How To Start An LLC In Kansas
How beneficial is it to create an LLC in Kansas, and what does it take to create one? A rise in the popularity of LLCs in Kansas has made this question very common. Forming an LLC in Kansas is a great decision to establish a stable career at such a business-appropriate destination.
What makes Kansas great for LLCs includes many factors, such as simple steps and minimum requirements. Let’s dive a little deeper to understand Kansas LLCs, their costs, procedure, taxes, and everything you should be aware of as an LLC owner.
What is an LLC?
A limited Liability Company, abbreviated as LLC, is a business structure encompassing many characteristics of a corporation, partnership, and sole proprietorship. From formation to management, an LLC is one of the most affordable and simplest business structures to own in Kansas. You can start an LLC in Kansas in a few days by adhering to simple paperwork.
The LLC structure is famous for the benefits it offers. It features limited liability for personal assets, allowing the owners to stay satisfied with their assets. Also, it offers immense relaxation and flexibility in taxation. With a pass-through tax treatment, LLC eliminates federal and state taxes at the company level. Moreover, you have the option to change the tax structure.
Kansas provides a useful name reservation system that allows you to reserve the chosen business name for 120 days. The state also allows the registered agents to conduct other businesses while serving your LLC. Such simplicity of rules gives you a big reason to establish an LLC in Kansas.
Advantages Of an LLC In Kansas
LLC itself is an advantageous business structure. The benefits will be multiplied if you choose Kansas as your LLC location. Scroll down to learn how:
Limited personal liability
Businesses incur risks of many types. Some are very common and unavoidable as well. In an LLC, the owners will not have to use their personal assets to prevent and control the risk or overcome the loss. Business assets will be used for that purpose instead.
LLCs treat business and personal assets differently. It only uses business assets, such as equipment, corporate funds, and bank accounts, for LLC sustainability in case of a loss. The owners’ assets remain safe throughout their ownership.
LLC promotes businesses by removing company taxes. Since it is a pass-through business entity, it requires owners to pay taxes on their earnings. The owner of a single-member LLC will pay taxes as a sole proprietor, while the multi-member LLC owners pay as partners.
However, the corporation taxation method is also allowed in LLCs. If this method is more suitable for your business, you can file a form for changing the tax structure. After that, your company will be taxed state and federal taxes in addition to all LLC taxes.
Kansas has no restrictions on the number of members in an LLC. A person can start an LLC business alone if unwilling to add any members. He will be treated as a sole proprietor for tax purposes.
The owner can switch to a multi-member LLC by adding members according to the operating agreement. Kansas allows LLCs to have an unlimited number of owners. Each owner will pay taxes individually.
After an LLC formation, your company will need a manager to keep business operations going. The owners are the LLC managers by default. However, you can appoint a manager from outside the company if all the members agree. Mention the correct contact details of the LLC manager in the Articles of Organization. Also, update this document if the manager is changed.
Fast LLC process
Kansas attracts entrepreneurs also because this state processes LLC formation documents more quickly than many other US states. Your application will likely get approved within 24 hours of submission through an online form. If you file the form by mail, the process will take only 2 to 6 business days to complete. The delay may occur due to problems like choosing an inappropriate name or using unauthorized registered agent services.
Disadvantages of Starting a Kansas LLC
Like two sides of a coin, LLCs have some limitations, too, though they are not deal-breaking. The benefits of Kansas LLCs are still more impactful than the disadvantages.
Difficulty in transferring ownership
When an owner decides to quit his ownership, he will need to get the approval of all LLC owners. Ownership transfer is not as easy in LLC as it is for a corporation structure in which the owners can come out of a company contract by transferring their stocks to any other person.
Lack of rule for a member’s death
LLC rules provide no proper guidance on continuing the business after a member’s death. Terminating the LLC will be the only available option in that case. However, the owners can act as per the operating agreement if it addresses this issue.
How to Form an LLC in Kansas
Registering your company/business to the Secretary of State is mandatory to carry out business activities legally in Kansas. But that requires completion of LLC formation. Kansas LLC startup follows a five-step process comprising a few basic requirements. Let’s go over all the steps in detail.
- Choose a unique name for your business
- Appoint a Kansas Registered Agent
- Submit the Articles of Organization
- Draft an Operating Agreement
- Apply for an EIN
Choose a unique name for your business
You are all set to file an LLC application, but have you decided on the company’s name? If not, name it before anything. Your LLC name needs to be inspiring and unique. Visit the Secretary of State’s name database to check the name availability status. Use online name generators to get the latest name ideas.
Kansas specifies some business naming rules that are necessary to follow to get your application accepted. For example, it cannot include words related to any institute, like college, attorney, bank, etc. The words included in the name must not indicate a political entity and state or federal agency. It must contain a designator suitable to your business domain.
It’s up to you whether you add a complete designator or just its initials to keep the name simple and concise. Also, avoid making an existing name unique by changing the spelling or punctuation marks. Such tricks can create problems in getting the state’s approval.
The rules are available on the Secretary of State’s website. Make sure the name you select complies with all those rules.
Not just the name, the trademark should also be unique. So, you also have to confirm the trademark availability before declaring it in your application. For trademark availability status, visit the website of the US Patent and Trademark Office and the Kansas Secretary of State.
