LLC in Iowa
An Iowa LLC is a legal structure that protects personal assets in the event of a lawsuit. This type of entity limits your liability from actions taken on behalf of the business, and it may provide tax and investment benefits in the long run. You can form an LLC in Iowa to conduct everyday business activities or to purchase and hold assets such as vehicles or real estate. The following guide on how to start an LLC in Iowa provides an in-depth overview on properly setting up this structure for your business enterprise.
1. Iowa LLC Name
Prior to filing an Iowa Certificate of Organization with the Office of the Secretary of State, you must check the availability of your business name in Iowa. An Iowa business name must be clearly distinguishable from businesses already registered in the state. It cannot be “confusingly similar” or “deceptively similar” to other business names. The purpose of a unique and distinguishable business name is to provide clarity for Iowan business owners and clients as well as to provide protection for legal purposes.
How to Perform an Iowa LLC Search
1. Visit the State of Iowa LLC Database at https://sos.iowa.gov/search/business/search.aspx.
2. Type your desired LLC name in the “Business Entities” search box. Do not include any endings or identifiers (such as “LLC” or “Inc”) in your search; simply input the desired name and click the Search button.
3. The Iowa LLC search displays results as 25 business per page. Browse through to make sure that your business name is not already taken.
There are several ways to determine if an LLC name is available:
Scenario 1: If the search results page displays a “Sorry, No Results Found” message, then your LLC name does not match other names registered with the state. It is available for use.
Scenario 2: If the results page displays a name identical to your desired LLC name, then it is not available for use. Attempting to submit that name is grounds for immediate rejection and forfeiture of your application fee.
Scenario 3: If your potential name is deceptively similar to another name (meaning that a person can easily mistake it for a different name, then it is not available for use. The state advises making the name more unique to avoid rejection of your application.
It is also important to know that changes in grammar, designator (name endings), or special characters do not count toward having a unique and distinguishable name in Iowa.
For example, the following business names are NOT distinguishable:
- Jones Investments LLC vs. Jones Investments Inc.
- Wheat Farm LLC vs. Wheat Farms LLC
- Coffee Shop LLC vs The Coffee Shop LLC
- Big & Tall LLC vs. Big and Tall LLC
- Tom Richard & Henry LLC vs Tom-Richard-Henry LLC
- Three Sisters Group LLC vs. 3 Sisters Group LLC
In each of the above examples, the names are far too similar (despite small differences in grammar, identifier, or use of special characters). This means it would be easy to confuse them based on spelling preferences or spoken word. For each instance, the business owner would need to make the desired name much more unique to avoid an application rejection.
Other LLC Name Requirements
The state of Iowa requires that all LLCs end with an appropriate designator. A designator is a notation that informs the public of the type of business you run. Your LLC name may end with one of the following:
- LLC (Of all of the permissible designators, this one is the most common.)
- Limited Liability Company
- Limited Liability Co.
- Ltd. Liability Company
- Ltd. Liability Co.
Because an LLC is not a corporation, the state of Iowa forbids allow LLCs to end with corporation designators or abbreviation. Your LLC name cannot end with the following:
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2. Iowa Registered Agent
While setting up an LLC in Iowa, the state requires you to enlist a registered agent. The registered agent (R.A.) is a representative who receives certified mail, documents, official notices, or court documents (known as “Service of Process”) on behalf of the company. Because these important documents may be certified, a registered agent must have a physical street address in the state of Iowa. Since legal documents require a record of “service” or delivery, the registered agent address cannot be a P.O. box.
The state of Iowa offers the following three options for choosing a registered agent:
1. Self – As the LLC owner, you can also double as the registered agent. You will need to be at least 18 years old, have a physical street address in Iowa, and remain reasonably available during normal business hours.
2. Family Member or Friend – You can find a trustworthy friend or family member to act as your registered agent. This person must be at least 18 years old, provide written consent, have a street address in Iowa, and remain reasonably available on normal business days.
3. Registered Agent Company or Institution – You can also hire a commercial registered agent to receive documents on your behalf. Hiring a professional entity is a great way to guarantee that your registered agent is available during normal business hours. Since the address of a registered agent is public record, this method is also a good way to keep your personal address off of pesky public records sites.
3. Iowa Certificate Of Organization
The next important step in forming an LLC in Iowa is to submit a Certificate of Organization. While most states provide a required form to use for filing, Iowa is one of the few states that does not supply any such forms. You can prepare the forms yourself, download a Certificate of Organization template from a trustworthy source, or hire a professional company to file your LLC. For each of these methods, you will need to be sure that your Certificate of Organization meets the LLC Iowa statutory requirements (Section 489.201).
