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The state of Montana has seen a sizable in-migration in recent years, due to an affordable cost of living, expanding industries, and a business tax climate recently ranked fifth in the nation by the Tax Foundation.
What Montana lacks in big cities and major airports is compensated by its relatively affordable real estate, its natural beauty and its pro-business tax measures, particularly the lack of a sales tax. Entrepreneurs routinely look to Montana as a potential place to start a business. Many of these business startups take the form of an LLC.
How to start an LLC in Montana
- Choose a business idea for your Montana LLC
- Name your Montana LLC
- Create a business plan
- Get an employer identification number (EIN)
- File Montana Articles of Organization
- Choose a registered agent in Montana
- Obtain business licenses and permits
- Understand Montana state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Montana
- Understand financial considerations
- Market your LLC
What is an LLC?
An LLC, or limited liability company, is a formal business structure in which a company’s owners can directly control and operate their company without incorporating or naming a board of directors. LLC owners are formally known as LLC members. Traditionally, these companies draft an LLC operating agreement that lays out company structure and establishes membership classes for the ownership group. One class, called managing members, controls the LLC’s day-to-day operations, while a second class, non-managing members, holds an ownership stake without actively participating in the LLC’s daily operations. You can also have a single-member LLC with only one owner.
The Internal Revenue Service (IRS) assigns a pass-through tax structure to LLCs. This means the company’s profits and losses pass through to the LLC members, who report them on their personal income taxes using IRS Form 1040. If using the pass-through model, an LLC does not owe state taxes in Montana; owners pay those taxes on their individual returns.
Is an LLC right for you?
For many Montana small business owners, the LLC structure provides a winning combination of tax benefits and personal asset protections. Such benefits don’t accompany a sole proprietorship, which is easy to set up and maintain but is an informal business structure (meaning it isn’t recognized by federal tax law).
You can also organize a business as a corporation, which grants financial flexibility and personal liability protection, but corporations come with a lot of structural and tax reporting requirements. LLCs are much simpler to maintain. The two principal benefits enjoyed by Montana LLCs are:
- Preventing double taxation. The IRS treats LLCs as “pass-through” entities. This means that an LLC passes its profits and losses down to individual LLC members, who report them on their personal returns. This pass-through status allows a company to avoid double taxation where personal and business taxes are assessed on the same income. A pass-through structure also allows LLC members to take a personal income deduction if their LLC loses money during a business year. This deduction is proportional to their ownership of the company. For instance, if the company loses $3,500 in a year, an LLC member with a one-fifth ownership stake can claim a $700 deduction on their taxes.
- Personal asset and liability protection. The LLC structure protects its owners’ personal assets in the event of a lawsuit, default, or bankruptcy. Even if an LLC loses all its money, its creditors cannot go after its owners’ personal property. Nor can a litigant sue an individual for an act perpetrated by their LLC. These protections let LLC owners take out loans and make investments without fearing that their personal life savings are on the line.
1. Choose a business idea for your Montana LLC
You’ll start your LLC formation process by generating business ideas. Some entrepreneurs dedicate months to market analysis before coming up with a business idea, while others seem to sprout business ideas in their sleep. Two key considerations when exploring business concepts include:
- Who will be the core customer? The most successful businesses fill a clear need in the marketplace. What may inspire you as an entrepreneur may not necessarily be the concept that stirs the general public. As you generate concepts in this early stage, it can help to visualize the customer you hope to attract. Ask yourself questions like: What is the age range of the target demographic? What is their income bracket? What other products do they buy? Creating customer profiles can help you find your niche in the marketplace.
- What is the path to profitability? Your business will only last if it brings in more money than it spends. This may not be possible early on, so that’s where loans and venture capital come in. Eventually, however, your LLC must become profitable. Many entrepreneurs map out a plan for financial solvency, setting benchmarks at various time intervals.
2. Name your Montana LLC
An LLC can have two business names. One is its legal name, which is registered with the state and the IRS. The other is a DBA (“doing business as”), which is a separate name the company uses to interface with the public. A well-chosen name helps establish a customer’s first impression of your business. Your name may also hint at what types of products or services you offer. Shopify’s business name guidelines can be a resource when brainstorming LLC names. Once you have some name ideas, you’ll need to do the following:
- Ensure you have an original name. Montana LLC naming guidelines stipulate that all LLC names must include the phrase “Limited Liability Company” or its abbreviations (“LLC” or “L.L.C.”). Once you’ve thought of a name, confirm that someone else hasn’t already chosen it. You can do this via the business entity search tool on the Montana Secretary of State’s website.
