Every Rhode Island LLC owner should consider creating an operating agreement. A properly drafted operating agreement protects your company’s assets and helps keep everyone involved on the same page. There are many different ways you can structure an operating agreement, and this article provides you with three common examples.
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What Is a Limited Liability Company Do in Your Business?
An LLC is a type of business structure that combines aspects of corporations, partnerships and sole proprietorships.
An LLC can have one or more members who are shareholders. Members can hold different types of ownership interests, including equity, debt, preferred stock, voting power, etc.
When an LLC faces lawsuits, it pays out any damages. This contrasts with a corporation where the owner(s) are personally liable for any legal liabilities incurred by the company.
What is the purpose of an operating agreement for a Rhode Island LLC?
An operating agreement is required for EVERY SINGLE ENTITY UNDER RHODE ISLAND LAW. This includes sole proprietorships, partnerships, corporations, limited liability companies (LLCs), and unincorporated associations. In fact, it applies to any type of organization that exists solely for the benefit of one or more individuals.
The reason why you need an operating agreement is because it protects the interests of ALL MEMBERS OF THE GROUP. Without an operating agreement, each group member is free to act against the best interest of the others. For example, imagine you are part of a partnership where you own 50% of the business. If you suddenly decide to sell your half of the business to another partner for $1 million dollars, you could potentially screw over your fellow partners. Instead of just selling your half of the business, you could force everyone else out of the business. You could even take the money and run.
If you don’t have an operating agreement, you’re giving up control of your business to someone else. And that could lead to problems down the road.
What is a Rhode Island Operating Agreement composed of?
An operating agreement is a contract between members of a limited liability company (LLC). This document outlines the responsibilities of each member and provides guidelines for how the company will operate. An operating agreement helps protect the interests of the company’s owners and managers.
In addition to the above points you should consider including the topics listed below:
•Transfer of Membership Interest •Voting Rights and Decision Making Powers • Initial Contributions • Profits, Losses, and Distribution • Management • Compensation • Bookkeeping Procedures • Dissolution
How to Form an LLC in Rhode Island
There are many benefits to forming a limited liability company (LLC). If you plan to start a new business, it can help protect you and your family from lawsuits. But there are several things you’ll need to do to form an LLC. First, you’ll need to register your company name with the state. Then you’ll need to fill out some forms and pay fees. Finally, you’ll need to provide proof of insurance.
You don’t need to file anything if you’re starting a brand new company. Instead, you can just go to www.llcri.org/startup and choose “Start Now.” This option opens up your account immediately.
Step 1 – Name the LLC
Rhode Island requires you to file a Certificate of Organization with the state Division of Corporations within 30 days of forming your limited liability company. You must provide the following information:
1. Your full legal name;
2. The address where you want the organization registered;
3. A description of the type of entity you are organizing;
4. The date you filed the application;
5. The names of the officers; and
6. Any additional information required by law.
The filing fee is $50.00. If you do not pay the fee, the Division of Corporations will send you a letter stating that the corporation does not exist.
If you fail to file a Certificate of Incorporation, the Division of Corporations will revoke your registration.
Step 2 – Pick a resident agent.
A resident agent is an individual entity that accepts service of process on another person’s organization’s behalf. In some states, you must appoint a resident agent for each corporation you form. If you are forming multiple corporations, you might consider appointing one representative for each corporation. This way, if there is a dispute over where to send a lawsuit, you don’t have to worry about sending it to the wrong place.
If you are forming a limited liability company (LLC), you must designate a resident agent. However, unlike a corporation, you cannot use a fictitious name like “John Doe’s Company.” Instead, you must select a real person or entity that will represent the company in legal proceedings. When selecting a resident agent, keep in mind that the agent must be able to accept the service of the process. Therefore, you should choose someone who lives in the state where the LLC will conduct business.
Step 3 – submit organizational documents to the Department of State
An LLC is officially formed when you file articles of organization with the Secretary of State. You must pay an initial filing fee of $150.00. This fee includes the cost of filing the documents with the Secretary of State and the Department of Revenue. Once the LLC is registered, it is recognized by the state.
You can find out more information about registering an LLC online.
Step 4 – Establish an LLC Operating Agreement.
An operating agreement is one of the most important documents you can put together when starting a business. This document outlines how the members of your LLC will work together and what each member will do within the organization. Without it, there is no legal framework for the LLC.
The operating agreement is also referred to as the Articles of Organization or the Bylaws. You want to make sure you write something that makes sense and gives everyone involved some clarity about their roles.
You can use templates online or find sample agreements that you like. When choosing a template, keep in mind that you don’t want anything too complicated because you won’t be able to read it later.
Once you have chosen a template, you will need to fill out the blanks. Some of the things you might include in the operating agreement are:
• Who owns the business? What percentage does each owner hold?
• How much money is needed for start-up costs?
• How long will the company exist? Will it continue indefinitely?
Step 5 – Get Your LLC an Employer Identification Number
You must file an Application Form W-9 with the IRS to obtain an EID number. This form requires the name, address, Social Security Number, date of birth, and signature of each member of the LLC. Once the IRS receives the completed form, it issues a 1099-EZ form for every member of the LLC.
A single-member LLC does not need an EIN. However, if the LLC plans to hire employees or wishes to be taxed as a Corporation, it needs an employer identification number.
For a multi-member LLC, obtaining an EID number is easy. All LLC members must sign and submit the application form to the IRS.
Step 6 File Annual Reports
The IRS requires small businesses to file an annual return each year. If you fail to do so, you risk having your tax status revoked.
You must file Form 1040, Schedule C, and pay taxes on income earned during the previous calendar year. You must include information about the following:
• Income received from your business
• Expenses paid or incurred in operating your business
• Net profit or loss from your business
• Tax withheld from wages paid to employees
• Total deductions claimed against your business income
Frequently Asked Questions
What are the benefits of filing an LLC?
LLCs are beneficial as they are much cheaper to establish than a corporation. In addition, many states offer tax advantages for LLCs over corporations. For example, California offers a 10% income tax savings compared to a corporate entity. This is because California taxes profits, while most states tax dividends and interest.
Despite being a pass-through structure, LLCs distinguish business assets from personal assets, allowing owners to limit their exposure. Business assets include inventory, equipment, real estate, and intellectual property. Personal assets include cash, bank accounts, vehicles, and household goods.
How Much Does it Cost to Form an LLC in Rhode Island?
The cost of forming an LLC varies depending on where you live. For example, if you’re looking to form an LLC in New York City, you’ll likely spend around $500-$1,000. On the other hand, if you want to form an LLC in North Carolina, you’ll have to shell out about $200.
Once you’ve purchased your kit, you’ll have to complete it. When filling out the forms, make sure you include all information requested. In some states, you might even have to provide additional information.
After you complete the forms, you’ll have to send them to the appropriate office. There are different rules regarding how long you must wait before filing your articles of organization. You’ll most likely have to wait one month after completing the process.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.