Generally speaking, an Iowa Certificate of Organization includes the following:
Article 1: LLC Name (Unique and distinguishable)
Article 2: Registered Agent (with complete street address)
Article 3: Principle Business Office Address
Article 4: Member-Managed or Manager-Managed (A member-managed LLC is a business in which the owners also run everyday business operations. A manager-managed LLC is a business in which the owners act more like investors who hire a manager to run the everyday business operations)
Article 5: Duration (Most people leave this open-ended to let the state know the business plans to run indefinitely.)
Iowa LLC Cost of Filing
It costs $50 to file your Certificate of Organization. You can file in the following three ways:
Mail your form along with a check or money order (payable to the “Iowa Secretary of State) to the following address:
Iowa Secretary of State
Lucas Building, 1st Floor
321 E. 12th Street
Des Moines, Iowa 50319
If you decide to file by fax, you will need to use a credit card to pay the $50 fee. Print and complete Iowa Secretary of State Credit Card Payment Authorization Form. Fax the form along with your Certificate of Organization to (515) 242-5952.
You can also file online using the Iowa Business Entity Filings Page. Scan and upload your certificate, and be sure to have your credit card ready to make an online payment of $50 to complete your application.
Secretary of State Approval
If the state approves your application, you will receive back a receipt, a Letter of Acknowledgement, and a stamped copy of your Certificate of Organization. The state forwards these documents to the mailing address listed for your registered agent.
4. LLC Operation Agreement
The next step for those who want to know how to form an LLC in Iowa is to draft an operating agreement. The operating agreement is a document that lists the owners (known as members) of your LLC. This document also outlines how much of the company each member owns and how the business splits profits. In addition, the document usually details whether the LLC follows a “member-managed” or “manager-managed format,” and it provides information on how the LLC has elected to be taxed.
- Single-Member LLC: This one-person LLC is a business in which a single individual owns 100-percent of the company. The company typically completes taxes like a sole proprietorship. Even with a single-member LLC, the state of Iowa recommends completing an operating agreement as a protective measure in the event of an audit or lawsuit. This individual is also the “responsible party” (contact person) for entities like the IRS.
- Multiple-Member LLC: This type of LLC has two or more members. The members divide ownership any way they wish and can elect taxation like a partnership, S-Corp, or C-Corp. This type of LLC can also chose any member as the “responsible party” (contact person) for the IRS.
In the state of Iowa, your LLC Operating Agreement is an internal document. This means that you do not have to submit it to the state or other governing body. Keep the document in your business records and distribute a copy to each of your LLC members (if applicable). The purpose of the document is to protect your business if it becomes legally necessary. In some cases, some investors or banks may also give you the option of providing a copy of your agreement. Having the document on record can demonstrate professionalism while attempting to secure an investment or loan.
5. Federal Tax Id Number (EIN)
A federal tax ID number (EIN) is an identifying number that your business must obtain from the Internal Revenue Service (IRS). This number functions much like a social security number (SSN) does for individuals. For example, your business will use this EIN for filing federal taxes, opening a business bank account, obtaining a business credit card or loan, and applying for certain type of licenses or permits. If you decide to hire employees as the owner of an LLC, you must use the EIN number for payroll as well.
Some forms refer to federal tax ID number (EIN) in the following ways:
-Employer ID Number
-Employer Identification Number
-Federal Employer ID Number
Each of these terms means the same thing. It is the identifying number for your business.
Tips for Applying for an EIN Number:
- State Approval First – You should have LLC approval from the state before applying for an EIN from the IRS. Some business owners make the mistake of getting an EIN first, resulting in complications in paperwork down the line.
- EINs are FREE – It costs $0 to obtain an EIN from the IRS. Beware of companies that claim the IRS charges money to issue the EIN.
- Multiple Ways to Obtain One – There are several ways to obtain an EIN from the IRS. The chosen method depends on your preference, time constraints, and citizenship or business ownership status.
How to Apply for an EIN
There are three ways to apply for an EIN: mail, fax, or online. (The IRS no longer issues EINs by phone.)
To apply by mail, download and complete Form SS-4 (Application for Employer Identification Number). Your EIN responsible party” (your LLC’s contact person for the IRS) should sign and date the application. Mail the document to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, Ohio 45999
It takes the IRS approximately four weeks to approve applications sent by mail.
Download and complete Form SS-4, and have your “EIN responsible party” sign and date the document. Fax your application to 1 (855) 641-6935. It takes the IRS approximately four business days to approve applications sent by fax.
To apply online, visit the EIN Online Application page. Since it takes the IRS an average of 10-15 minutes to approve an online application, this is the preferred method for most business owners. However, there are two notable exceptions:
- If you do not have a SSN or ITIN, you are ineligible to apply online and must apply by mail or fax.
- LLCs under the ownership of an existing company cannot apply online (because an EIN for the parent company already exists). Any attempts to apply will result in an error message. You must apply by mail or fax instead.
6. Iowa LLC Biennial Report
In the state of Iowa, every LLC must file a biennial report. This means that LLC in Iowa must report to the state every two years. The biennial report is a perpetual requirement for every state of Iowa LLC. Failure to file the report with the Office of the Secretary of State can result in the dissolution of your business.
