A limited liability company (or “LLC”) is a business entity with the management and tax benefits of a partnership but the limited liability protections of a corporation. LLCs are only permitted to be established by state legislation. “Limited liability” implies that nobody connected to the business is responsible for losses beyond their initial investment and that they cannot be sued jointly and severally accountable.
In other words, a person investing in an LLC only runs the risk of losing the money they invested; even if the firm is still in debt, they won’t be required to make any more payments. It is a technique for reducing the risk of investing in a business.
Owners of businesses and organizations worried about lawsuits or debts that might develop in the company should consider incorporating an LLC. An LLC could be a smart idea if a business owner thinks that the business insurance they have on their company won’t adequately protect their assets.
What Conditions Must an LLC Meet?
The following requirements must be met in order to create an LLC in Rhode Island:
- Decide on a Name: An LLC name must contain one of the following terms according to Rhode Island law: “Limited Liability Company,” “LLC,” “LLC,” “Limited Company,” “LC,” or “LC” Short forms of the word “Limited” include “Ltd.” and “Company” or “Co.” By submitting a Reservation of Entity Name using Form 620 to the Corporation Division of the Rhode Island Secretary of State, you may reserve a Legal Entity name for 120 days.
- Save the Articles of Incorporation: You must submit Form 400, Article of Organization, to the Rhode Island Secretary of State, along with a filing fee.
- Select a Registered Agent: A registered agent must be selected for the service of process for each Rhode Island LLC. An agent is a person or company who consents to take court filings on behalf of the LLCs if they are sued. An individual or organization permitted to conduct business in Rhode Island may act as a registered agent. The registered agent’s physical address must be in Rhode Island.
- Complete All Tax Obligations: Even if there are no additional employees, the Rhode Island LLC must obtain its own IRS Employer Identification Number (EIN) if it employs more than one person. Only if a one-member LLC will have employees do you need to get an EIN for it. You must also register with the Department of Revenue to file tax returns. Additionally, Rhode Island treats LLCs as corporations and categorizes them for federal income tax purposes.
- Report Annually: Once your LLC is established, you must submit a registration form and a processing fee once a year. Between January 1 and April 1 of the year after the formation of the LLC, the initial fee payment is required. The ensuing year’s registrations are due at the same time.
- Obtain All Necessary Insurance and Business Permits: If necessary, business licenses will be needed. Additionally, if your company requires it, acquire the appropriate insurance.
What Documentation is Required to Form an LLC?
Rhode Island’s Articles of Organization are necessary for forming an LLC (Form 400). Before the LLC is formed, this paperwork must be submitted to the Secretary of State’s Division of Business Services. Additionally, the proper filing fee must be submitted with this form.
Who Should Establish a Limited Liability Company?
People who want to run a small business should think about creating an LLC. Creating an LLC limits liability to the assets owned by the LLC, protecting individual assets. Small business owners can avoid using their personal assets to cover legal costs by creating an LLC.
People who want to start a business with the least amount of paperwork and expense should also think about incorporating an LLC. The state must be notified of the creation of an LLC by filing “articles of organization” and a fee.
Usually, this charge is lower than the one needed to incorporate a corporation. When compared to corporation creation, LLC formation often involves less documentation to be filed with the state. Additionally, keeping track of LLC earnings and outlays is not difficult. Separate tax returns need not be filed under an LLC. Members and management instead record their earnings and outlays on personal tax returns.
Additionally, managing an LLC can be fairly easy. An LLC with at least two members may create an operating agreement. The members specify in this agreement how the LLC will be run, how earnings will be distributed, and which members’ votes will be required for which decisions. The operating agreement may also specify the procedure for dissolving or terminating the LLC.
The operating agreement may also specify procedures for resolving disputes amongst LLC members. What happens if an LLC member passes away or becomes incapable of working may be covered by the operating agreement.
What Is Protected by the LLC? What Does It Not Guard Against?
Even while the LLC form shields members’ private property from a lawsuit, things change if the case alleges a member of the LLC was negligent. A member of an LLC may be held personally accountable for negligence if a court finds the member to have acted recklessly. Additionally, an LLC member is personally responsible for deliberate torts.
For instance, an LLC member is personally responsible for any battery committed during negotiations with another corporate company.
When Would LLC Members Be Individually Liable?
The LLC structure shields owners from personal liability for misconduct committed by other members while the business is in operation. The LLC, not a specific member or owner, is responsible if the violation occurs while conducting business.
If members negligently cause harm to another person while conducting business, commit fraud while doing so, or steal LLC assets, they are held personally accountable.
LLCs frequently purchase general liability insurance to cover the costs associated with lawsuits alleging carelessness. This insurance covers these injuries’ expenditures. Therefore, it is unnecessary to transform business assets into cash to pay a court judgment. Individual managers, members, and staff are all capable of acting negligently. Plaintiffs in negligence claims may demand significant financial awards.
The LLC can be forced to dissolve if it lacks general liability insurance and has insufficient assets to cover losses. Professional limited liability companies (PLLCs), often known as LLCs operated by professionals, should consider acquiring both general and professional liability insurance. Lawyer and medical malpractice insurance are examples of professional liability insurance.
What Perks Does an LLC Get in Rhode Island?
Numerous advantages are granted to business owners in Rhode Island who create an LLC.
Similar to a corporation, LLC owners have limited liability protection. Additionally, with an LLC, there is much more flexibility in how profits are distributed, and there is no requirement for a 50/50 share like with partnerships. Additionally, the firm passes on all of your business’s losses, gains, and expenses to the individuals. Doing this would prevent paying both company and individual taxes twice.
What Drawbacks Does an LLC Face in Rhode Island?
The use of LLCs has drawbacks in Rhode Island. When a member of an LLC passes away or declares bankruptcy, LLCs are simple to dissolve, but managing a sole proprietorship or partnership will need less paperwork and complexity than managing an LLC.
Where Can You Find the Ideal Attorney?
The highly tough but potentially rewarding alternative of starting your own business. Discussing your ideas with a knowledgeable local Rhode Island corporation lawyer is a good idea to comprehend the distinctions and rights that pertain to your firm and its structure.
You can establish your LLC with the assistance of a lawyer with experience in limited liability companies, who can also explain the organizational and tax advantages of the limited liability structure.
