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How to Start an LLC in Louisiana
If we are discussing new business formations, you would be surprised to know Louisiana is in the middle of a busy period. From January 2021 till now, the state has received thousands of business applications. Many businesses and entrepreneurs are eagerly seizing the opportunity presented by this economic boom, including people who wish to set up a Limited Liability Company in Louisiana.
Forming a Limited Liability Company in the state is a simple process. However, there are some crucial things that you need to know, such as the tax requirements, the costs included, and many other related things. If you wish to learn how to start an LLC in Louisiana today, keep reading this guide.
Definition
What is an LLC?
An LLC, short for limited liability company, brings together the best of both worlds: the simplicity of a partnership or sole proprietorship combined with the strong safeguards of a corporate setup. In Louisiana, LLC members enjoy a similar level of limited liability protection as shareholders in a corporation. This means that their personal assets are generally shielded from business-related debts and losses, ensuring that their financial exposure is limited to their investment in the company and doesn’t extend beyond that.
Members of a limited liability company follow a tax approach similar to sole proprietors or general partnerships. Known as “pass-through taxation,” this means that the company’s income “passes through” to the individual members, who report it on their personal tax returns. Depending on specific qualifications, an LLC can also choose to be treated like an S-corporation or a C-corporation, which offers different liability and tax benefits.
LLCs are an attractive choice for numerous small businesses due to their adaptable nature and straightforward setup. Opting for an LLC in Louisiana can be especially advantageous. Louisiana extends a range of business incentives to qualifying LLCs, making it an enticing option. For instance, you could receive a tax credit of either $1,000 or $3,500 for each new job generated, along with a 6% reduction in payroll expenses over a decade.
Advantages
What Are the Advantages of An LLC In Louisiana?
We’ve talked about some advantages above, but that’s not all you’re getting from forming an LLC in Louisiana. Below are more pros to your decision:
Liability protection
A limited liability company in Louisiana can enjoy liability protection. This means that if the company is sued, courts can never seize the personal assets of the investors or owners.
Flexible Distribution of Profit
The owners of an LLC enjoy different ways to distribute the profits. Whether you’re opting for a more proportional distribution based on ownership percentages, allocating profits according to a predetermined agreement, or even reinvesting profits back into the company’s growth, the versatility in profit distribution makes an LLC an adaptable and attractive choice for business owners seeking financial customization and optimization.
The EZ program
The Enterprise Zone Program is a Louisiana incentive program that focuses on forming new job opportunities. If your Louisiana LLC meets this program’s requirements, you can unlock valuable advantages, including income tax and franchise tax credits. Specifically, for each job your company generates, you could qualify for $1,000 in tax credits. This program serves as a supportive catalyst for every registered business’s growth.
Louisiana Industrial Valorem Tax Exemption Program
The Louisiana Industrial Valorem Tax Exemption Program is a valuable initiative provided by the state to registered businesses (including LLCs) that aren’t engaged in manufacturing. This incentive program lets eligible businesses benefit from 100% tax abatement on the property for the first five years. This time can also be extended to more years.
Small Business Guarantee and Loan Program
If your company is registered in Louisiana, you can tap into the state’s Small Business Guarantee and Loan Program. This program is especially helpful for small startups that often require financial support, offering loans spanning from $5,000 to $1.5 million and providing a significant range of funding options. It’s managed by the Loosely Economic Development Corporation (LEDC).
In addition to the above program, Louisiana offers a ton of other initiatives for LLCs. These include the Small and Emerging Business Development Program, the Inventory Tax Credit Program, the Small Business Loan Program, the Economic Development Award Program, the Micro Loan Program, the Quality Jobs Program, and more.
Disadvantages
What Are the Disadvantages of An LLC In Louisiana?
After reading about all the many benefits of forming an LLC in Louisiana, you may wonder if there are any drawbacks to creating an LLC in the state. While there are a few, they are not too bad.
For example, one potential disadvantage of forming an LLC is the processing time. In Louisiana, the process typically extends beyond 15 days to complete the necessary paperwork and establish the LLC. However, you have the option to expedite the process by paying an extra fee, which can shorten the time frame to just five business days. Plus, if you’re not in a hurry—then it’s not a disadvantage worth noting.
Similar to other states, an LLC in Louisiana also has a limited lifespan. It can only exist for up to 30 years. If you want a more resilient structure, a corporation is your best bet.
LLC Formation
How to Form an LLC in Louisiana
Before starting the filing process of your LLC Louisiana, there are a few things that you need to take care of, such as determining whether you will submit paper forms or file online. Here’s everything you need to know about the process.
- Choose a unique name for your business
- Choose a registered agent in Louisiana
- File your Louisiana LLC articles of organization
- Create an operating agreement
- Apply for an EIN
- Open a business bank account
Name the Company
The first step to forming an LLC is to pick a name that matters for your brand and has legal importance. Registering the name is a simple process that takes just a few minutes. You can do this online via the Louisiana Secretary of State website or get assistance from your attorney.
Just remember that your business name should meet the following criteria:
- Louisiana states that an LLC name should end with words or a combination of words that indicate that it is an LLC, such as “limited liability company” or “L.L.C.”
- The names cannot be misdescriptive; they should not suggest a type of business you are not conducting, or that is not allowed under the law in Louisiana.
