Planning on starting your business in Rhode Island? Great!
The Ocean State has a great regulatory setup and a booming economy aimed at helping start-ups and small businesses. As a first step toward setting up your business in the State, you will have to decide on a business structure.
A limited liability company (LLC) can be a great choice for the business you are trying to form. It opens the door for tax savings and provides great flexibility in terms of operations.
Rhode Island has its own set of procedures that you need to follow carefully to set up an LLC. Making an error could result in you losing time and resources by way of non-refundable fees. We are here to break it down and guide you through each step involved in the process.
Naming Your Rhode Island LLC
The first step in setting up your LLC is to name your business. A good name will help your potential customers to identify your business from among the competition quickly. Make sure that you have a unique name that captivates your customer base.
While naming your LLC, you must follow all the naming guidelines the State has laid down.
The name of your business should have the words “limited-liability company” or the upper or lower case letters “l.l.c.” with or without punctuation.
The name of your LLC should be unique and distinguishable from the names of other entities registered with the State.
The name you select for your LLC should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.” 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.
You may read Section 7-16-9 of The Rhode Island Limited-Liability Company Act to understand the naming guidelines fully.
Does Your Business Require a DBA?
A DBA (doing business as) enables you to operate your LLC under a different name. It is called a “fictitious business name” in Rhode Island. DBAs are used to change the name under which the company does its business.
Over time, you may wish to diversify your business. For example, you may enter new market areas or decide to sell new products. Your name currently for your LLC may not suit this new product or business area. In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area. A DBA name allows you to run the business of your LLC under a different name.
A trade name is best used for branding purposes. For example, Nike was called Blue Ribbon Sports earlier, but a DBA was obtained for the name “Nike.” Having a DBA is not mandated by law.
But remember that the trade name alone does not protect your personal assets. To avail of the protection of limited liability, you need to form an LLC.
Doing a Name Search and Name Reservation
It would be prudent for you to ensure that the name you selected is not similar to an existing business. The State provides a repository of names to conduct a business entity search. Running a name search using this portal will help to see if your LLC’s potential name is already in use. You should properly check the name selected for your LLC to avoid rejection later.
If you have found your perfect name but are still indecisive about forming your LLC, you can reserve the name for yourself for 120 days.
Registering Your Business Domain
You might not be certain about the success of your business and might not be thinking of having a website. However, you might later want to publicize your business on the internet. It is possible that by this time, you might not get the desired domain 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.
Choose a Resident Agent in Rhode Island
Your LLC must keep track of many official filings, documents, and notices. For example, tax filing notices, annual reports, court subpoenas, etc. Rhode Island laws mandate that a resident agent be appointed to look after these communications.
A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
Who Can Be a Resident Agent?
The State of Rhode Island 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 your friend, family member, yourself, or any other member of your LLC, as your resident agent. However, the downside of doing this would be that you would be entrusting a very demanding job to someone who is not a professional in this area.
They could unknowingly miss out on an important document, and your LLC would suffer for it. Additionally, if you are appointing yourself as the registered agent, you would be required to be available during business hours on all working days. Registered agent services are trained and experienced professionals for this specific job. Hiring a resident agent service has its advantages.
You should hire a professional registered agent service as it 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. Hiring a registered agent service provides you privacy. You can provide the address of your resident agent to receive communications. You do not need to make your address and other details public.
Sometimes, you might not want to receive a document like a court summon in front of your employees and clients. A registered agent service can deliver these documents discreetly to you.
Similarly, if you plan to expand your LLC to other States, you can avail of the services of the same registered agent service, as most of them have a presence in almost every State.
File the Articles of Organization with Rhode Island
Articles 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. Articles of Organization is the most important document in the formation process and contains many crucial details about your LLC, such as:
- Entity Name and Type
- Registered Agent Name and Registered Office Address
- Governing Authority Type
- Business Purpose and Duration (optional)
- Effective Date
You may file the document using the State’s online portal, or you may choose to submit the duly filled form through the mail.
Rhode Island usually takes one to three days to process your application. Currently, there are no provisions for expedited services.
Publish Notice of Formation
Rhode Island does not require your LLC to publish a notice of its formation.
Create an Operating Agreement for Your Rhode Island LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning.
Conflicts often arise among LLC members on various issues like ownership, capital contribution, voting, and liability. This happens because the members did not decide on these particulars when forming their LLC. To avoid such situations, consider drafting an Operating Agreement for your LLC.
Though not mandated by law, it is good practice to have an Operating Agreement in place. In the absence of the same, Rhode Island’s laws will apply to conflicts.
There are no prescribed templates for an operating agreement in Rhode Island, 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
- 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
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. You can also hire a professional to do this job for you. People generally hire professionals due to the fear of missing out on important details.
It is always better to hire a professional to write an agreement for your LLC, as this document will define your LLC’s inner workings. Hence, any mistake might prove detrimental to your LLC’s operations. Experts in the laws of Rhode Island, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of an Operating Agreement
There is no fixed format for this agreement. You may draft this agreement as you deem fit. However, the agreement cannot be contrary to the law. You cannot include something prohibited by the laws of Rhode Island.
Obtaining an EIN for your Rhode Island LLC
EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS.
