Forming an Iowa LLC(Limited Liability Company) can be an essential part of your personal or business strategy. It can offer you and your family or business partners protection from lawsuits, the collection of debts, and other liabilities.
IOWA is a great state for LLCs: it has no income tax, no sales tax, and low (or sometimes nonexistent) filing fees. It’s also pretty easy to form an Iowa LLC. If you’re looking to do business in MO or any of the surrounding states, it might be worth starting an Iowa LLC as part of your overall strategy.
Many people choose to form their businesses in IA due to its simple rules and regulations regarding registered agents. Here’s how to form your own limited liability company in IA.
Forming an Iowa LLC is easy, just follow these simple steps:
STEP 1: Name your Iowa LLC.
Iowa LLC names must contain the words “Limited Company” or “Limited Company” or one of these abbreviations: “Ltd.,” “L.C.,” “LC,” etc., according to IA law (source).
Any other variation could result in rejection by the Iowa Secretary of State; the single letter ‘i’ is reserved for use only with registered trademarks. You can reserve your desired name for 30 days at no cost, but you cannot file your Articles of Organization until you receive approval.
FAQ: Naming an LLC
Q.Can I use my business name as the name of my LLC?
A. The short answer is no. Doing so can be incredibly confusing for anyone looking to check out your company’s background or file a lawsuit against you. Iowa law requires that corporations create a unique version of their business names that won’t lead people into thinking they’re dealing with another company (i.e., similar product/services).
When it comes to doing business in IA, you’ll want to make sure your LLC’s registered agent is located in the same state as your principal place of business – just like any other corporation operating there would do. A registered agent service handles important legal processes on behalf of businesses who are trying to operate within IA, or any other state.
Reserving your LLC name does not give you exclusive rights to it, so you could find someone else trying to reserve the same name while your application is being processed. For this reason, it’s a good idea to run a quick search for your proposed business name through one of these online databases:
Here are some other tips on choosing an Iowa LLC name:
- Don’t use words like “corporation,” “incorporated” or “Ltd.” in the name unless your business uses them in its operating documents. This is only common sense; your company will not be a corporation and it cannot be limited if you do this.
- Try to avoid using the name of another IA LLC in yours (e.g., XYZ Inc.’s Iowa LLC). If you do, the other company could sue you for violating its trademark or copyright – even if they haven’t registered their trademarks in IA and even if you’re just starting out and no one knows about them yet!
- Don’t use words like “America,” “American,” “U.S.,” etc., in the name unless your business is actually based in the United States or has obtained a federal trademark registration for those words.
STEP 2: Choose Registered Agent Services in Iowa
It is important that your LLC has a physical address in IA where all legal documents can be served. If you do not have an office in the state of Iowa, hire a registered agent for your new company. A registered agent receives important mail on behalf of your company and makes sure it gets forwarded to the appropriate person at the right place.
You cannot change your agent without giving prior written notice to all members (see definition for member). The total number of days notice that your LLC must give depends on how many members there are in the company.
FAQ: Nominating an Iowa Registered Agent
Q.What does a registered agent do?
A. A registered agent has complete power over a company’s business affairs in IA. It accepts and forwards official documents to managers or members of an LLC, collects money owed by members, receives court papers filed against the LLC, etc.
This person must have a physical address in IA where all these activities can take place – but it does not have to be their home address. In fact, you should hire a professional 24/7 registered agents whose office is located near your principal place of business so that they can legally accept important legal documents there too.
STEP 3: File Your Iowa LLC Certificate of Organization
The IA Secretary of State has the authority to register and issue certificates for LLCs in IA. You can file your certificate online or print and mail it with a $100 check using the standard form: CO-1
Your $100 check will cover filing costs, registration, and issuance of an Iowa Certificate of Organization. The cost to start a professional limited liability company is usually less than $200. The exact amount you’ll need for these fees will depend on how much profit your business intends to make over the next several years.
FAQ: Filing LLC Documents
Q. Where should I file my LLC certificate of the organization?
A. Your LLC certificate must be filed with the IA Secretary of State office in Des Moines, but you can also submit a paper copy to your local county recorder’s office or register online with the CA SOS too.
