Oregon is a great place to set up your business. It has one of the lowest tax rates for businesses in the US and offers an excellent ecosystem for start-ups and small companies.
In 2021, the State witnessed a record number of newly registered businesses. If you are an entrepreneur with a business idea, starting an LLC in Oregon is a great way to start your business journey. It provides excellent flexibility in your operations and has many tax benefits.
The procedure for setting up an LLC may seem confusing and complicated. This article will guide you through all the steps involved in successfully incorporating an LLC in Oregon.
Naming Your Oregon LLC
Your journey to set up an LLC in Oregon will start with selecting a name for your business. It is recommended that you do a name search in the portal set up by the State of Oregon.
While choosing a name for your LLC, make sure it is unique and not similar to the names of other businesses. The name should be simple and something that strikes a chord with your potential customer base.
If you are setting up an LLC in Oregon, make sure that you follow the guidelines laid down by the State in this regard.
You should ensure that the name you select for your Oregon LLC includes the words “limited liability company” or its abbreviated version “L.L.C.” or “LLC.” The name you select should not contain words like: “cooperative,” “corporation,” “corp.,” “incorporated,” “Inc.,” “limited partnership,” “L.P.,” “LP,” “Ltd.,” “limited liability partnership,” “L.L.P.” or “LLP.”
You can only use the English language for the name. However, Arabic numerals, Roman Numerals, and incidental punctuations are also allowed. Avoid using names that are similar to the name of any business entity registered with the State of Oregon.
Make sure that the name you select for your LLC does not contain the words “F.B.I.,” “Treasury,” or any such names that may give an impression that your business is a part of a government agency.
To get a deeper understanding of the naming rules prevailing in Oregon, you can read the State’s guidelines.
Does Your Business Require a DBA?
A DBA (doing business as) or an assumed name enables you to operate your LLC under a different name. The provisions of §63.094 of Chapter 63 of the Oregon Revised Statutes allow an LLC to have an assumed name.
An assumed name is best used for branding purposes, especially when you want to diversify or enter a new market. However, bear in mind that the assumed name alone does not provide any protection to your personal assets. To avail the protection of limited liability, you need to form an LLC in Oregon.
While selecting a DBA for your Oregon LLC, make sure you follow all the guidelines laid down by the State. An assumed name of an LLC in Oregon must not include the following:
- Suffixes (other than LLC) such as Corp., Inc., etc.
- Words usually associated with an institution of a financial nature such as “bank,” “banker,” etc.
- Certain specified special characters like *, @, /, $ etc.
- Words that can give the impression that your LLC is a State agency.
Doing a Name Search and Name Reservation
The name you select for your LLC should be unique and distinguishable from the names of other businesses registered in the State. You can use Oregon’s Business Entity Search website to see if your desired name is available. You should properly check the name selected for your LLC to avoid rejection later on.
Once you have thoroughly checked the name availability and decided on the name for your LLC, you can reserve it. You have to apply to the Secretary of the State for this purpose. The application should include the details of the applicant’s name, the applicant’s address, and the name that the applicant wishes to reserve for the LLC.
If the name selected by you satisfies the naming guidelines, it will be reserved for 120 days by the office of the Secretary of State. You may request the office of the Secretary of State for a name reservation form, which will be emailed to you.
Registering your business domain
Your business’s website address needs to match your LLC’s name. Your website address is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the website address you need is also available.
You can check the currently available domain names here.
Choose a Registered Agent in Oregon
A registered agent is an individual or another entity registered to conduct business transactions in Oregon. A registered agent is the point of contact for your LLC. The registered agent shall be responsible for receiving all official communications addressed to the LLC.
A registered agent should be available during usual business hours. The agent shall be responsible for receiving communications addressed to the LLC and forwarding them to appropriate people within your LLC.
Who Can Be a Registered Agent?
