The Limited Liability Company (LLC) is a popular entity structure for businesses starting in Oregon. The LLC provides personal liability protection and has the potential to save money on taxes. With a little research, you can learn how to form an LLC in Oregon without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be 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.
Steps to Form an Oregon LLC
Let’s break down the steps to complete the Oregon LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming an Oregon Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Oregon. The Oregon Secretary of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do an Oregon LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If you are not ready to register the LLC, you can file the Application for Name Reservation with the Oregon Secretary of State, Corporations Division to reserve a company name. The name reservation will hold a name for up to 120 days for $100.
Before settling on a name, you may want to see if a domain name is also available to match your business name and website address.
Step 2: Appoint an Oregon Registered Agent
Every LLC in Oregon is required to have a 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 basic requirements to be a Registered Agent in Oregon include:
– The agent must be an Oregon resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Registered Agent in Oregon.
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from your personal residence or are still employed and don’t want your employer to find out. Hiring a registered agent service like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
Step 3: File the Oregon Articles of Organization
The paperwork to officially create an LLC in Oregon is called the Articles of Organization. To submit the paperwork, either file online through the Oregon Secretary of State’s website or download and file the Articles of Organization.
If you have questions, contact the Oregon Secretary of State Corporations Division
503-986-2200 8 am to 5 pm, Monday through Friday
When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Activity Description – Provide some basic information about what the business does in fewer than 250 characters. Entering something now does not force the LLC to only do that business activity forever. One way to keep the activity description more open-ended you can enter “Any legal business activity for which a Limited Liability Company may be organized in Oregon.”
Related: How to Answer the Activity Description.
Duration – In this section, indicate how long the LLC intends to remain in existence. Most LLCs will choose a Perpetual duration; however, some businesses (usually investment-related) will have a specific closure date.
Principal Place of Business – In this section, enter the street address, city, state, and zip code of the initial principal office. This address can be the LLC’s physical address, or it can be the address where the business records are stored. You may not use a PO Box for the designated office.
Assign the Organizers – An LLC Organizer is someone involved with the formation of the Articles of Organization. The Organizer may or may not become a member, such as a mentor, attorney, or accountant, but initial member can be listed as an organizer.
At least one organizer must be entered.
Register Individuals with Direct Knowledge – The Oregon Secretary of State requires that at least one person who is a member or manager of the limited liability company or an authorized representative with direct knowledge of the operations and business activities be on file.
Enter at least one person’s name and address.
Statement of Management – This question asks how the LLC will be managed. The two choices are:
– Member-Managed – An LLC with members who have an active involvement in the management of the LLC. Most LLCs fall into being member-managed.
– Manager-Managed – An LLC whose members hired a manager to run the LLC, similar to a CEO of a corporation.
Select either “Member-Managed” or “Manager Managed.”
Declare the Initial Members or Managers – This is an optional section to include the names, contact information, and title of the LLC members and managers. Some banks will request this information before allowing LLC bank account signing authority.
Professional Services Rendered – If the LLC offers services that require state licensing, enter “Yes” and choose from the list of professions. Some common services that require licensing include accountants, acupuncturists, architects, attorneys, chiropractors, dentists, engineers, landscape architects, podiatrists, psychologists, and real estate appraisers.
This is an optional section and not used by most LLCs. Here you would include additional rules for the operation of the LLC.
– Indemnification – The company elects to indemnify its members, managers, employees, agents for liability, and related expenses under ORS 63.160 to 63.170. Many LLCs will elect the indemnification clause.
– Benefit Company – Not as common for an LLC to select, but a benefit company is a blend between a not-for-profit and for-profit company. There are some requirements to be an Oregon benefit company.
Estimated Cost: 100 USD
Turnaround Time: LLCs formed online normally take 1-2 hours, while forms sent by mail can take 5-7 business days for the Secretary of State to process.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
You have an Oregon 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 Oregon 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 and losses 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.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Oregon 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, build business credit, register for business licenses and permits, file federal and state taxes, and more.
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 is that 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. Some tax elections, such as the C corporation, may be detrimental 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 funds 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 LLC formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, the bank will request an Oregon Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
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 your business. 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.
- Oregon Business Identification Number – All businesses operating in the state must obtain a Business Identification Number from the Oregon Department of Revenue, which includes registration for Unemployment Insurance Tax, Employee Withholding Tax, and Oregon state taxes.
- Sales Tax Permits – Even though Oregon does not charge a sales tax, each state has different rules regarding the collection of sales tax when selling and shipping taxable items to residents in their state.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
File the Annual Report
LLCs are required to file an annual report with the Oregon Secretary of State. The fee for the annual report is $100 and is due each year on the LLC’s anniversary date.
Common Questions To Starting An LLC In Oregon
How much does it cost to start an LLC in Oregon?
The state filing fee to start an LLC in Oregon is $100.
Is there a yearly fee for an LLC in Oregon?
An annual report and $100 LLC annual report fee is due each year.
How long does it take to start an LLC in Oregon?
LLCs formed online normally take 1-2 hours, while mailed in forms can take 5-7 business days for the Secretary of State to process.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, 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?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC will need to register as a foreign LLC in each state that the LLC plans to operate.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in Oregon, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.