However, if you have an existing business in IA and want to change its legally registered name by creating a new limited liability company, note that CA will not recognize an initial member named on your papers unless he/she is present when registering the new company – so this method may not be suitable for everyone.
STEP 4: Create Your Iowa LLC Operating Agreement
An Iowa LLC operating agreement is similar to a corporation’s bylaws, but remember that it cannot be overly complex. The IA Secretary of State won’t accept your certificate of the organization unless you have an operating agreement for a limited liability company. It does not have to be filed with the state – just keep one on file at your principal place of business and bring copies for office use as needed.
FAQ: Creating Operating Agreements
Q.What does an LLC operating agreement do?
A. An IA limited liability company operating agreement covers a number of topics, including the purpose of your business, ownership interests and sections of profits, management duties and responsibilities, member rights to inspect records or dissolve the firm, etc.
This document should always be in line with the rest of your business plan so that you can keep track of your company’s activities later on. By not having a formal written agreement at this stage – especially if it is simply an oral contract among members – you run the risk that any new owner may claim they have just as much power as others when there is no proof to show otherwise.
STEP 5: Get an EIN for your Iowa LLC
A taxpayer identification number (EIN) is essential for an LLC in IA. You cannot open a bank account or even hire employees without having one of these numbers first. This is another task that you can easily do online through the official Internal Revenue Service (IRS) website.
FAQ: Getting an Iowa EIN
Q. Do I need an EIN to form a nonprofit LLC?
A. No, but if your business will have employees, you should definitely apply for a Federal Taxpayer ID Number using the IRS website. You can either use this number for personal taxes or create an Employer Identification Number (EIN) to file taxes later on as needed.
Pros and cons of IA LLCs
Some of the benefits that form an Iowa LLC are:
- You can separate your personal finances from those of your business.
- You can even have multiple classifications of membership shares.
- Ownership is transferable to anyone you want without having to file new documents with the state, so long as the individual isn’t a minor or convicted felon.
The major disadvantage of this structure lies in taxes! While corporations must pay taxes periodically throughout the fiscal year, memberships share profits on their own tax returns at some later date – which could be advantageous if they end up paying less than what they would owe if taxed by ORC 505A (the IA LLC Act).
However, what happens when there are little or no profits at all? Then you would probably end up paying taxes on an estimated amount, which is not the best thing.
How much does an LLC formation cost in IA?
The filing fee for any IA company (LLC, corporation, etc.) varies according to the number of authorized members you have on your staff. You can expect to pay $100 for one member up to $450 for six or more members. This is not a lot of money when compared with other states like Hawaii.
However, additional fees may apply – such as business license renewal fees depending on how long you use this status before dissolving or turning into another type of business.
Separate Your Personal and Business Assets
As with corporations, forming an IA LLC is a great way to separate your personal and business assets. You can also get more dollars for your company by selling shares in the future.
When creating an Iowa LLC, keep in mind that you cannot operate under this status forever – it must be dissolved or “liquidated” according to state laws governing LLCs. It’s still wise to keep copies of your operating agreement because you never know when it will come in handy.
1. Opening a business checking account:
In order to operate a business in IA, you must have a bank account. You can choose any type of business checking account that meets your needs, from a basic account up to one that offers cash management services and other benefits. To get started, go with an institution where you already have some funds or consider one of the national banks listed below.
2. Getting a business credit card:
Another way to help manage your company expenses is by using a business credit card. Not only do these cards offer all the convenience of personal cards, but they can also help track expenses and improve your overall control over your cash.
3. Hiring a business accountant:
As your company grows, you’ll need to hire an accountant to file certain taxes and offer advice on financial matters. And of course, you may eventually want to hire a bookkeeper as well if your business expands even further. A great way to find the right person for the job is by asking friends and other LLC owners in Iowa for referrals.
4. Finding a commercial insurance agent:
While some states allow businesses to purchase coverage online, not all do (including IA). You will probably need at least one professional commercial insurance policy and many more as your business starts generating income and gathering assets.
This is not the time to try figuring out what types of policies you should buy or where you can save money; hiring an independent broker who understands the IA market and knows your industry is a much better idea.
