If you’re planning to open an LLC in Montana and want to know its procedure, you’re at the right place. This article will be your go-to guide to take you through the entire process of forming your LLC and all the post-formation requirements such as tax liabilities, licenses, and permits, annual reports, etc.
So let’s begin and gradually move steps closer to the LLC of your dreams.
Naming Your Montana LLC
The entire process of forming your LLC begins with this step. Giving a name to your LLC also gives it an identity through which others will know your business. Not only this, the name you choose appears everywhere, whether it be legal documents or advertisements for your business.
Thus, choosing a unique and creative name is crucial to begin your LLC formation process. While creativity is needed in choosing a name, you must also distinguish it from the other entities present to ensure that the State authorities authorize it.
While naming your LLC, you must follow all the naming guidelines the State of Montana has laid down.
While naming your LLC, you have to keep a few things in mind.
You’ll have to make sure that the name you choose is such that it doesn’t get confused with the name of any Government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
Make sure your business name doesn’t include any restricted name (Bank, Revenue Department, etc.) or professional designation (Doctor, Attorney etc.). You will need to get prior permits before adding these to your name.
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 of Montana.
It is advisable not to use designators such as plurals, prepositions or verbs to distinguish your LLC’s name from the existing entities. Such a move will only create confusion and might also not be approved by the authorities, which will, in return, lead to a multiplicity of procedures.
Does Your Business Require a DBA?
A DBA (doing business as) enables you to operate your LLC under a different name. It is called an ‘Assumed Business Name.’ A DBA is best used for branding purposes.
A DBA is not mandatory. DBAs are alternate names for your business that come in handy when you wish to operate your business with a different name from your registered name.
Over time, you may wish to diversify your business. For example, you may enter new market areas or decide to sell new products. An alternate name that suits your new portfolio can come in handy at such times. An assumed name allows you to run the business of your LLC under a different name.
In Montana, you can obtain a DBA by registering with the office of the Secretary of State.
Apply for a DBA OnlineApply Online
Doing a Name Search and Name Reservation
Once you’ve chosen your desired name, which adheres to the naming guidelines, doing a Business Entity Search is advisable. It ensures that the name you’ve chosen is distinguished from the other entities present in Montana.
You can reserve your LLC’s desired name for up to 120 days in Montana (non-renewable) by filing a reservation request with Montana’s Secretary of State Business Services Division.
Reserve Your Name OnlineApply Online
Fee: $10 standard, $20 24-hour expedited, $100 1-hour expedited
Registering Your Business Domain
Customers increasingly prefer businesses that have an online presence. The address of your website is how customers find you online. 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.
Choose a Registered Agent in Montana
A registered agent is an individual or another business that will serve as a point of contact between the business and State authorities. They are responsible for receiving all official communication on behalf of the LLC.
Appointing a registered agent is also mandated by Montana Code Annotated. You must select a registered agent before your company can start functioning by filling in their details in the Articles of Organization.
Who can be a registered agent?
The State of Montana provides specific requirements that your registered agent must comply with. 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.
Though all the options above are feasible, it is always advisable to appoint a professional as your business’s registered agent to make the most out of their expertise and knowledge in this field.
Legal documents and notices contain requirements that are often hard for laypeople to understand. Additionally, the diversity of laws and documents to be filed, maintaining records and storing documents, ensuring all due dates are met, and drafting inappropriate language can be a hefty task. Missing deadlines or failing to respond to official communication on time can cost your LLC dearly.
Another essential benefit is maintaining your privacy. The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy. Moreover, having a registered agent service lets you focus your energy and time on core business areas.
Filing the Articles of Organization with Montana
Articles of Organization are the prime document through which your LLC gains legal standing in the State of Montana. 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 Type
- Registered Agent Name and Registered Office Address
- Business Purpose
- LLC Term
- Governing Authority Type
File Your Articles of Organization OnlineApply Online
Fee: $35.00 plus $50.00 for each series member named in the series LLC
The State offers you the option to seek expedited processing by paying an additional processing fee. Presently there are two options. For 24-hour expedited processing, you will have to pay an additional fee of $20, and if you wish to have your application processed within an hour, you will have to pay $100.
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 Montana LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. An Operating Agreement acts as a contract between you and the other members of the LLC. If there are no other members, it is still crucial as it helps you lay down the operations of your business more efficiently and adds a touch of professionalism while dealing with other parties interested in your LLC.
It is not mandated by law to have an Operating Agreement, but it is highly advisable to have one. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it. Thus, it is recommended that even a single-member LLC have a well-drafted operating agreement.
