How to Form an LLC in Iowa: The Affordable Way

Iowa is an excellent choice for you to start your business journey. The State has a stable economy with sectors like technical services, manufacturing, healthcare, food care, etc., performing well. However, the first step for you would be to decide on a business structure. An LLC can be an ideal choice for the business you are trying to form. It protects your personal assets from legal liability and, at the same time, gives you great operational flexibility.

Setting up an LLC in the State may seem confusing and complicated. We are here to break it down and guide you through each step involved in the process.

Naming your Iowa LLC

The importance of the name of a business cannot be overstated. Putting a little effort into making the name attractive and catchy is worth it as it attracts potential customers. A pizza shop named “The Italian Dream” is more likely to attract customers than another round-the-corner pizza joint.

Moreover, having a unique name shows the uniqueness of your business venture. It makes a bold statement and gives the company identity, making your business more marketable.

While naming your LLC, you must follow all the naming guidelines the State of Iowa has laid down.

Naming guidelines

Iowa code mandates that you must comply with specific requirements before you can get a name registered. Accordingly, your business name must include “LLC,” “Limited Liability Company,” “L.C,” or “Ltd Liability Co” as suffixes.

The name of the LLC should be unique and must not resemble the name of any existing entity that has been permitted to conduct business in the State.

Keep in mind that your business name must not be substantially similar to that of any other company. For instance, assume that an entity named “AMBROSIA ” exists, and you want to name yours “ambrosia.” You cant do this as the name is substantially similar, if not identical, to another company’s name.

Additionally, your business name should not be confused with a state agency. For instance, you cannot name your business “State Health Department.” It should also not include terms such as doctor or lawyer unless such a professional is part of your LLC.

Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.

Does your business require a DBA?

Let’s say you could not come up with a catchy name for your business while you were registering your business, and now you wish you had chosen a different name.

A DBA (doing business as) enables you to operate your LLC under a different name. For instance, you registered your business as “ Pizzas & Pastas L.L.C.” But you do not want the same for trade purposes and want to use “Ambrosia” as the name for your business. This is where a DBA is useful. In Iowa, a DBA is called a “Fictitious Name.”

To register a DBA in the State of Iowa, you must file a fictitious name resolution with the Secretary of State.

Doing a Name Search and Name Reservation

Please ensure that the name you have chosen is truly unique. Otherwise, you risk getting rejected when you submit your application to have your name registered with the State. You can use Iowa’s Business Entity Search to see if the name you want for your LLC is available. You should properly check the name selected for your LLC to avoid rejection later on.

In Iowa, you can apply with the Secretary of the State to reserve the name you have chosen. Once the Secretary of State has reviewed the application, the name shall be reserved for 120 days.

Registering your business domain

Internet and online businesses are becoming more popular by the day. Most customers rely on online reviews and check for an online presence before opting for a product or service. Moreover, a well-designed website can help attract new customers.

You may want to get a domain registered for your business. It’s best if your business’s website name is the same. You can check currently available domain names.

Choose a Registered Agent in Iowa

Before your company can be incorporated, you need to appoint a registered agent. A registered agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.

Iowa laws mandate that your company have a registered agent.

Who can be a registered agent?

There are specific State laws that you must adhere to while appointing your registered agent.

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.

Individual v. Registered Agent Service

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.

You will not have to worry about deadlines and legal documents if you employ a registered agent service provider. 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.

Additionally, a registered agent must disclose their address and other information, so employing a service provider would ensure that your privacy is protected.

If in the future, you wish to expand your business to other states, then you can continue to employ the services of the same provider (assuming that the service provider provides services in different states), thus ensuring a smooth transition.

Filing the Certificate of Organization with Iowa

A Certificate of Organization is a legal document needed to officially form and legally incorporate your LLC. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and recognized in the law’s eyes. 

Thus, this is a crucial process and requires caution. You’ll be required to know certain information before filing Articles of Organization. These include:

• Entity Name and Address
• Registered Agent Name and Registered Office Address
• Effective Date and Expiration Date

Iowa does not have a prescribed form for you to file the Certificate of Organization. You may read the requirements with regard to a Certificate of Organization before filing it.

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 the Operating Agreement for your Iowa LLC

An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.

Though State regulations do not require a company to have an operating agreement, it is advisable to have one. Why? Well, for starters, it minimizes the scope for ambiguity when distributing profits/losses. Thus, it reduces the occurrence of disputes between the members of a company.

Members know what their expectations are from the business venture. An operating agreement provides a space to put these expectations in writing. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC. 

There are no prescribed templates for an operating agreement in Iowa, 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 can either draft the agreement yourself or employ an attorney to do the same. Both the choices have their own advantages and disadvantages.

As a business owner, you may better understand what expectations are reasonable and what objective the company seeks to accomplish. Thus, you can draft the operating agreement in such a manner that they reflect the considerations mentioned above.

