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Indiana offers many appealing traits as a home base for an LLC. It ranks third in the US for housing costs and is the ninth most affordable state in overall cost of living.
The state’s 4.9% corporate tax rate is the 11th lowest in the country, while its property tax is the second lowest, and personal income tax ranks as the 15th lowest. Within this affordable environment, Indiana offers access to large metropolitan markets like Fort Wayne and its capital city of Indianapolis. Even larger markets, including Chicago, Detroit, and Columbus, can be found in neighboring states. These factors help Indiana stand out among small-business start-ups.
As you explore starting a business in Indiana, you’ll quickly find yourself choosing a business structure. The typical options are a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation. If you envision the type of business that has a small footprint and relatively few employees, you may be served by the simple structure, liability protections, and tax benefits of an LLC.
What is an LLC?
A limited liability company, or LLC, is a business organization run by one or more owners—called members—who control company operations without a corporate board of directors. Managing members control day-to-day operations, while non-managing members retain ownership stake but do not involve themselves in the leadership of the company. You can create an LLC with only one owner; this is called a single-member LLC. Multi-member LLCs have multiple owners.
Is an LLC right for you?
As an Indiana small business owner, you may view an LLC as an appealing middle ground between a simple-but-limited sole proprietorship and a vast-but-complicated corporation. LLCs offer two notable selling points to small business and medium business owners:
- Liability protection. An LLC protects you from personal liability if someone sues your company. Sole proprietors don’t enjoy this benefit. LLC owners are also shielded from their companies’ debts. The company may go bankrupt, but its individual owners will not.
- Avoidance of double taxation. An LLC passes its profits and losses through the company to individual co-owners. Thus, when an LLC loses money during a business year, company owners can claim a deduction on their personal income taxes. A pass-through model also staves off double taxation, where company income may lead to both a personal and business tax burden for corporations (if their owners also draw a salary from their company). In a standard LLC arrangement, the company itself does not pay taxes. The owners pay taxes on behalf of the company.
The LLC business structure also makes sense for small companies with multiple owners. These owners can occupy different membership classes: managing members run the company while non-managing members share ownership but do not partake in day-to-day operations. Any number of people can co-own an LLC. Note that multi-owner companies can also organize as partnerships, but partnerships don’t shield owners from liability incurred by their business, and they lack the tax flexibility that LLCs can offer.
1. Choose an idea for your LLC
A business starts as an idea floating in the mind of an entrepreneur. Some businesses thrive taking an existing product or service and making it better. Other businesses find success through novel innovation. If your idea is strong enough, Indiana offers a business-friendly climate and a motivated workforce to help bring your vision to life. You can study what makes a great business idea and use that knowledge to guide your brainstorm.
2. Name your Indiana LLC
Before you start a business in Indiana, you’ll need to choose a name. Your business name is the first line of communication between you and your customers. An artfully chosen name might reveal a company’s industry, style, product offerings, and even pricing. A person could encounter two auto mechanics—one called Euro Motor Specialists and the other called Johnny’s Burgers and Car Repairs—and immediately grasp how they might differ. A few things that entrepreneurs consider when naming their businesses:
- Stand out from the competition. Your business name will establish a customer’s first impressions of your company. You can help them remember your business by giving it a memorable name. Many successful businesses take their names from rhymes or alliteration. Some borrow a known word from history, nature, or literature. It can be helpful to tap into available resources when choosing a business name.
- Register with the state. The Indiana Secretary of State’s office lets you search for existing business names to check whether your choice has been claimed. Once you settle on a name, you can register a Certificate of Assumed Business Name with the Indiana Archives and Records Administration.
- Start plotting your domain name. Small business owners know that they’ll need an online presence to truly stand out in the marketplace. This starts with choosing an appropriate domain name—one that aligns with your business name and isn’t already registered to someone else is the best pick. Some people buy up domain names and try to resell them to businesses and individuals for profit. You can purchase an existing name this way, but take care not to overspend. Tools like a domain name generator can help small business owners select a great business website name. Expect to also use this name on your social media accounts, so make sure it’s available on your preferred platforms.