Get Business Insurance for Your Iowa LLC
As an LLC in IA, your business can obtain a few types of insurance. For example, any general liability policy will cover things like injuries someone sustains in or on your property and personal liability claims involving a defective good. In addition to this basic protection, you may need other types of coverage depending on the size and scope of your business.
General liability insurance:
This covers your company from accidents and injury claims, including any customers or visitors to your business. In addition, it can protect you if a client sues for injuries related to defective products sold by your IA LLC.
If you have vehicles used for the company’s business, be sure they’re insured against property damage and liability claims. Ask your independent agent about bundling policies to save money on both these types of coverage and more.
Commercial property insurance:
Protecting yourself from fire and other structural damages is important in Iowa where many businesses are located in older buildings. For this reason alone, it would be wise to invest in commercial property insurance such as a business owner’s policy (BOP). You might also consider getting commercial multi-peril protection.
If you hire employees in IA, your company is legally required to purchase worker’s compensation insurance. While individuals and smaller businesses might be able to buy coverage on the private market, larger companies like yours may need to obtain a policy through their state’s workers’ comp insurance program.
Iowa Unemployment Insurance:
If you’re hiring employees for your IA LLC, chances are good that they will eventually become unemployed. That’s where unemployment insurance comes into play as part of a state’s economic stabilization program. Your business will be billed quarterly payments based on a percentage of your payroll (the state average is 2%, but rates vary by location). You can file and pay online using eReg.
Iowa LLC Permits and Licenses
As with most states, one of the first things you will need to do as a business owner in IA obtains the necessary business licenses and permits for your company. The following list includes some of those you may need:
Iowa Tax Registration:
If your IA LLC sells goods or services in “the Hawkeye State,” it must collect and remit the tax to the Iowa Department of Revenue (DOR). You can register online using eReg, Iowa’s system for filing and paying taxes. While there is no state-level corporate income tax, your LLC may be required to pay other types of Iowa business taxes such as unemployment insurance.
Iowa Employer Identification Number (EIN):
This number identifies your IA LLC as a separate legal entity from its owners. You can obtain an EIN online at the IRS website or through your accountant.
Iowa Business License:
If you’re just starting out in IA, this might not be required at first. However, if your company does business in more than one city, you should consider getting a general intrastate license that is valid statewide. This single license will cover all cities and counties (with the exception of Polk County) throughout Iowa.
Federal Employer Identification Number (FEIN):
Unlike some states like South Carolina where businesses can get away with sharing their tax ID number with customers, both you and each of your employees should have separate taxpayer-identification numbers for payroll purposes. You can obtain a FEIN online at the IRS website or by filling out Form SS-4. This will also be required to open a business bank account.
Iowa Business Name Registration:
If you plan to use the name of your IA LLC as part of your trade name, it must first be registered with the Iowa Secretary of State’s office. The process can take between five and seven days. To save time, you can file at the same time as your IA Articles of Organization documents if they are mailed together. The filing fee is $20.
State Sales Tax Number:
When it comes to paying tax in IA, all businesses (including sole proprietorships) that make retail sales (goods or services) should apply for a state tax number whether they’re located in Iowa or not.
However, if your IA LLC is registered with the DOR, you may not need to actually pay tax in order to get an account (although that depends on your volume and other factors). You can apply online at the Retailer Sales Tax Program website.
Iowa State Board of Accountancy:
Anyone who prepares financial statements for your IA LLC must first be registered with the Iowa State Board of Accountancy. This includes accountants, bookkeepers, and tax preparers.
Iowa LLC Tax Filing Requirements
When it comes to filing state tax returns in IA, all LLCs are required to file an Annual Report with the secretary of state. This can be done online.
Iowa LLC Annual Report Fees
The fee for filing your Annual Report is $15 unless you file online for no additional charge. You will also have to pay a separate Business Entity Tax ($25) so it’s best to pay both at the same time using ePay.
Failure to file an Annual Report by April 15th each year will result in a penalty of $25. If you’re still delinquent after June 1st, you’ll be charged another $50 per month until your account is updated or the business is canceled.
Likewise, if your report is not mailed within30 days of filing online, your LLC will be charged $5 for every day it is late (up to a maximum penalty of $200). Therefore, if you’re filing or renewing any licenses with the state such as your Iowa tax ID, be sure to file your Annual Report at the same time so you’ll only have to pay one processing fee.
