A limited liability company ("LLC") is defined as a business organization that shares the limited liability benefits of a corporation but the management and tax freedom of a partnership. LLCs are legal entities created only under state law. "Limited liability" simply means that everybody associated with the company is not liable for damages beyond their initial investment and cannot be held vicariously liable. In other words, a person who puts money in LLC only risks losing the amount of their investment and will not have to pay any more if the company is still in debt. It is a way of limiting the risk of investing in a company.
Business owners and organizations concerned with potential lawsuits or debts that could arise in the business should consider forming an LLC. If a business owner believes that the type of business insurance that they have on your business would not fully protect their assets, an LLC may be a good idea.
To form an LLC in Rhode Island, you must complete the following requirements:
- Choose a name for your LLC: Under Rhode Island law, an LLC name must have one of the following: "Limited Liability Company," "LLC," "L.L.C.," "Limited Company," "LC," or "L.C." The term "Limited" can be short like "Ltd." and "Company" or "Co." You may reserve a Legal Entity name for 120 days by filing a Reservation of Entity Name using Form 620 with Rhode Island Secretary of State Corporation Division.
- File Articles of Organization: In Rhode Island, you must file an Article of Organization with the Rhode Island Secretary of State (Form 400) and pay a filing fee.
- Appoint a Registered Agent: Every Rhode Island LLC is required to have an appointed agent for service of process. The agent is an individual or business entity that agrees to accept legal documents on behalf of the LLC’s if it is sued. A registered agent can be an individual or business that is authorized to do business in Rhode Island. The registered agent must have a Rhode Island physical address.
- Prepare all Tax Requirements: If the Rhode Island LLC has more than one individual, they must obtain its own IRS Employer Identification Number (EIN), even if there are no other employees. If you form a one-member LLC, you must obtain an EIN for it only if it will have employees. You also have to register with the Department of Revenue to file tax returns. Also, LLCs in Rhode Islands are treated as corporations and are subject to federal income tax classifications.
- File Annual Reports. Once your LLC is formed, you have to file a registration each year and pay a processing fee. The first fee payment is due between January 1 and April 1 of the year following the creation of the LLC. The following registrations are due at the same time in subsequent year.
- Obtain all Business Permits and Insurance: If any business permits are required if necessary. Also if your business needs it, get the right type of insurance.
The documents that are required to form a LLC in Rhode Island are the Articles of Organization (Form 400). This document would need to be filed with the Secretary of State Division of Business Services before the formation of the LLC. This document must also be filed with the required filing fee.
In Rhode Island, there are many benefits offered for business owners who form an LLC. Owners of a LLC have the limited liability protection similar to a corporation. Also, having a LLC there is a lot more flexibility of distribution of profits and you don’t need to do a 50-50 split like partnerships. LLC’s are also very easy to operate unlike corporations. In addition, all your business losses, profits, and expenses flow through the company to the individuals. This way, you would avoid the double taxation of paying corporate tax and individual tax.
There are disadvantages to LLC’s in Rhode Island. LLCs can be dissolved easily when a member of the LLC dies or goes bankrupt. Also, Running a sole-proprietorship or partnership will have less paperwork and complexity while LLCs have a bit more paperwork to deal with.
Starting a business is a very difficult but potentially lucrative option. To understand the distinctions and rights that attach to your business and its organization, it is a good idea to discuss your ideas with an experience local Rhode Island business lawyer. A lawyer experienced with limited liability companies can help you incorporate your LLC and explain the tax and organizational benefits of the limited liability structure