Once you pick a final name, complete the paperwork as soon as possible. If there is a delay in the process, the selected name may be taken by someone else. So, consider reserving the name for 120 days. The Temporary Reservation of Business Entity Name department accepts the name reservation form online for $30 and by mail for $35.
Appoint a Kansas Registered Agent
Forming an LLC requires hiring a registered agent. A registered agent is a person who deals with legal matters of an LLC. Their job is to receive legal notices, notifications, and documents issued by state and federal authorities. In easier words, they represent your LLC in all legal proceedings. Therefore, a registered agent must be a responsible person to always be available throughout business hours.
A registered agent must qualify for the standards of the state. For example, the registered agent must be a Kansas resident. Also, they must have a proper street office address that is required to mention in the application.
There is no issue if the agent has another business in Kansas, given that the business is authorized. Similarly, the agent can be a member of your LLC. You can also work as a registered agent, but that would not be a good decision. A registered agent must be available to receive documents during office hours, making it difficult to focus on other crucial matters.
Instead, appoint a full-time registered agent or hire registered agent company services. Choose an authorized registered agent company to satisfy Kansas LLC rules.
Submit the Articles of Organization
The LLC formation process starts officially with submitting the Articles of Organization. The form provides your LLC information to the Kansas Secretary of State.
You enter the details, like the LLC name, name and office address of a registered agent or registered agent company, name, and details of managers and members, etc. If your LLC is formed for a particular period, mention the duration in the form as well. The online submission of the Articles of Organization costs $60. The fees will be $65 if you apply by mail.
The online application is processed immediately within 24 hours. However, the applications received via mail take a little longer, almost 2 to 6 business days. Getting the Articles of Organization approved means you are a registered LLC owner.
Draft an Operating Agreement
LLC paperwork also includes creating an operating agreement in Kansas. The agreement contains all the points you and other owners must accept to form a viable LLC. It clearly outlines rules, conditions, procedures, and rights to everyone entering the LLC.
Some of the contents of the operating agreement include profit distribution rules, ownership boundaries and rights, privileges, roles, and responsibilities. The contract is a way to inform all the owners about these affairs and provide them with a guideline in the event of misunderstandings.
By addressing the matters of concern, the agreement reduces the risk of many business conflicts. It also benefits single-member LLCs. The owner can seek guidance from the agreement during crucial times. Also, it specifies rules for adding and removing members that enable you to convert single-member LLCs to multi-member LLCs without fuss.
Apply for an EIN
The next step is to obtain an Employer Identification Number or EIN. File the EIN application with the Internal Revenue Service (IRS) for $0. Both online and mail applications are acceptable.
This 9-digit number gives identity to your LLC and lets the IRS collect state, federal, and other LLC taxes from you. EIN is also required for opening bank accounts and hiring employees. Sole proprietors must also obtain a new EIN when starting an LLC. EIN is also used to get business licenses and permits from the state.
Types of LLC
Which type of LLC is ideal for me?
In Kansas, there are two primary types of LLCs that you can consider, each with its own unique characteristics. Don’t worry, we’ll break it down for you in simple terms so you can easily understand the process.
- Domestic LLC: A domestic LLC is the most common type of LLC in Kansas. It is formed when you create a brand-new business entity within the state.
- Foreign LLC: A foreign LLC is an existing LLC formed in another state that wants to do business in Kansas. If your business is already operating as an LLC outside of Kansas and you plan to expand your operations within the state, you’ll need to register as a foreign LLC.
Applicable LLC taxes in Kansas
Kansas permits two methods for filing LLC taxes; pass-through and double taxation. Let’s see which taxes an LLC owner has to pay in Kansas.
Federal Income Tax
LLC owners do not have to pay federal or state income taxes due to pass-through entities. However, if they choose C-corp tax treatment, they will be taxed a federal corporate tax at a rate of 21%.
Personal Income Tax
In Kansas, personal income tax is collected depending on the owners’ income and the selected taxation method. Let’s consider pass-through LLCs first.
For earnings less than $15,000, the personal income tax rate will be 3.5%. If the income ranges between $15,000 and $30,000, the owners will pay 6.25% of their total income. Owners whose income exceeds $30,000 will face a tax rate of 6.45%.
The personal income tax rates are different for C-corp LLCs. Owners with an income less than $50,000 will incur a tax rate of 4%. LLC owners earning more than $50,000 will pay 7.05% of their total income.
The federal self-employment tax rate is 15.3%, the same for all tax methods. Similarly, all LLC owners will pay a sales tax of 6.5%.
Cost of forming an LLC in Kansas
The state fee for LLC formation in Kansas is $0. However, you will have to pay some costs for other formalities, like name reservation, annual report, etc. Take a look at the expenses of creating a Kansas LLC.
Filing Articles of Organization (online)
Annual Report filing (online)
Licenses and permits
Lastly, the costs for licenses and permits will depend on your specific business activities and the local or state requirements. You’ll need to research your industry to determine the exact fees applicable to your business.
Keep in mind that these costs are subject to change, and it’s always a good idea to check with the Kansas Secretary of State’s office for the most current information.
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