The laws of Oregon mandate that every LLC appoints a registered agent. As per the provisions of §63.111 of Chapter 63 of the Oregon Revised Statutes, the registered agent you select for your Oregon LLC must be:
- An individual resident of the State of Oregon or
- A business entity (including another LLC) registered in Oregon or
- A foreign entity that has obtained permission to transact business in the State of Oregon.
A registered agent should be above the age of 18 years and have a physical street address in Oregon. Remember, the address cannot be a commercial mail receiving service, a mail forwarding facility, or a virtual office address.
Individual v. Registered Agent Service
The laws of Oregon allow you to appoint yourself as the registered agent or any other individual within your LLC. Alternatively, you may also opt for a professional registered agent service. Selecting yourself as the agent for the service of process may not be advisable for all businesses. Using a professional registered agent service has many advantages:
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. 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.
Professional help lets you focus your energy and time on core business areas. If you are your agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients. Having a professional registered agent service helps you handle the situation discreetly. They receive such sensitive documents at their address and deliver them separately.
The laws in the State of Oregon mandate a registered agent be elected at the time of formation of the LLC. The details of the registered agent should be provided in the Article of Organization that you file with the State.
You may change the registered agent for your Oregon LLC by applying for the same online or submitting a request form to the following address: the Secretary of State, Corporation Division, 255 Capitol St. NE, Suite 151 Salem, OR 97310-1327.
File the Article of Organization for your Oregon LLC
Articles of Organization, in Oregon, is a legal document needed to form and legally incorporate your LLC. It is to be filed with the office of Oregon’s Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
You can complete this procedure by following three simple steps. The first step is for you to acquire a copy of the document. You may do this by creating an account on the portal of Oregon’s Secretary of State’s website.
The next step is for you to fill out the Articles of Organization form. You should duly complete the form by filling out details related to the following:
- Name of your LLC
- Address of the registered office
- Duration of the LLC (perpetual or indicate a dissolution date)
- Details of the name and address of the Registered Agent
- Governing Authority (member or manager-managed)
- Purpose of your Business (Applicable only if your Oregon LLC is providing any services of a professional nature)
- Organizer Information (name and addresses)
The third and final step is for you to file your Articles of Organization with the office of Oregon’s Secretary of State. You can do the same online or by submitting a copy of the duly filled form through email, fax, in-person, or mail.
As of now, the State of Oregon does not have any provisions pertaining to expedient processing of your Certificate of Organization.
Public Notice of Formation
As of now, the State of Oregon does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Creating an Operating Agreement for Your Oregon LLC
An operating agreement contains 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. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
The laws in Oregon do not mandatorily require an operating agreement for an LLC. However, irrespective of the nature of your business, it shall be advisable for you to have an operating agreement. It offers credibility to your enterprise. Once you form your LLC, you will need an operating agreement to open an account in the bank. More importantly, an operating agreement helps to protect the limited liability status of the LLC by reinforcing it.
There are no prescribed templates for an operating agreement in Oregon. Section 63.057 of the Oregon State Statute allows you to have a written or even an oral operating agreement. Accordingly, you may draft one according to the needs of your business. Your operating agreement should ideally cover the following aspects:
- Organization Details
- 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
If your LLC does not have an operating agreement or if the operating agreement is silent concerning the duties of the members or their conduct, then the provisions as contained in Section 63.155 of the Oregon Revised Statutes shall apply to your LLC by default. The problem, however, is that these default provisions may not suit your company’s specific requirements.
Writing the Operating Agreement Yourself vs. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement. Being experts in Oregon laws, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of Operating Agreement
There are no specific formats for an Operating Agreement. However, it cannot include any matters prohibited under Oregon law, such as entirely waiving duty for loyalty, the duty of care, obligations of good faith, etc.
Obtaining an EIN for your Oregon LLC
EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. You can think of an EIN as the social security number of your business entity.
The IRS uses the EIN to identify an operating business entity for taxation purposes. It will be required for the purpose of opening a bank account, filing tax returns, and hiring employees. An EIN is issued by the IRS, and you can apply for it either online or through the mail.
