you treat your LLC as a corporation for tax purposes. If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.

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 the tax compliance requirements of your LLC.

If you choose to treat your LLC as a corporation for taxation purposes, your LLC will be required to pay corporate income tax. It has to be paid to Alaska’s Department of Revenue.

Miscellaneous Taxes

You must pay an Unemployment Security Tax if you hire any number of employees.

Licenses and Permits

Procuring the appropriate business licenses and permits for your LLC is a crucial step to operating your LLC in Alaska. Depending on your LLC business, you may be subject to three licensing jurisdictions: Federal, State and Local.

Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.

Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.

At the State level, LLCs are required to obtain a business license. You can apply for your business permit online with the Alaska Department of Commerce. You may alternatively download the application and send a duly filled copy of the same to The State of Alaska, Business Licensing Section, P.O. Box 110806 Juneau, AK 99811-0806. If you wish to file it in person, the address is The State of Alaska 333 Willoughby Ave. 9th Floor Juneau, AK 99801. The application fee is $50. You need to renew your permit annually.

Depending on where you operate your business, you may also be required to get the local government’s license and permit. To know more about local licensing requirements, get in touch with the office of your local administration.

For more information regarding;

• Federal Permits and License
• Department of Commerce website
• Alaska’s Business Licensing website

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.

There are two benefits of creating a business bank account: Differentiating your assets from the assets of your LLC and convenience in maintaining accounts 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. Hiring a business accountant to manage your LLC’s bank account is also a good idea since it will guarantee that your bookkeeping 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.

Final Thoughts

Alaska has a stable economy and a comparatively low taxation structure. The State offers different tax credit schemes and loan programs that are aimed at helping new businesses. The Rural Development Initiative Fund, Small Business Economic Development, and New Area Development program are examples of such incentive schemes. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.

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. If you’re still hesitant about the process, you can always use an LLC registration service that suits your needs. Enjoy your new LLC!