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Rhode Island has a rich history of business innovation—from colonial era shipping and import houses to the garment manufacturing days of the 19th and 20th centuries to today, when national companies like CVS and Citizens Bank call the Ocean State home. There are good reasons for this: Rhode Island is home to a diverse, highly educated workforce and boasts a high quality of life—attractive to employees and entrepreneurs alike. America’s smallest state is an excellent place to start a business and launch your limited liability company (LLC). Here are 12 steps to make it happen.
How to start an LLC in Rhode Island
- Choose a business idea for your Rhode Island LLC
- Name your Rhode Island LLC
- Create a business plan
- Get a federal employer identification number (EIN)
- File your Rhode Island LLC Articles of Organization
- Choose a registered agent in Rhode Island
- Obtain business licenses and permits
- Understand Rhode Island tax requirements
- Prepare an operating agreement
- Examine business insurance options in Rhode Island
- Understand financial considerations
- Market your Rhode Island LLC
What is an LLC?
A limited liability company, or LLC, is a common business entity in the United States. According to the National Small Business Association, LLCs account for more than 35% of all businesses nationwide, because small business owners enjoy the flexibility and structural benefits LLCs offer.
LLC owners are called “members.” An LLC formed by one owner is a single-member LLC, while those formed by more than one are called multi-member LLCs. One of the advantages of running a business as an LLC is that the business structure provides personal asset protection, meaning members aren’t held financially responsible for most business debts or legal claims. An LLC can be taxed as a “pass-through” entity or as a corporation for federal income tax purposes.
Is an LLC right for you?
There are two key questions to ask yourself when deciding whether an LLC is the proper business structure for your Rhode Island venture:
- Do you have personal assets in need of protection? If so, forming your business as an LLC rather than a sole proprietorship or partnership can help shield these assets from creditors and litigants. Sole proprietors, by contrast, enjoy no legal distinction between the owner and the business, leaving their personal assets at risk.
- Are you looking to limit your tax liability? MostLLCs are treated as “pass-through” business entities in Rhode Island, meaning the business is subject to a single round of taxation (personal income tax), as opposed to so-called “double taxation” (taxes on both corporate income and members’ personal income). LLCs pay no corporate taxes and are instead taxed once on their members’ personal income tax returns.
1. Choose a business idea for your Rhode Island LLC
The first and perhaps most crucial step toward building a successful LLC in Rhode Island is devising a solid business idea. Brainstorming is about more than coming up with a workable concept for a product or service—which, of course, is vital. It’s also about understanding your place in Rhode Island’s business landscape, knowing who your customers are and what they are looking for in the marketplace. Here are two questions to ask yourself when developing your business idea:
- Who is your customer? Every business needs to understand who its target customers are. Will you sell to other businesses (B2B) or straight to consumers? Will you sell online or through a brick-and-mortar store? Find answers to these questions by analyzing other small businesses in your market, looking at marketplaces selling similar products or services (like Amazon), surveying prospective customers, and researching industry trends.
- What is your projected profitability? Like any business, your Rhode Island LLC’s success hinges on its ability to turn a profit. A few considerations to keep in mind when devising your profit strategy include the following: What will the pricing look like? How will you distribute your goods? How will they be bundled or packaged? Does a subscription model make sense? When will you break even? How much will you need to sell to cover your costs and turn a profit?
2. Name your Rhode Island LLC
Once you’ve settled on an idea for your Rhode Island LLC, come up with a name. A business name is critical for building brand recognition and attracting customers; a good one is memorable and effectively communicates what you do. There are also Rhode Island naming requirements for labeling your LLC, which include:
- Include “Limited Liability Company” or an abbreviation. The name of your Rhode Island LLC must end with the term “Limited Liability Company,” or the abbreviations “LLC” or “L.L.C.”
- Be unique. Your name must be distinguishable from any other business entity name registered with the Rhode Island Secretary of State office. You can run a search to see if your preferred business name is available.
If you want to reserve your LLC name ahead of time, you can do so for up to 120 days by submitting a Reservation of Entity Name, or Form 620, with the state Business Services Division.
If you want to operate your LLC under a name different from its registered legal name, you can file for a DBA (“doing business as”) also known as an assumed or fictitious business name. In Rhode Island, you must register your DBA with the Secretary of State office via a Fictitious Business New Statement (Form 624B). The form can be found on the Rhode Island Department of State’s Document Library Search.
3. Create a business plan
A solid business plan reflects your overall goals and gives stakeholders—and potential investors—a sense of how you intend to operate in the near and long term. Your plan might include an executive summary and mission statement, a detailed company description, a market analysis, your organizational structure, a list of products or services, a customer segmentation report, amarketing plan, a logistics and operations plan, and a financial plan. Draft your business plan using a free template tailored to meet your specific needs, or write your own from scratch using business plan examples for inspiration.
4. Get a federal employer identification number (EIN)
A federal employer identification number (EIN), also known as a federal tax ID, is a nine-digit number assigned to businesses by the US Internal Revenue Service for tax purposes. Think of it like a Social Security number for companies. Like an SSN, an EIN helps obtain lines of credit and is needed when opening business bank accounts. Obtain an EIN online through the IRS website free of charge.
5. File your Rhode Island LLC Articles of Organization
To formally establish your LLC in Rhode Island, you must file Articles of Organization (Form 400) with the Secretary of State office, online or by mail, for a filing fee of $150. Articles must include the following:
- Your LLC’s name
- The name and address of your LLC’s registered agent
- How the LLC will be treated for federal tax purposes (i.e., as a pass-through entity or a corporation)
- Whether the LLC will be managed by one or more of its members (i.e., member-managed), or by a hired manager (i.e., manager-managed)
- The date the Articles become effective (i.e., the filing date or a later date)
- The signature of a member authorized to submit Articles on the company’s behalf
6. Choose a registered agent in Rhode Island
In Rhode Island, LLCs must appoint a registered agent to receive official correspondence and legal documents. You may nominate an employee or one of your LLC’s members to act as its registered agent. Your registered agent—whether an individual or registered agent service—must be a Rhode Island resident or maintain a street address in Rhode Island and be available at this address during normal business hours.