File Annual Report for your LLC in Oregon
An annual report is a document mandatorily required to be filed by an LLC in Oregon. The document is to be filled out annually. It is used by the authorities in the State to get the latest and updated information about all the business entities operating in the State of Oregon.
According to Section 63.787 of the Oregon Revised Statute, an annual report should include the following details:
- Name of the LLC and its street address
- Name and address of the Registered Agent
- Name and address of manager(s) (in case of manager-managed LLC) or name and address of at least one member (in case of member-managed LLC) and;
- Details regarding the business of the LLC
You have to ensure that the details you provide in the Annual Report are current and as of thirty days before the LLC’s anniversary. In case the annual report filed by you has any information missing or is lacking in some other way, the Secretary of State shall inform you of the same. You will then have a grace period of 45 days to rectify the shortcomings or errors in the annual report.
You may file your annual report online with State. The due date for filing your report is the date of the anniversary of your LLC (i.e., the date of incorporation of your LLC.) The filing fee is $100. If you miss your deadline, you risk having the State classify your LLC as “inactive.”
Tax Liability for Your Oregon LLC
The tax liability of your LLC in Oregon will depend on the business your LLC is doing. An advantage of forming an LLC in Oregon is that it is one of the few States in the US that does not impose a sales tax obligation. 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
As a person who owns an LLC in the state of Oregon, you are required to pay Federal self-employment tax (which is currently 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.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor.
If you are a multi-membered LLC, it will be taxed as a ‘partnership’ by default. In the case of the former, the LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040. And as for the latter, 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
Oregon does not levy sales tax. However, three different kinds of tax liability at the State level may apply to your Oregon LLC based on several factors.
As a member of the LLC in Oregon, you are liable to pay State Income Tax on the amount you earn from the LLC. The tax rates will, depending on the earnings you get, vary anywhere between 5% to 9.9%
Oregon Corporate Excise Tax (CET) applies to those Oregon LLCs that choose to treat themselves as a Corporation for taxation purposes. CET can be considered a fee you pay to the government for allowing your LLC to conduct business in the State.
Oregon Corporate Activity Tax (CAT) is payable by all business entities, including LLCs registered in the State of Oregon. However, this tax is only applicable if your LLC does taxable commercial activity in the State of Oregon above one million dollars.
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax. Apart from the same, you may also be liable to pay certain other types of State Taxes depending on the business you can on with your LLC.
To understand the different types of State taxes in Oregon, you may read the Oregon Start a Business Guide.
Permits and Licenses
An Oregon LLC should follow Federal Regulations and get permits that are applicable to your business. 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.
The State of Oregon does not require you to obtain any general business licenses. The State does not impose a sales tax, so you need not get a seller’s permit either. But, depending on the type of business you carry out through your LLC, you may be required to get a certain specific license, permit, or certification.
Additionally, depending on where you operate your business, you may also be required to get the local government’s license and permit. In Portland, all businesses are required to get themselves registered with the city government. To know more about local licensing requirements, get in touch with the office of your town or county government.
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It is always prudent to open a separate Bank Account for your LLC and have a separate designated phone number.
Business Bank Account and Phone Number
Having a separate account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits. To open an account, all banks require your EIN and formation documents, such as your LLC’s Certificate of Organization.
While selecting the bank in which you would be opening a new account, you should look for a place that caters to your needs in terms of rate of interest, minimum balance requirements, and credit facilities.
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.
Oregon provides a lot of attractive incentives to businesses newly set up in the State. The State’s Emerging Small Business Certificate Program favors small businesses in matters of government contracts.
Similarly, your company may be eligible for tax rebates in certain counties if your business creates job opportunities. Make sure you check the eligibility of your LLC for these schemes and apply accordingly.
Your LLC is legally incorporated and ready to do business after completing the above steps. Enjoy your LLC!