However, an attorney who regularly drafts such agreements will help you draft an operating agreement that suits the needs specific to your business model.

Limits of Operating Agreement

There is no fixed format for this agreement. However, the terms are limited to the law. While an operating agreement does help in mitigating the chances of dispute, it does not waive off the liability that any business is bound to encounter during its dealings.

An operating agreement can also not be unconscionable and cannot dodge the responsibilities of fair conduct and just behavior.

Obtaining an EIN for your Iowa LLC

An EIN (Employment Identification Number) is a nine-digit number. The Internal Revenue Service (IRS) allots it. The IRS uses the EIN to identify an operating business entity for taxation purposes.

An EIN is required for any LLCs with more than one member. It will also be necessary to open a bank account, file tax returns, and hire employees. The IRS issues an EIN, and you can apply for it online or through the mail. 

File Biennial Reports in Iowa

An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. An LLC must fill this document with the Secretary of State.

The first report is due in the odd-numbered year after the year of your incorporation. After that, the report is to be filled every odd-numbered year. You can file this report anytime between January 1st and April 1st. For example, imagine your LLC was incorporated in 2021. Your first Biennial Report is due between January 1st and April 1st of 2023.

You can file this report online. You may also download a copy of the document from Iowa’s Fast Track Filing portal and mail a duly filled copy to the Secretary of State Lucas Building, 1st Floor 321 E. 12th Street Des Moines, IA 50319. The filing charge is $30 online and $45 by mail (Non-refundable.)

Iowa does not charge any late fee if you miss a deadline for filing the report. However, you do risk the possibility of having the State shut down your business.

Tax liability for your Iowa LLC

The way your LLC will be taxed depends upon the number of members in your LLC. 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

Depending on the taxation structure adopted by the members, an LLC will be treated differently for taxation purposes.

If you’re a single-member LLC, your default taxation type will be that of a sole proprietor. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040. 

By default, a multi-member LLC is treated as a partnership. In such a scenario, the partnership rules will apply for taxation purposes. Partners will not be personally responsible for taxes. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide each partner’s information in the K-1 form. Additionally, 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.

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

You must register for sales tax if your company sells physical products like furniture, home appliances, etc. To check whether you need to register for sales tax or not, visit this website. Check if the products you sell are tax-exempt or not. 

You must file taxes annually if your sales tax is $10 per month. You must file quarterly taxes if it is between $10 and $500 per month. You need to file taxes monthly if it is between $500 and $5000 per month.

You must file a sales tax return even if the sales taxes amount to nil. Usually, deadlines for filing the same are the last day of the month unless the last day is a holiday, in which case the deadline is shifted to the next working day. 

Miscellaneous Taxes

If your LLC has hired employees, you must sign up for  Unemployment Insurance Tax and Employee Withholding Tax. You would have to register with the Iowa Workforce Development and Iowa Department of revenue on your employees’ behalf.

Permits and Licenses

Obtaining licenses and permits is another aspect of ensuring that your business can operate without legal trouble. Depending on your LLC’s business, you may require permits to operate in the State of Iowa. Your business will 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
• Transportation and logistics

At the State level, you will have to sign up for a seller’s permit if you plan to sell any specific goods or service which falls under the ambit of sales tax. You can get your seller’s permit by visiting the Iowa Department of Revenue website.

Apart from this, your business may also need to obtain specific other licenses, depending on the industry you are engaged in. You can use the IASourceLink website to understand the licensing requirements of your LLC better.

Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Des Moines, certain businesses are required to obtain a city business license. To know more about local licensing requirements, get in touch with the office of your county government.

For more information regarding;

• Federal Permits and License
• Iowa’s Business License Information Center.

Business Bank Account & Phone Number

It is critical to have a separate bank account for the LLC. It ensures that the LLC and its members are treated as separate financial entities. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits.

Apart from this, it also helps in better organization of the accounts of your business and aids in receiving certain business loans, licenses, permits, subsidies, and other benefits the government gives through different welfare programs. 

Some of the documents needed to open a bank account include:

• A copy of your Articles of Organization.
• EIN.
• A copy of your DBA certificate.
• Business licenses and permits certificate.
• Identification documents. 

In the present day and age, privacy has become crucial. Therefore, having a separate phone number for your business is prudent. Moreover, a business phone number may also provide customer support, increasing consumer satisfaction and proving beneficial to your business.

You can obtain a phone number by availing of services of any network carrier (such as AT&T). Usually, you would require some documents to prove the existence of a business entity. The documents required may differ depending on the service provider.

Final Thoughts

Iowa is an excellent choice for your business. The State has a stable economy and a good regulatory set-up to support small and medium businesses.

The State offers various business incentives such as the Economic Development Set Aside (EDSA), Business Tax Incentives, etc. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.

On completing the above steps, your LLC is legally incorporated and ready to do business. We wish you and your new business the very best!