As for the information to be included in this document, it is up to you. The sky’s the limit as you get to lay down your own desired rules and regulations till the terms you mention in it are illegal or prohibited by the law of the land. Some common and most essential terms to be mentioned in an Operating Agreement are as follows;
- Name of the entity.
- Domicile/Location of the business.
- Details (name and address) of the members of the LLC.
- Capitals contributed.
- Profit-Sharing Ratios.
- Power transferring clauses.
- Withdrawal of partnership clauses.
- Terms of business.
- Dissolution clauses.
- Miscellaneous terms.
Writing the Operating Agreement Yourself v. Hiring a Service
While it is true that you, as the owner, will know the most about your business, opting for a professional to draft an Operating Agreement is always advisable. With their expertise and experience in this field, a professional will resolve all obstacles more efficiently and less time-consuming, which will only benefit your LLC.
Their knowledge of the various aspects helps you choose clauses best suited for your business’s growth and survival. The issue of legal language jargon and prejudice against any partner is also eliminated through this.
Limits of Operating Agreement
There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. However, the terms are limited to the law.
As per the Montana Code, 2019, an Operating Agreement cannot contain specific provisions such as unreasonably restricting a right to information or access to records, eliminating the duty of loyalty, unreasonably reducing the duty of care, and eliminating the obligation of good faith and fair dealing, etc.
Obtaining an EIN for your Montana LLC
An Employer Identification Number (EIN) is used for tax administration purposes. The IRS issues it. It is used for business tax filing purposes. It comes in handy while opening a separate business bank account, obtaining business credit cards, applying for certain business loans, obtaining licenses, and employee recruitment, etc.
It is mandatory by law to obtain an EIN if you fall in one of the below categories:
- Your LLC has a business structure like a partnership or a corporation.
- Your LLC has employees.
- Your LLC withholds taxes for non-wage income paid to a non-resident alien.
- Your LLC files excise taxes.
File Annual Reports in Montana
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. The laws in Montana require an LLC to file an annual report within the due date every year.
You can file the Annual Report in Montana through the Secretary of State’s website. The due date is on April 15th every year. For example, if you formed your LLC on March 3rd, 2020, your due date will be April 15th, 2021. The filing fee for the same is $20.
If you fail to file your Annual report by April 15th, you’ll be charged a fine of $15. Additionally, if you haven’t filed the report by December 1st of that year, you risk your business getting shut down by the authorities.
Tax liability for your Montana 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
The way your LLC will be taxed depends upon the number of members in your LLC.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor. You’ll have to report the activities of your LLC under Schedule C, Schedule C, Schedule E and/or Schedule F of Form 1040.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
State Tax Liability
If your LLC opts to be taxed as a ‘pass-through entity,’ then the taxes are paid by the members of the LLC and not by the LLC itself. If your LLC opts to be taxed as a corporation, you’ll have to pay corporate tax @6.75% of net income earned in Montana. To know more about the tax requirement, visit the Department of Revenue’s website.
Unlike many other States in the Country, Montana does not impose any sales tax.
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax. You can apply for the former with the Montana Department of Labor & Industry and the Montana Department of Revenue for the latter.
Permits and Licenses
Determining whether your LLC requires specific licenses or permits from the State authorities to function legally in Montana is essential. Failure to obtain the required licenses and permits can lead to the automatic dissolution of your LLC and charges being levied. Apart from State level licenses, your LLC may also be required to obtain federal and local permits depending on the business you are carrying on.
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
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
Since Montana does not have a sales tax, you are not required to obtain a seller’s permit. However, depending on the area of business your LLC is engaged in, you might be required to get specific State licenses and permits. Please visit the Montana eStop website and the Montana License Lookup tool to understand the licensing requirements of your LLC.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Missoula, every business is required to obtain a city business license. To know more about local licensing requirements, get in touch with the office of your town or county government.
For more information regarding;
Business Bank Account & Phone Number
It is always prudent to open a separate Bank Account for your LLC. 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 given by the government through different welfare programs.
Some of the documents needed to open a bank account in Montana include:
- A copy of your Articles of Organization.
- A copy of your DBA certificate.
- Business licenses and permits certificate.
- Identification documents.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.
You can obtain a business phone number through various services providing the same. Look out for the features that suit you the most, toll-free number, international calls, text messages facilities, hardware/software involved, etc.
Montana is an excellent choice for your business. The 2021 State Business Tax Climate Index report has placed Montana fifth in the top 10 best States list. New LLCs forming in the State can take advantage of the Montana State Small Business Credit Initiative (MT SSBCI) Program, through which the State provides lending and investments to small businesses.
Apart from this, the State also has many other incentive schemes such as the New Industrial Property Benefit Program, New or Expanded Industry Credit, and the Empowerment Zone Tax Credit. 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!