Forming an LLC in Iowa
Are you interested in forming an Iowa limited liability company? A limited liability company (LLC) is a business entity that many small businesses choose to organize themselves as when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups seeking investors. In addition, LLCs have a unique business structure that can get very technical.
It would help if you looked closely at other business entities like partnerships and S-corporations before launching an Iowa LLC.
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Advantages of LLCs:
- Limited personal liability for members for business debts and lawsuits
- Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations
- Avoiding the double taxation—business and personal—of corporations if taxed as a pass-through entity
- Unlike corporations, Iowa LLCs do not have to file annual or biennial reports with the state
Disadvantages of LLCs:
- An LLC is not a good investment vehicle for outside investors
- LLCs and S and C-corporations pay commercial activity taxes, unlike sole proprietorships and partnerships
- LLC owners may pay self-employment taxes
Registering Foreign LLCs in Iowa
Any foreign (out-of-state) LLC that wants to do business in Iowa must fill out an Application for Certificate of Authority with the Iowa Secretary of State. There is a $100 filing fee.
Step-By-Step: Forming an Iowa Limited Liability Company
With all of that, you have decided to form an LLC in Iowa. You have your members, your business plan, and a little startup capital, and you are on your way.
Here is a step-by-step guide for creating a fully operational Iowa LLC.
Step I: Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This process can be complex and time-consuming, but the LLC needs to operate legally in Iowa.
The first thing you have to do is create a great name (that's up to you). Iowa law requires that the name be unique and different from any other company's name.
Your first task will be to search the Secretary of State business name availability search page to make sure that your chosen name isn't already in use for an existing business.
This search is just a preliminary step to the state filing. You still need to go through the registration process to get your name approved by the state.
After you have decided on a name, the name that you will submit to the Secretary of State must then contain one of these legal suffixes:
- Limited Liability Company
- Limited Company
- Ltd. Co.
The name of the LLC cannot use any variation of the word “corporation." It cannot use language considered obscene or that claims a profession or business affiliation that does not exist.
Iowa law allows for a professional LLC designation, called a “Professional Limited Company (P.L.C.)" in Iowa. The PLC may practice a profession through licensed members, managers, employees, or agents. The name of the PLC must include either “P.L.C." or “Professional Limited Company."
The state of Iowa allows “series LLCs," in which one umbrella LLC can own other LLCs. Each of the series LLCs can have different members and businesses, and, at least theoretically, each is insulated from the debts of the other(s).
Step II: Appoint a Registered Agent
The State of Iowa requires an LLC to have a Registered Agent for service of process before formally filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. An Iowa registered agent can be an individual or a company (domestic or foreign), but it must have a physical Iowa street address. A forming LLC will often choose a professional registered agent service or a company lawyer. An Iowa corporation can only have one registered agent; the business itself cannot act as its own agent.
Reserve Your Name
Iowa allows you to reserve your business name with the Iowa Secretary of State for 120 days while the formation process continues. Reserving a name is not a guarantee that your name will be approved, but it keeps anyone else from using it for that time.
Step III: Legally Protect Your Business Name
Next, make sure that no one else can use your name in business or on the internet. This means that you have to ensure that no one else uses that name. You do this by doing a name search to ensure that the Internet Domain Name is available. If available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally or operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. While that application is pending, the name is still protected as a common law trademark.
Once you receive your federal trademark, you can register it as an Iowa trademark or service mark. You may also trademark the Iowa LLC name with just the state, without a federal trademark.
Now, you can keep anyone else from using that name, and it conforms to Iowa law.
Step IV: Structure the Business
An LLC has a particular, unique business structure. To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.
There is no number of members required. You can have a single-member LLC – say, for a one-person office.
Then you should write an LLC operating agreement. This is not required under Iowa law, but it is a good idea to keep everybody's interests clear.
An Iowa limited liability operating agreement should contain the following points:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
An LLC may be managed by the members or the members can hire an outside manager.
Step V: Write and File Your Iowa Certificate of Organization With the Secretary of State
You are now ready to compose and register your Iowa LLC with the Iowa Secretary of State's office. Iowa does not have fill-in online or pre-printed forms. All Certificates of Organization must be written from scratch. These can then be filed online on the Secretary of State's fast-track online filing page. You can also file by mail or by fax.
Foreign LLCs cannot use this process. They must register separately, as noted above.
Your LLC Certificate of Organization must contain the following:
- LLC name and mailing address
- Name and physical address of the registered agent—must have an Iowa street address
- Organizer name
- An election as to whether your LLC will be member-managed or manager-managed – member-managed LLC is run by the owners (members), while a designated manager runs a manager-managed LLC from inside or outside the LLC membership
- The duration of your LLC — if you leave this blank, the duration will be perpetual
- Organizer signature
- Filing fee of $50
After You File Your Certificate of Organization
You will have numerous state and federal requirements for your new LLC after filing with the state.
State Business Licenses
Certain Iowa businesses require professional and business licenses. There will also be local business licenses that you may need to obtain from local governments.
Iowa Employment Rules
- Your LLC will be subject to state law if you hire employees—even if the employees are also members
- All new hires must be reported to the Iowa Workforce Development
- You may have to pay unemployment insurance
- Most employers are required to carry workers' compensation insurance
You will be subject to both state taxes and federal income taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.
You will be subject to both federal withholding tax if you have employees and, of course, business income taxation.
LLCs also have particular requirements for filing taxes. You may choose one of several different tax designations for your LLC, including C or S-corporation, partnership, or pass-through organization with personal liability for the members. Consult with your accountant for the best approach.
If you have employees, you must file to receive an IRS Federal Employer Identification Number (FEIN) on the Internal Revenue Service website. You must also apply for your FEIN if the LLC has more than one member. You will be subject to all federal tax-withholding rules.
Iowa State Business Taxes
If your company sells goods and collects sales tax, you'll likely have to register with the Iowa Department of Revenue. If you have employees, you will be subject to withholding tax. Certain products are subject to excise taxes, and there are other taxes to note.
Iowa LLCs must file a biennial report with the Secretary of State in odd-numbered years.
Get Help Forming an LLC in Iowa
Fortunately, forming an LLC in Iowa can be a straightforward process with FindLaw's Business Formation Service. If you're forming an Iowa LLC and your needs require expertise beyond completing basic forms, look no further than to an experienced legal professional who can guide you through the process. Get help from a business and commercial attorney in your area today.
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