Guide to Starting an LLC in Iowa
When you’re starting a business, there are a lot of things to think about – where to set up shop, what kind of business to start, and how to market your product or service. One thing that may not be on your radar is the type of legal structure your business should have.
If you’re wondering how to start an LLC in Iowa, you’ve come to the right place. This article will walk you through the steps involved in setting up this type of business entity. We’ll also answer some common questions about LLCs, so you can make an informed decision about whether this structure is right for your business. Let’s get started!
What is an LLC?
The Limited Liability Company (LLC) is a popular entity choice for many businesses starting in Iowa. The LLC provides personal liability protection and has the potential to save money on taxes.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Related: Guide to starting a business in Iowa
Steps to Form an Iowa LLC
While it can be intimidating to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Iowa without an attorney. Let’s break down the steps to complete the Iowa LLC formation process.
Total Time: 10 minutes
Step 1: Choose the LLC Name
The first step in forming an Iowa Limited Liability Company is to make sure the name you want is available.
In Iowa, each registered LLC must follow state naming guidelines, including having a unique name and not being confusingly similar to other registered business names. You can check the state’s business entity database to find available Iowa LLC names before filing.
Next, every LLC must include one of the following words or abbreviations at the end of the business name:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is a name you want but are not ready to register the LLC, you can file the Reservation of Name (Form 501A.301) with the Iowa Secretary of State. The name reservation will hold a name for up to 120 days, at the cost of $10.
Also, before finalizing a name, you may also want to see if a domain name is also available to have a matching website address.
Step 2: Appoint an Iowa Registered Agent
Iowa law requires that every LLC in Iowa has an active Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The requirements to be a Registered Agent include:
– Must be either a resident of Iowa 18 years or older or a commercial registered agent service.
– Must have a physical street address in Iowa and generally be available at this address during normal business hours.
Learn more about the requirements for a Registered Agent in Iowa
Any individual meeting the requirements can be the agent; however, the agent’s name and address becomes public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the Iowa LLC Certificate of Organization
The paperwork to officially create an LLC in Iowa is called the Certificate of Organization. The Certificate of Organization can be submitted online, by mail, or by fax.
Unlike most states, the State of Iowa does not provide a document to form the LLC. In order to file the LLC with the Secretary of State, you will need to create a Certificate of Organization. The State provides statutory requirements of what needs to be in the Certificate of Organization in state statutes Chapter 489, Section 201.
Scan the completed Certificate of Organization, upload it to the Iowa Secretary of State’s website and pay via credit card.
Prepare a check or money order made out to “Iowa Secretary of State” and mail it to
Iowa Secretary of State – Business Services Division
Lucas Building, 1st Floor
321 E. 12th Street
Des Moines, IA 50319
Download the Credit Card Authorization Form – https://sos.iowa.gov/business/pdf/CCAUTH2.pdf
Then fax the completed Certificate of Organization and Credit Card Authorization Form to the Secretary of State at 515-242-5953.
Estimated Cost: 50 USD
When filling out the Certificate of Organization, you may come across a few sections and not know how to answer them. Let’s go over a few of those sections.
Initial Registered Office Address – The initial registered office address can be the business’s physical address or the address where the business records are stored. A P.O. Box may not be used.
Effective Date – If you want to file the LLC but do not want it to start until a date up to 90 days in the future, you can add a section stating the LLC’s effective date. If left blank, the LLC will be effective on the date submitted.
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
You have an Iowa LLC! Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare an Iowa LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits, losses, and dividends are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- LLC members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Iowa operating agreement template
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.
How much is an EIN in Iowa?
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you, as some forms of taxation, such as the C-corporation, are not the best for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s income and expenses from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- In some cases, an Iowa Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state (Certificate of Authority for a foreign LLC).
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Business Tax Permit – To sell products and certain services, registration with the Iowa Department of Revenue will be necessary in order to collect sales tax.
File the Biennial Report
LLCs are required to file a biennial report with the Iowa Secretary of State. The due date of the biennial report is April 1st of each year and updates ownership information and other details.
Common Questions To Starting An LLC In Iowa
How much does it cost to form an LLC in Iowa?
The cost to form an LLC in Iowa is $50 to file the Certificate of Organization with the Iowa Secretary of State.
Is there a yearly fee for an LLC in Iowa?
Every two years, a Biennial Report has to be filed, along with a $60 state filing fee.
How long does it take to get an LLC approved in Iowa?
It normally takes less than 1-2 days for the Iowa Secretary of State to approve online submissions and 2-3 weeks for forms mailed or faxed.
Do you need a Registered Agent for your LLC in Iowa?
Anyone can act as a Registered Agent in Iowa, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
If you have an Iowa LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same in Iowa, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
An Iowa foreign LLC is an LLC that was formed in another state but wants to physically operate in Iowa. Physically operating means having a presence, such as having an office or hiring an employee.
What is a Professional Limited Liability Company?
Businesses that require state licensing, such as accountants, attorneys, podiatrists, physical therapists, acupuncturists, etc., have the option of registering a Professional Limited Liability Company (sometimes referred to as a Professional LLC or PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.
What is a Series LLC?
A traditional LLC is what’s referred to as a single Limited Liability Company. A series LLC is comprised of a parent LLC with one or more individual series within the umbrella of the LLC. The individual series are protected from liabilities and losses suffered by the other individual series and the holding company.
Read more: What is a Series LLC?