The IRS uses this number for tax purposes. It is like the social security number of your LLC. It is required 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 Annual Reports in Rhode Island
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. Rhode Island requires all domestic LLCs to file an annual report every year.
The report is to be filed between 1st September and 1st November each year. However, your first report is due the year after your LLC was incorporated. For example, if your LLC was formed in April 2021, you must file the first report between 1st September and 1st November 2022.
You may file the document online or download the form and submit a duly filled copy to the Division of Business Services 148 W. River Street Providence, RI 02904. The filing cost is $50 (Non-refundable).
If you miss a deadline, you are bound to pay a penalty of $25 as a late fee. In addition, you also risk the State revoking your certificate of formation.
Tax Liability for Your Rhode Island 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 Internal Revenue Service or the IRS is responsible for charging federal taxes on companies in the USA. For this purpose, it provides an EIN to every entity.
LLCs that are single-membered are taxed like an individual. The IRS would ignore your LLC’s tax structure and count you as an individual. The LLC’s income will be reported as the owner’s income at the end of the year. You will fill out Schedule C (Form 1040) to show the income from your business. If you pay a salary to yourself, you must fill out Schedule SE (Form 1040). In case of supplemental income like rentals and other investments, you will fill Schedule E (Form 1040).
If your LLC has multiple members, it will, by default, be taxed as a partnership. You will file your LLC’s taxes under Form 1065. Further, you will have to provide details on each member of your LLC under Schedule K-1 of the same form.
However, you can choose to have your LLC taxed as a Corporation by filling this Form 8832. When the LLC is taxed as a corporation, you can choose to be taxed as a C-corporation or an S-corporation.
State Tax Liability
Apart from the federal taxes, businesses are also subject to State taxes. You will have to pay a sales tax to sell physical products in Rhode Island. Sellers can collect this from consumers and then pass it on to the government by filing a tax return.
All physical products like furniture, home appliances, and motor vehicles are subject to sales tax. There are also certain exemptions, like prescription medicines, gasoline, clothing, etc. It would be best if you went through the detailed list of taxable products.
To start selling your product, you must register for a seller’s permit that makes you eligible to sell your products and collect sales tax. An application fee of $10 is charged, and the permit needs to be renewed yearly for the same fee. Alternatively, you can file it via mail by filling out a form and mailing it to the address: State of Rhode Island, Division of Taxation, One Capitol Hill, Providence, RI 02908.
There is no requirement to pay any sales tax if you purchase the products for resale. For this, you will have to register for a resale certificate. When purchasing products for resale, you can show this certificate, and the seller cannot charge sales tax.
You must file these tax returns on time. All businesses are required to file tax returns monthly. If for six consecutive months your average tax liability is less than $200, you can start filing the return quarterly.
The deadlines for quarterly filings are 30th April, 31st July, 31st October, and 31st January for the previous quarters, respectively. For monthly filings, the due date is the 20th or the next business day after the 20th of the following month.
Miscellaneous Tax Liability
If you’re an employer, you must register for Unemployment Insurance Tax with the Department of Labor and Industrial Relations. You will also need to register for Employee Withholding Tax on your employees’ behalf.
Permits & Licenses
An LLC must comply with State and Federal regulations. Accordingly, 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
- 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
At the State level, your LLC will be required to obtain a seller’s permit if your business intends to sell certain products or services that are subject to sales tax. Additionally, certain professions are required to obtain specific licenses from the State. You may refer to the State’s Department of Business Regulation to understand if any such licenses are required for your LLC.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Providence, most businesses are required to have a specific city license. To know more about local licensing requirements, get in touch with the office of your town or city government.
For more information regarding;
- Federal Permits and License
- Department of Business Regulation
- Division of Taxation
- Rhode Island’s Official Website
Business Bank Account & Phone Number
When you are running your business, you will have to make various transactions, mostly daily. Simultaneously, you will also be making transactions and spending money on your personal needs. In all this, it won’t be easy to differentiate between your personal and business expenses if you have a common account.
Your income and expenditure and the company’s income and expenditure would be impossible to differentiate. Therefore, it is advisable to have a separate bank account for your company. This will also help you in filing tax returns.
Moreover, this will protect your assets from legal hassles that your LLC might face. A court might attach your assets in paying damages to a claimant against your LLC.
To avoid this, a separate bank account is advisable. For opening the account, you need these details:
- Articles of Organization.
- EIN confirmation letter or Verification letter.
- Two Identification proofs.
- Operating Document.
- Declaration of Beneficial Ownership: This form is provided by the bank, which discloses the owners of the LLC.
With your business up and running, you might receive and have to make hundreds of calls every day. Using your phone number in this process will expose it to all callers and customers.
Therefore, it is advisable to have a separate business phone number that can be handled by you or other members/employees of your LLC. Another option could be having a virtual phone number. The virtual phone number will receive calls, record voice mails, and forward calls to your number if it fits certain criteria.
Rhode Island provides a great environment for new businesses to thrive. The State has many incentive schemes, such as the Innovation Network Matching Grants and the Small Business Loan Program for small and medium enterprises. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
You are ready with all the necessary information to start your LLC in the State of Rhode Island. The resources we gave you will help you at each step going forward. Alternatively, you may hire a professional service to help set up your LLC at reasonable costs.
I wish you and your upcoming LLC all the best!