Iowa Foreign LLC Taxes
Foreign LLCs doing business in IA must register with the Secretary of State and obtain a FEIN because all foreign entities that transact intrastate business in IA must appoint a registered agent in order to receive legal documents on behalf of the business.
However, if your foreign LLC has an office or other property in Iowa, you may qualify for a reduced Franchise Tax. Here’s how it works: your LLC must first apply with the Secretary of State for a Certificate of Authority (this is only $50 every four years).
Your qualifying out-of-state payroll must be at least $80,000 during any fiscal year. Then, file Form 537 with the Franchise Tax Board to claim your exemption from franchise taxation.
Iowa Foreign LLC Conversion
If you want to form an IA LLC that will operate as an LLC but was originally formed in another state, you can do so by filing Articles of Conversion. To qualify, the original business must have been registered and in good standing for at least one year before the conversion takes place.
This also applies if your foreign LLC has ceased business operations or resolved through bankruptcy.
Iowa Sales Tax
As mentioned earlier, all LLCs doing retail sales (goods or services) must apply for a state tax ID number even if you don’t actually have to pay the taxes. The state charges a 5% general rate plus 1% local option tax on qualifying purchases and rentals. Iowa Employer Taxes
Federal LLC Tax Requirements
If the IRS determines that your business is failing, it may choose to revoke your LLC’s tax registration number. This will automatically cancel your Iowa tax ID which means you’ll have no choice but to file quarterly estimated taxes. If you believe this has happened in error, contact the IRS at (800) 829-4933 for assistance.
Iowa LLC Biennial Report Requirements
Your LLC must file a Biennial Report every other year during years ending in an odd number. The report is due on the 15th day of the 3rd month following the close of your even-numbered fiscal year. For example, if your fiscal year runs from January to December, you’ll need to file during April or May of 2018. You can also register online using eReg.
Hiring Employees in Iowa
As mentioned earlier, your LLC will be required to register with the state and obtain a tax ID number if it’s doing retail sales including rentals. Therefore, you should hire employees only after you’ve completed this process because they must use their SSN or ITIN when registering.
Also, note that all LLCs (foreign and domestic) are required to enroll with the Unemployment Insurance Tax (UIT) which is handled by the Department of Administrative Services and its Marketplace website. This can be done online as well as long as you have a state-issued EIN.
How to Build Business Credit?
If your LLC is new or currently not reporting any information to the three major credit bureaus, it’s because there are no open accounts under your name. This makes it almost impossible to establish business credit which you’ll need if you want to obtain financing for equipment or expansion later on.
- You can fix this immediately by launching a Business Credit Report through Intuit’s Quickbooks at http://quickbooks.intuit.com/signup-start/.
- It will prompt you to choose between two different plans but both offer payment options that include yearly, monthly, and premium services as well as refunds in case you’re unsatisfied within 60 days of sign-up.
- Intuit claims that they report information from Dun & Bradstreet which all three major bureaus consider reliable.
The best part about this is that they report results to all three credit bureaus which means you’ll finally be able to establish business credit within a few weeks. Just remember to cancel your service if you don’t plan on using it after the launch period expires because your card will be charged automatically each month until canceled.
How to Obtain a Certificate of Good Standing in Iowa?
If you want to re-register a currently inactive or canceled LLC, you’ll need a Certificate of Good Standing from the state. If you fail to produce this during registration, it will be denied and cause your business to incur penalties.
Requesting a certificate is free except in Delaware where there’s a $25 fee for requesting one by mail or fax. After filing your request at http://www.sos.iowa.gov/business/start_record_form/, it will be processed within approximately 10 days before being mailed out through regular US Mail.
Hopefully, you’ve learned a lot about starting an LLC in Iowa and how to run your business with the proper licenses and permits. Although it can take many hours of research and paperwork, this is definitely worth the effort if you’re trying to protect your personal assets such as your home and car.
One last thing that we didn’t cover was paid employees including full-timers, part-timers, and interns. If you plan on hiring anyone for this purpose, you’ll need to register with the Iowa Workforce Development Agency which can be done online at https://www.idwd.iowa.gov/.