- Consider a DBA. DBA stands for “doing business as.” DBAs apply to companies that have one legal name registered with their state but a different public-facing name that they use when interacting with customers. For example, a business could be legally registered as Chesuncook Holdings LLC but do business as Bob’s Flower Store. You can list your DBA when you file your Indiana Certificate of Assumed Business Name. Entrepreneurs may want to break down the DBA process when plotting the perfect name for their company.
3. Create a business plan
Whether an entrepreneur sets up shop in Indiana or elsewhere, they utilize business plans to plot business structures, guide organizational objectives, identify planned revenue streams, and identify metrics for success. Shopify’s business plan template demonstrates how to craft a plan specific to your type of business. The Shopify platform provides business plan examples to guide your work.
4. Get an employer identification number (EIN) and a taxpayer identification number (TID)
In setting your LLC’s financial footprint in Indiana, you’ll apply for an employer identification number (EIN) through the IRS. An EIN serves as your business’s federal tax number, working for a business like a Social Security number (SSN) works for an individual. You’ll need this EIN when opening a business bank account for your LLC. Once you have an EIN, you can obtain a taxpayer identification number (TID) from the Indiana Department of Revenue. Both of these tax identifiers are necessary to hire employees and accept payments as an LLC.
5. File Indiana Articles of Organization
Indiana LLCs must file Articles of Organization with the state. These forms can be filed by mail for $100, or through the INBiz online portal for $95. The Articles of Organization will include key information about the business’s officers, registered agent, business address, and email contact information.
Indiana requires LLCs to keep all information up to date. You can do this by filing a Business Entity Report on a biannual basis.
6. Choose a registered agent in Indiana
A company’s registered agent must be available during normal business hours to accept tax documents or legal forms on behalf of the business. The registered agent needs to reside in the state of Indiana, but you can hire a registered agent service. The actual owners of the LLC can live anywhere they want and be of any age.
7. Obtain a business license and permits
Indiana lists its licensing and permit policies on the Indiana Professional Licensing Agency website. Some Indiana counties may require additional business licenses or permits that go beyond these state requirements.
When setting up your LLC, you’ll receive an Indiana Registered Retail Merchant Certificate (RRMC), which is required to be displayed in retail locations. Depending on the industry, your LLC may be subject to further tax registration. Contact the Indiana Department of Revenue for details.
8. Understand Indiana state tax requirements
LLCs offer owners tax benefits, so it’s important to understand the status of this business structure within the federal tax code. LLCs are pass-through entities, meaning company profits and losses pass through to their owners, who report them on their personal income taxes using IRS Form 1040. So owners report personal income when the company makes money and claim a loss when the company loses money. LLCs inform their owners of profits and losses via IRS Schedule K-1.
There are other taxes to be aware of in Indiana:
If your business conducts retail sales, you must collect sales tax from your customers and remit it to the state. Indiana charges 7% tax on retail purchases. The Indiana Department of Revenue provides a collection of answers to their most frequently asked questions concerning business taxes.
Indiana allows LLCs to be taxed as corporations, if members choose. This means that the company will pay Indiana’s corporate rate of 4.9% rather than passing through its profits and losses to be filed on the owners’ personal taxes.
To make this possible, the LLC files Indiana corporate tax returns that declare the company’s business profits for the year. This tax approach often appeals to companies that turn a profit and whose members don’t want those company profits increasing their personal tax obligations. Conversely, money-losing LLCs typically choose to pass their earnings and losses down to members.
Each of Indiana’s 92 counties has its own laws regarding taxation. Many of these county taxes take the form of sales taxes layered on top of the statewide 7% sales tax. The Indiana Department of Revenue provides an interactive map that links to taxation laws for all 92 counties.
9. Prepare an operating agreement
Indiana does not require LLCs to have an operating agreement, nor does it allow LLCs to submit them to be on file with the state. Despite this, most LLCs utilize operating agreements to protect membership interests.
