How to Start an LLC in Rhode Island

Planning on forming an LLC, but aren’t sure where to start? First, make sure doing business as an LLC is the right type of business. Most entrepreneurs prefer it because it’s easy to set up and offers personal liability protection for personal assets like your home and car. 

Below are instructions to set up an LLC in Rhode Island. If you plan to set up a different type of business, like a sole proprietorship, the process is different.

The Rhode Island Secretary of State’s website has a free business name search tool on its business portal where you can look up names of businesses in the state. All you need to do is type in the desired name of your business and search to check on name availability. 

Since the search tool is free, you can do this as many times as you need to create an original name. It is vital to pick a “distinguishable” name because the state will deny any name it deems not unique enough from other businesses.

Distinguishable name rules

You can’t make a name unique by misspelling a word, adding punctuation or numerals, using entity identification, capitalizing letters, an abbreviation, or by making a word plural.  

In other words, your name must sound different as well as look completely different from that of another business. There is a complete list of guidelines on the state website.

Research isn’t over once you think you’ve found an original name. You should also search to see if your preferred business name is being used as a domain name anywhere. 

This may not seem like a big deal if the business is in another state but it could be a marketing issue for your business. People find businesses by plugging in the information or even a business name they saw somewhere in the search engine. They typically call the first one they see. 

Those using your preferred name as a domain name will get listed first. Your business may not get a ranking on the first page. That means you will lose a lot of potential customers.

You can search for domain names by plugging in your preferred name into search engines or even trying it out with a .com or .net at the end to see what pulls up.

Reserve your name

Once you have a name you want, you can either go ahead and register it with the state or reserve it until you get your business ready to launch.

Reserving your business name protects it. It keeps others from using it while you are forming your business and before you file your registration.

Rhode Island requires every business to have both a registered agent and a registered office on file. A registered agent is someone who can accept legal documents, like service of process, on behalf of the business. 

Rhode Island has specific qualifications for who can be a registered agent that includes:

A business owner or an LLC member or an employee can be a registered agent. You can also pick a trusted family member or friend as long as they are available. However, many people pick an attorney or some other legal representative for the role. 

Some business owners go with professional registered agent services. This has its advantages, with convenience being at the top of the list. A registered agent service typically costs between $150 to $300 a year. However, it can be cheaper if it’s bundled with a host of other business services.

Business service companies can do a lot of different things from registering your business with the state, getting your EIN, and setting up a business structure. Those who don’t want the stress of doing this themselves find this helpful.

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Every state is different. Rhode Island is unique in that it requires proof of liability insurance and, as needed, proof of professional certifications or board approval for both professional service corporations and professional benefit corporations upon registration. 

For instance, those starting an engineering firm are required to gain approval for the Board of Registration for Professional Engineers before applying with the state. Some businesses are excluded from this provision under the law.

Rhode Island requires those starting a business to file Articles of Organization. It sounds complicated but it’s just a basic form that provides the state with business information.

You will need the following information to register your business:

Once you have the documents and information you can file online. After your registration is accepted, you must confirm your receipt of acceptance online as well.

Filing fee 

The filing fee to register an LLC with Rhode Island is $150. That includes an L3C company as well.

Rhode Island processing time 

Typically, the State of Rhode Island will process business registrations in one to three business days. That is whether you file online or by mail, once the application is received. There isn’t an expedited service available.

Rhode Island doesn’t require businesses to have an operating agreement to register or run a business. However, it is advisable to have one anyway and that’s particularly true of an LLC that has several members. 

Operating agreements can be cumbersome to create but they are necessary for a couple of reasons. Creating one opens discussions among LLC members on important issues like voter rights and that reduces miscommunication. 

These agreements also protect your business against state intrusion because they function above state law. Businesses functioning without an operating agreement are bound by all the business laws of the state.

An operating agreement should include: 

Running a business can be challenging, especially at launch. There are many laws, procedures, and forms to complete. One of the most daunting tasks is dealing with taxes. You will need to register at both the federal level and with the Rhode Island Division of Taxation to be fully vetted as a business in the state.

An employer identification number (EIN) shows you’ve registered for federal tax purposes. The Internal Revenue Service assigns your business an EIN like they assign a Social Security number to a person. An EIN is how the IRS keeps up with your business tax filings. An EIN is also important as you move forward because it’s always required for things like hiring employees and getting loans. 

An EIN is obtained by applying online with the IRS. While you can easily go to the IRS website to apply, the State of Rhode Island wants entrepreneurs to apply through their link so they know you’ve completed this step to become a business

Not all businesses need an EIN. However, you do need an EIN, if your business:

An important aspect of running a business is banking. You will need an operations account where you can write checks or use a debit card to pay bills. Depending on your business, you may also need a separate payroll account and a savings account to plan for future expenses. 

It’s important to create a good banking relationship from the start of your business. It will likely be your bank that you go to first to get a loan, a credit card, or ask for other financial advice. The Small Business Administration (SBA) has a list of banks it works with as small business lenders in Rhode Island.

The top three banks on the SBA list are Harbor One Bank, Webster Bank, and Newtek Small Business Finance. Of those, Newtek has had the most loans with almost $1.2 million in loans. Its interest rate is higher though at 6%, compared to the 4.7% that Harbor One offers. The lowest interest rate is at BayCoast Bank, which has 4.3% interest on loans.

Rhode Island is a place for small businesses to get loans. Banks issued $245.6 million in small business loans in 2019. New loans to businesses that are under $100,000 totaled $296.5 million, according to the latest figures.

LLCs are usually set up as pass-through entities, which for tax purposes, means income taxes are paid on the owner’s personal tax return. 

Rhode Island is considered one of the higher-taxing states and is ranked 40th in the 2022 State Business Tax Climate Index issued by the Tax Foundation. It has a corporate tax rate of 7% for all corporate taxable income in the state. There is also a $400 minimum tax.

The state also has a 7% sales tax but doesn’t allow local entities to levy their own sales taxes. 

There are different reporting times for various business entities in Rhode Island. The annual reporting period for LLCs is between Feb. 1 and May 1. The fee to file an annual report is $50 and the enhanced access online fee is $2.50. The penalty for late filing is $30 with a $3 online filing fee.

Annual reports are forms that business owners fill out to notify the state of any changes made in the past year such as a change of registered agents or a mailing address change. They can be filed online and only take minutes to fill out.

Filing a report on time keeps your LLC in good standing with the state.

Insurance is an important aspect of running a business because it protects your LLC, its members, and yourself in case of accidents, injuries, claims, or natural disasters. Rhode Island is more firm about insurance than other states and requires you to have liability insurance when you register your business.

Liability insurance protects you in case someone claims your business caused injury to them or their property. 

Rhode Island is also stricter than some other states about worker’s compensation insurance. It requires all businesses that hire one or more workers to have it. It doesn’t matter who the worker is or whether they work full or part-time. 

Worker’s compensation insurance pays for an employee’s injuries if there is an on-the-job accident.

Businesses that have company vehicles are required to have liability insurance to cover all vehicles and drivers. The state doesn’t require most businesses to have property insurance unless they are residential landlords. However, property insurance will cover losses of property and equipment due to fire, theft, or natural disaster.

Additional resources to help you set up a business in Rhode Island

Rhode Island offers many resources to help you start your LLC in the right way. Some of these include.