- Register your LLC name. Once you find an unclaimed LLC name, you can reserve it with a Reservation of Name application found on the Montana Secretary of State’s website. The filing fee is $10.
- Register your DBA, if applicable. You can also register your company’s DBA, if you have one. For instance, McAllister Exploration Services LLC could operate under the DBA Tom’s All-in-One Drilling. To use a DBA, you’ll file Montana’s Registration of Assumed Business Name (ABN/DBA) form. The filing fee is $20. For further information on assumed business names, consult Shopify’s breakdown of the DBA process.
- Secure a domain name and social media handles. Most entrepreneurs want a website domain address that corresponds with their company’s legal name or DBA. As part of your name registration process, you may choose to secure an online domain name and social media handles that make it easy for customers to find you. A domain name generator can help you find a domain name worth purchasing.
3. Create a business plan
At the foundation of many great LLCs is a carefully crafted business plan. A typical business plan contains a mission statement, organizational goals, organizational hierarchies, market studies of the target customer and competitors, assumed revenue streams, and objective metrics to measure success. You can use a business plan template to jumpstart a business plan of your own. You also can look over some business plan examples to confirm you’re on the right track.
4. Get an employer identification number (EIN)
All US-based LLCs must obtain a federal employer identification number (EIN) through the IRS. An EIN is also required for any individual or business entity that hires employees. Your EIN functions as your business’s federal tax identification number, much like a Social Security number identifies an individual. Crucially, it enables you to establish a business bank account for your LLC.
5. File Montana LLC Articles of Organization
To officially establish your LLC in Montana, you must file Articles of Organization with the Secretary of State’s office. The filing fee is $35. If your LLC exists in another state but you wish to expand into Montana, you must file a Certificate of Authority for Foreign Limited Liability Company. This costs $70. Both documents will contain your:
- LLC name
- LLC purpose or industry
- LLC type (a regular limited liability company or a professional limited liability company, which is used by licensed professionals like doctors, lawyers, and architects)
- Physical street address and email address
- Name and address of at least one managing member
- Name and address of the LLC’s registered agent
- Names and addresses of all LLC organizers (founding members)
6. Choose a registered agent in Montana
Your new Montana LLC needs a registered agent who can accept tax documents and legal forms on behalf of your company. Your Montana registered agent must either reside within the state or maintain a business address there. If none of your LLC members live in Montana, you can use a professional registered agent service. You’ll name your Montana registered agent when filing your LLC articles of organization.
7. Obtain a business license and permits
In Montana, the state government provides professional licenses (like a license to practice law) while counties and cities issue licenses to do business. Montana’s Small Business Development Center (SBDC) provides an online licensing portal to connect you to the documents you need. For instance, you’d need a Montana license to be a fertilizer dealer, a liquor salesperson, or a casino operator, among many other jobs. The Montana Department of Revenue offers a one-stop licensing program that enables you to acquire multiple licenses at once.
8. Understand Montana state tax requirements
Using a pass-through system, your LLC will pay federal taxes to the IRS. On a state level, however, your Montana LLC may owe other taxes and fees, which you’ll pay using your state tax certificate. Plan to pay for the following:
- Annual report. Every year, you’ll file a Montana LLC annual report. Your Montana annual report contains the most up-to-date information about your company and its ownership group. It costs $20 to file this report via the Montana Secretary of State’s business services portal.
- Employer taxes. As a Montana employer, youperiodically will be required to remit state withholding taxes for your employees. You must also pay an unemployment insurance tax, which goes toward supporting laid-off employees. The exact sums vary depending on the number of your employees and their salaries, but the average rate is 1.12%. To remit these taxes, you’ll set up an account on the Montana Department of Revenue TransAction Portal.
- No sales tax in Montana. The state of Montana does not charge sales tax. Therefore, LLC owners do not need to collect or remit sales taxes.