When is the Biennial Report Due?
The biennial report for the state of Iowa is due anytime between January 1 and April 1 in odd-numbered years. This means it is during the first four months of the first odd-numbered year after the creation of your LLC. It is then due every odd-numbered year thereafter.
- An LLC formed August 1, 2017 has a biennial report due between January 1 and April 1, 2019. The next report is due in 2021, the following in 2023, and so on.
- An LLC formed August 1, 2019 has a report due between January 1 and April 1, 2019. The next report is due 2021, the following in 2023, and so forth.
The state recommends filing early in the year to avoid the “due date rush” and any late fees or penalties.
How Much is the Biennial Report Fee?
Filing a biennial report online costs $45. You can also file by mail, but this method costs $60. The state recommends filing online since it is less expensive and simpler to do so.
How Do I File the Biennial Report?
You can file online by visiting the Iowa Biennial Report Filing webpage. For security, you will need to enter your corporation number (found on the state approval for your LLC) and receive a temporary code. Be sure to have your credit card or electronic check information ready to pay the $45 fee and complete the filing. The Office of the Secretary of State processes electronic filings immediately.
To file by mail, you still need to visit the Iowa Biennial Report Filing webpage to download and print an official report form. You will need to enter your corporation number and receive a temporary code to access this form. Complete the form and include a $60 check or money order payable to the “Iowa Secretary of State.” If you file by mail, you should expect the state to confirm your filing in approximately two weeks. Mail your correspondence to the following address:
Iowa Secretary of State
Lucas Building, 1st Floor
321 E. 12th Street
Des Moines, Iowa 50319
What is the Penalty for Being Late or Failing to File a Biennial Report?
It is important to file a biennial report with the state in a timely manner. You must file this report even if you did not conduct any business activities or if your revenue or profit was $0. The Office of the Secretary of State typically sends your registered agent a postcard reminder (along with a recommendation to file online for environmental purposes). Failure to file a biennial report during any odd-year after the formation of your LLC will put your business in “delinquent status” with the state. If the state does not receive your report by August 1, it can officially dissolve your LLC.
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7. Iowa Business Licences And/Or Permits
For the state of Iowa, licenses and permits depend on your location and business industry. Depending on the county and industry, for example, your LLC may require the following licenses and permits:
- City business license
- County tax permit
- Building or zoning permit
- Health license and permit
- Alcohol, tobacco, or liquor license or permit
- Sales and usage tax permit
- Seller or reseller permit
The best way to identify the requirements for your city and county is to search the Iowa League of Cities database. You can also check with your regional chapter of the Small Business Development Center (SBDC) for help.
If you plan to sell retail products in Iowa, you will need information about a sales tax permit and state tax ID number. Email the Iowa Department of Revenue at [email protected] or call (515) 281-3114.
8. Iowa State Taxes
For federal tax purposes, Iowa LLCs are “pass-through” tax entities. That means any income or losses incurred from the LLC “pass” or flow from the business onto a personal 1040 tax return. If it is a single-member LLC, the taxation is similar to a sole proprietorship and lists income or losses on a Schedule C. Likewise, taxation for multiple-member LLCs closely resembles taxation for partnerships. The members receive a Schedule K-1 and report this information on their personal income taxes.
As an owner of an LLC, you may also have to pay state and local taxes. These may include business taxes as well as individual income withholding taxes for the state. In addition, some industries require additional forms and have separate due dates. To avoid confusion, the best way to begin is to review the Iowa Department of Revenue Start Guide. You can also email ([email protected]) or call (515-281-3114) for questions about your specific industry.
9. Iowa Business Bank Account
After forming an LLC in Iowa and obtaining a federal tax ID number, it is a good idea to sign up for a business bank account. Even if you run a single-member LLC, it is important to keep personal and business finances separate. This is excellent proof of limited liability in the event of losses or a lawsuit. It also makes accounting and bookkeeping much easier for taxes and future investments. The bank account is in the name of the LLC, and any authorized member of the LLC can access the account.
It is best to sign up for a business bank account in person. Bring your stamped Iowa Certificate of Organization, EIN approval letter, and photo ID. You should call ahead to determine if the bank needs anything else. It is a good idea to call several banks to obtain free checking if possible and ask for any signup deals or specials.
Most business bank accounts automatically come with debit cards. Be sure to ask if there is a minimum monthly balance or if the bank will waive this fee. You can also consider signing up for a credit card to build business credit and give yourself the option to expand in the future.
10. Iowa Business Phone Number
It is important to obtain a business phone number for your state of Iowa LLC. This denotes professionalism and prevents your personal phone line from ending up on public records websites. You can obtain a virtual phone that forwards directly to your cell phone, works with a smartphone app, sends calls through voice prompts, or forwards voicemail messages directly to your email address. The next guide we would like to present is our guide on opening an llc in Kansas.