An operating agreement functions as your LLC's constitution. It is a legal document agreed to by all LLC members, and it establishes the business’s ownership structure and articulates its scope of operations. It also establishes voting procedures that require the consent of the LLC’s managing members (and sometimes the non-managing members). Processes that may require a managing member vote include adding new members, removing members, taking on debt, hiring employees, or dissolving the business. Basic information requested in an operating agreement includes:
- Basic company information, including legal name and address
- A description of each member’s rights, powers, duties, liabilities, and obligations
- Documentation of initial investments
- Voting rules
- Plans for member compensation
- Procedures for the departure or addition of member.
- Requirements for amending the agreement
10. Examine business insurance options in Indiana
The Indiana Department of Insurance provides a rundown of different types of insurance issued in Indiana, including small business insurance. Some types of insurance, like workers’ compensation insurance, are required by state law. Many other policies are not mandated by the state but are strongly encouraged. The Indiana Department of Insurance provides resources to business owners seeking the appropriate policies.
Examples of insurance in Indiana include:
- Workers’ compensation insurance. As an Indiana employer, you are required to purchase workers’ compensation insurance for your employees.
- Commercial general liability insurance. Commercial general liability insurance, or CGL, protects a business from financial claims involving bodily injury, property damage, slander, libel, and misleading advertising. While not state-mandated, this liability insurance can protect your company from significant financial losses in the event of a mishap like a fire, damage to others property, a malpractice claim, a lawsuit, or an on-site injury.
- Unemployment insurance. Indiana employers must pay into an unemployment insurance policy, which provides employees benefits if laid off through no fault of their own.
- Commercial automobile insurance. Indiana requires that all automobiles be covered by liability insurance, regardless of whether they’re utilized for commercial or personal purposes.
Many business owners find value in taking out higher levels of coverage than insurance law minimums, and may purchase supplemental policies to protect themselves from lawsuits or natural disasters.
If your budget allows it, supplemental liability insurance—such as an umbrella policy, which extends the maximum payouts of your existing insurance policies—can pay off down the line. For instance, your employee may damage someone’s property while driving your company vehicle. If your vehicle insurance doesn’t cover the total amount of damages, your umbrella policy can cover the remaining balance.
11. Understand financial considerations
Business ideas can come to life when financing falls into place. The first step at this stage is to open a business bank account. Next is getting a business credit card and registering your business with a payment provider to handle customer transactions.
The Indiana Small Business Development Center offers access to additional funding, grants, or tax benefits resources for your business. Notably, the Indiana SBDC can pair you with an adviser to help with company strategy in growing your company and obtaining business capital. The US Small Business Administration can also provide entrepreneurs with supportive resources. Its Indianapolis district office covers the entire state.
12. Market your LLC
An LLC owner’s brand-building process includes choosing slogans and taglines, logos, color schemes, fonts, and a company voice for promotional materials. You’ll use these elements to pursue marketing initiatives that include:
- Pay-per-click web ads. These ads appear on websites, in sponsored search results, and surrounding web videos.
- Social media/influencer campaigns. Companies can advertise directly on social media, or they can pay a social media celebrity to promote a product or service to their followers.
- Traditional TV and radio ads. This classic form of advertising is expensive and less targeted, but it remains popular among national brands.
- Awareness content. This form of organic marketing includes articles, blog posts, videos, newsletters, and podcasts.
- Partnerships. Businesses can team together to market one another’s products or sell them as part of a bundle.
- Store displays. Businesses can pay to place display placards in retail stores, informing customers and drawing their attention.
Starting an LLC in Indiana FAQ
How much does it cost to start and maintain an LLC in Indiana?
What are the pros and cons of establishing your LLC in Indiana?
The cons to incorporating in Indiana start with its relatively small population and a smaller educated workforce than can be found in neighboring states like Illinois. Indiana’s low taxes come with lower state investments and fewer subsidies compared to higher tax states like New York and California. When weighing pros and cons, Indiana’s affordability leads many entrepreneurs to choose it as a base of operations.