- Corporate tax. The IRS lets LLC owners have their company taxed as an S corporation rather than use the pass-through taxation model. This benefits profitable companies that want their earnings taxed at a corporate rate, which is typically lower than a personal income tax rate. To have your LLC taxed as a corporation, file Form 2553 with the IRS. This then subjects your business income to Montana corporate tax, which tops out at 6.75%. You’ll pay via the Montana DOR’s TransAction Portal.
- Industry-specific fees. If you sell items like alcohol or cannabis, you may need to pay additional fees and remit additional taxes. Consult the DOR website for industry-specific information.
9. Prepare an operating agreement
You don’t need a Montana LLC operating agreement to do business in the state, but it’s still wise to create one. An LLC operating agreement serves as a de facto constitution for your business. It records LLC membership, denotes member status, and articulates member responsibilities to the company. A standard LLC operating agreement may include:
- The LLC’s name and its business address
- A list of LLC members and their respective ownership percentages
- The planned lifespan of the LLC (temporary or continued in perpetuity)
- The name and address of the LLC’s registered agent
- The LLC’s scope of business
- A distribution model for profits and losses
- Processes for admitting new members and removing existing members
- A list of business decisions that require membership vote, and procedures for such votes
- Provisions with respect to member indemnification and liability
10. Examine business insurance options in Montana
By forming an LLC, you protect your personal assets and keep them separate from your business. Still, your LLC will need insurance policies to cover its day-to-day business. Montana state law mandates some types of insurance, like workers’ compensation insurance for employers and automobile insurance for commercial vehicles. Other policies are not state-mandated but may be required by landlords, lenders, or event organizers.
The Montana insurance market is governed by the state Commissioner of Securities and Insurance. The commissioner’s website offers resources for LLC owners seeking insurance coverage. Common policies include:
- Workers’ compensation insurance. If your Montana LLC has employees, you must provide them with workers’ compensation insurance. This insurance will provide medical expenses and financial compensation if an employer is injured on the job. Workers’ compensation policies do not cover independent contractors.
- Commercial general liability insurance. Commercial general liability insurance, or CGL, protects your business assets against claims of bodily injury, property damage, slander, libel, or misleading advertising.
- Professional liability insurance. A professional liability insurance policy covers you in the event of a malpractice accusation.
- Commercial automobile insurance. Any automobile in Montana must be covered by vehicle insurance, whether you use that vehicle for commercial or personal purposes.
- Unemployment insurance. When you pay Montana unemployment insurance tax, it goes toward the state’s unemployment insurance fund for laid-off workers.
11. Understand financial considerations
One of your first steps in creating a Montana LLC will be establishing a business bank account, either at a bank or a credit union. You’ll use this account to get cash, issue outgoing checks, deposit incoming checks, and receive payouts from payment providers.
You may also choose to explore funding, grants, and special tax benefits to get your Montana LLC off the ground. The Montana Department of Commerce can connect you to these financial opportunities. You can also connect with the US Small Business Administration for a federally based option. The SBA has two offices in Montana: a main office in Helena and a second one in Billings. Some entrepreneurs partner with merchant support services like Shopify Capital, which connect business owners with lenders and investors.
12. Market your LLC
After formally establishing your Montana LLC, you can embark on a brand-building process. LLC owners have to make many decisions as they market their company. Every aspect of a marketing campaign—slogans and taglines, color schemes, fonts, logos, and a unified written voice—play a role in building the brand. Common LLC marketing initiatives include:
- Pay-per-click web ads. You can place pay-per-click web ads on web pages, in online videos, and in social media feeds. These ads can usually be tailored to reach specific customers based on their interests, search histories, demographics, and geographic location.
- Social media influencer campaigns.You can pay a social media celebrity to promote one of your products or services to their many followers.
- Store displays. An in-store display or information booth lets customers directly interact with the products at a point of purchase.
- TV and radio ads. This traditional form of advertising exposes your company to a broad audience. The price can be high, yet many advertisers see enviable rates of return.
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Starting an LLC in Montana FAQ
How much does it cost to start and maintain an LLC in Montana?
What are the pros and cons of establishing your LLC in Montana?
But there are drawbacks. Montana is isolated and contains no large cities. Its infrastructure is solid; it was ranked a top 10 state for infrastructure by US News & World Report. Its education investment lags behind many other states, and many of Montana’s current business leaders pursued their higher education outside the state. Still, many LLC owners find these notable cons surmountable.