When it comes to owning a company, the first decisions that you make will have a long-lasting impact on the business. Among the crucial things you have to decide on are the business entity type and location.
Rhode Island is one of the states that open many opportunities for startups. It has become an epicenter for design trends, food innovation, and other groundbreaking developments in various industries like manufacturing. Productivity in the state is also continuously growing. That is why many entrepreneurs form their businesses in Rhode Island.
Why Choose an LLC
The business entity structure that you choose will determine your filing and reporting requirements. It will also be a basis for taxation.
Among emerging entrepreneurs, the limited liability company (LLC) structure is a popular option. That is because of the personal liability protection that it offers. It also allows pass-through taxation, which may help business owners save money on taxes.
Other benefits that an LLC has is the ease of administration and flexibility in management. Generally, managing an LLC is less complicated than running a corporation.
Benefits of Forming an LLC in Rhode Island
Aside from the business-friendly environment, the state also offers various business incentive programs. Learn more about these and find out if you qualify before starting a company in Rhode Island. Here are some of the programs that the state offers:
- Small Business Capital Investment Tax Incentives – LLCs are eligible for tax incentives. The state offers two types. These are the Capital Gains Exclusion and Deductions or Modifications.
- Disabled Access Credit for Small Businesses – This program lets small businesses derive a credit of 10% of the total expenditures on certain business activities.
- Small Business Loan Fund Program – The state implemented this program to help small businesses focus on growth and expansion. At the same time, it also promotes a level playing field. A startup in the state can avail of a maximum of $500,000 working capital through this program.
- Innovation Network Matching Grants – As part of the state’s innovation incentives for small- and medium-sized companies, these grants help intermediary organizations that are involved in offering space, technical assistance, or capital to small businesses in key industries that are registered in the state.
How to Form a Rhode Island LLC
Forming an LLC in Rhode Island is affordable. However, as in other states, Rhode Islands has set some requirements and processes you need to complete.
Step 1: Choose a name for your LLC.
The first thing you have to do is figure out what to call your company. Make sure it represents the values of your business well. It has to be distinguishable. So, it is necessary to conduct a name availability check to find out if no other Rhode Island entity uses the name already. The state also has naming guidelines that you need to follow.
- A company name has to include the words limited liability company or any of its abbreviations.
- You cannot include any word that could confuse your company with a government agency.
- The state has restricted words that require additional paperwork. These also require a licensed individual as part of the LLC.
- Other restrictions include the words lottery or bank. Terms representing educational or veterans organizations and those related to the armed forces or civil servants are also prohibited.
Step 2: Determine the management style.
Rhode Island allows LLCs to choose how to structure the management of the business. If you want all the owners, who are called members, to share the responsibility of managing the company operations, you will have to establish a member-managed LLC. Meanwhile, those that wish to appoint managers from the members or hire professional managers will have to establish a manager-managed LLC.
Step 3: Nominate a resident agent.
The state requires all companies to have a resident agent, which is more commonly referred to as a registered agent. The resident agent is either an individual or a third-party organization that will be responsible for accepting legal documents, notice of lawsuits, tax forms, and other official government correspondence on behalf of a company.
Before appointing one, make sure they qualify under the state laws.
- They should have a physical street address in Rhode Island. A P.O. box will not do.
- They should be available during normal business hours, which is from 9 am to 5 pm.
Step 4: File formal paperwork.
After completing the previous steps, you can move on to the registration process. Submit the Articles of Organization to the Department of State and pay the $150 filing fee. You can do this by mail, online, or in-person. This document will make your business operations official and legal. Typical processing time is approximately 5 to 7 business days.
When filling out the form, you will have to provide the following pieces of information:
- Name of the Company
- Name and Address of the Resident Agent
- Principal Office Address
- Management Structure
If you choose to send the documents by mail, use the following address:
Division of Business Services
148 W. River Street
Providence, Rhode Island 02904
Step 5: Create an operating agreement.
While the state does not require you to have an operating agreement, it is advisable to have one. It will outline the ownership, responsibilities of members, and operating procedures of your company. It will make sure that all members are on the same page, which will also help resolve possible conflicts in the future.
Step 6: Obtain an Employer Identification Number (EIN).
The EIN is a nine-digit number that the Internal Revenue Service (IRS) assigns to help identify companies for tax purposes. It is also necessary if you want to hire employees and open a business bank account.
Getting Started
For an aspiring entrepreneur, the process of forming an LLC in Rhode Island may be overwhelming and a bit complicated. You will have to understand multiple steps and requirements to ensure compliance with the state.
Fortunately, you can get help from a reliable third-party organization like DoMyLLC. Our team of experts has experience and knowledge in handling the business formation process in Rhode Island.