7. Obtain business licensing and permits
You do not need to obtain a general statewide business license to operate your LLC in Rhode Island. However, if you plan to sell items subject to sales tax, or hire employees, for example, you may need to register the LLC with the Secretary of State office or Rhode Island Division of Taxation for payroll tax and sales tax purposes. You may also need specific permits from the Rhode Island Department of Business Regulation or Department of Health if your LLC serves food or sells restricted goods, like alcohol and tobacco products. Finally, certain counties and city governments may require local business licenses or permits. Contact your local county supervisor’s or mayor’s office for more information.
8. Understand Rhode Island tax requirements
A Rhode Island LLC can be taxed as a corporation, a limited liability partnership, or a single-member LLC (similar to a sole proprietorship). The latter is the default designation; if you choose any other designation, you must file your election with the IRS. You have different tax obligations depending on the type of tax structure you elect for your LLC, including:
- Personal income taxes. Regardless of how you form your LLC—as a pass-through tax entity or as a corporation—you and your business partners pay taxes on income earned through the LLC at your personal-income levels.
- Corporate taxes. If you elect to form your LLC as an S corporation, the LLC pays taxes on all profits before they’re distributed to shareholders. At this point, they’re taxed again at the shareholders’ personal income levels. The corporate tax rate in Rhode Island is 7%. The upside to having your LLC taxed as a corporation is that not all your business income is taxed at your income level. For example, income that stays within the LLC is only subject to the 7% corporate tax, avoiding additional income tax.
9. Prepare an operating agreement
An LLC operating agreement is a legal document that outlines how your Rhode Island LLC intends to run. Though operating agreements are not required, they can be helpful to have on hand for reference, to help delegate tasks, and keep track of internal responsibilities. At a minimum, an operating agreements covers the following:
- Your LLC’s name and primary address
- How long do you plan to run the LLC, perhaps indefinitely
- Information on your LLC’s registered agent
- Information about your Rhode Island Articles of Organization
- The business’s purpose and mission statement
- An organizational chart listing members and their respective stakes
- How profits and losses are divided between LLC members
- The process for admitting and offboarding members
- An overall management plan for the LLC
- Various indemnification and liability provisions
10. Examine business insurance options in Rhode Island
Unforeseen financial losses can be catastrophic for a new LLC. While LLCs offer liability protection, you may still want to purchase insurance. If you intend to hire employees in Rhode Island, you’ll need to buy workers’ compensation insurance, i.e., insurance coverage for work-related illnesses and workplace injuries.
Other types of insurance a Rhode Island business should consider purchasing include:
- General liability insurance. General liability insurance covers your business for any legal actions resulting from accidents, injuries, or negligence.
- Commercial property insurance. Commercial property insurance protects your business property from costs associated with fire, weather damage, or theft.
- Product liability insurance. Product liability insurance protects manufacturers, wholesalers, distributors, and retailers from liability concerning unsafe products.
- Cyber liability insurance. Cyber liability insurance protects businesses from costs associated with data breaches and ransomware attacks, for example.
- Workers’ compensation insurance. Workers’ compensation insurance is required for every person, firm, public service or private corporation that employs people. All businesses with employees operating in Rhode Island are subject to Workers’ Compensation law.
- Umbrella insurance. Umbrella insurance helps cover anything that may exceed policy limits on other insurance plans.
If you want more options, the Small Business Administration maintains a list of insurance policies your Rhode Island LLC may need.
11. Understand financial considerations
Aside from insurance, you will need to further invest in your Rhode Island LLC to get it off the ground. These business expenses might include rent toward a brick-and-mortar retail space or warehouse, a professionally designed website, advertising, equipment, or software. You may also want to hire one or more contractors or professional services, like lawyers or accountants. These costs can quickly add up. Luckily, there are accessible options for obtaining startup funding at early stages, like Shopify Capital, which lets you repay funding as a percent of your store’s daily sales.
12. Market your Rhode Island LLC
- Market research.Market research is essential to understanding your LLC’s target customer.
- Advertising and promotion. Paid advertising, online or in print, remains a tried and true way to get the word out about your product or service. You can produce these ads yourself or hire an agency to do it for you.
- Social media. Most businesses have a robust social media presence across several platforms, including Facebook, Instagram, and YouTube. Consistently publishing content that aligns with your brand can increase your visibility and help grow your consumer base.
- Public relations.Develop relationships with media outlets in Rhode Island and across the nation to expand your visibility and increase your credibility.
- Customer retention. Leverage your marketing materials and platforms to build genuine relationships with customers. Good experiences will keep them coming back and encourage them to introduce friends, family, and colleagues to your business.
Rhode Island LLC FAQ
How much does it cost to form an LLC in Rhode Island?
Starting an LLC in Rhode Island costs at least $150—the fee to file your Articles of Organization with the state.
Do you need a registered agent for your LLC in Rhode Island?
Yes, your Rhode Island LLC must appoint a registered agent and list their name, address, and other contact information in the LLC documents you file with the state.
How do state taxes work for LLCs in Rhode Island?
Unless an LLC elects to be treated as a corporation, state taxes apply to them in the same way as federal taxes—once at the personal income levels of its members. If you elect to have your LLC taxed as a corporation, income generated is taxed once at the business level and again if income is distributed to members.