- The LLC names should avoid words that have legal meanings, such as trust, insurance, trustee, and bank. If any of these terms are used to name your company, it may result in penalties.
- The name must be unique and not a copy of a used name. To check the availability of your desired name, you can go to the Louisiana Secretary of State’s website and search for your name in both reserved and registered names.
Once you have selected a name, you can reserve it for a fee of $25.
Find a Registered Agent
Limited liability companies in Louisiana must have registered agents, a business entity, or a person who can receive documents related to your company. The agent must be a resident of Louisiana living in the state with a physical address the government can mail documents.
You can even choose to be your own registered agent if you live in the state. But it’s generally recommended for new business owners to hire someone for the job. Just be sure they’re available during business hours to handle official communications and documents for your company.
A professional registered agent can also provide extra services to ensure that everything related to your business runs smoothly, such as:
- They act like a compliance monitor who checks whether the company is following the rules and regulations of the state.
- They also record tax payments and other fees being paid on time.
- They keep critical records of important documents such as annual reports and meeting minutes.
File your LLC Articles of Organization
Your limited liability company can only be officially recognized by Louisiana when you submit a stack of documents called the Articles of Organization. These documents essentially serve as the foundation of your LLC, outlining its basic structure, purpose, and key operational details.
Below are some of the details you will need to include in your Articles of Organization:
- The name of your limited liability company
- The principal address of your company (it can also be a P.O. box if that’s where you receive your mail)
- The physical address of your registered agent
- Information about all the company members, such as their titles, names, and addresses. You also need to nominate at least one person to represent all the members during the filing process.
By the way, while you can file the Articles online or by mail, the following parishes only have an online filing option:
- Livingston
- Caddo
- Jefferson
- East Baton rouge
- Terrebonne
- Rapides
- Tangipahoa
- Orleans
- Bossier
- Ascension
- Lafayette
When you choose to submit these documents through online filing, you’ll need to pay a fee of $100 to the Louisiana secretary of state. Opting for online filing typically takes around one to two business days for processing.
Alternatively, if you decide to go for paper filing, the processing time extends to about seven business days. For a quicker processing option, there’s an expedited service available for an additional fee of $30.
Create an Operating Agreement for your LLC
Business owners think an operating agreement is not essential for their LLC, but it is one of the most critical documents you need to make in Louisiana. It outlines the rules and procedures for managing your company. All the managers and members must sign, agree, and adhere to the details written in the agreement.
An Operating Agreement in Louisiana can look like any, but generally, you want to specify the following:
- How the company’s profits will be divided
- Parts of the company are looked after by members (such as work, property, and money)
- How much everyone has to pay if there are losses
This document also helps the members avoid legal disputes if one partner wishes to leave the company and sell their shares.
Open a Business Bank Account
Finally, make a business bank account. This is a crucial step to manage your company’s finances effectively. In fact, make it a habit to keep all the cash related to your company in this account. This includes both incoming and outgoing money, covering all your company’s expenses. By using this account for all financial activities, you protect your assets and prevent mixing personal and business funds. This separation is crucial for keeping accurate financial records and safeguarding your business’s financial well-being.
However, before you open a business account, you need to obtain an employer identification number (EIN).
Get an EIN
The Internal Revenue Service (IRS) issues employer identification numbers to organizations and businesses. This number is essential for identifying your business and is necessary in Louisiana if you intend to hire employees or generate profits. In fact, even non-profit organizations in Louisiana require an EIN. You can easily obtain an EIN by filling out a free online form on the IRS website.
Types of LLC
Which type of LLC is ideal for me?
In Louisiana, there are mainly two types of LLCs you can choose from:
- Single-member LLC: This is perfect for you if you’re planning to be the sole owner of your business. As the name suggests, a single-member LLC has only one owner, also known as a “member.” You’ll enjoy limited liability protection, which means your personal assets are safeguarded from any business debts or legal issues. This is a popular choice among entrepreneurs who are just starting out or running a small business.
- Multi-member LLC: If you’re considering starting a business with partners or you foresee adding members in the future, a multi-member LLC would be the ideal choice. This type of LLC has two or more members, and the members can be individuals, other LLCs, or even corporations. With a multi-member LLC, you can also benefit from limited liability protection, just like in a single-member LLC. Remember to create a clear operating agreement outlining the roles, responsibilities, and ownership percentages of each member to avoid any conflicts in the future.
No matter which type of LLC you choose, you’ll need to follow the registration process with the Louisiana Secretary of State. This typically involves filing Articles of Organization, paying a filing fee, and obtaining an EIN (Employer Identification Number) from the IRS if you’re planning to hire employees or open a business bank account.
LLC Taxes
How Are Louisiana LLCs Taxed?
Limited liability companies in Louisiana can choose to be taxed as a sole proprietorship, a partnership, or a corporation. If you have filed to be treated as a corporation, you will be taxed like one. Regardless of the way you opt to be taxed, LLCs in Louisiana mainly need to be concerned about the following taxes:
Louisiana Income Tax
You’ll need to pay state income tax on any earnings you take as compensation for yourself. Louisiana’s income tax rates vary from 2% to 6%, depending upon your earnings.
Sales Tax
If your business sells services or physical products, it’s your duty to collect sales tax from your customers for the state. This collected tax must be carefully calculated and sent to the state authorities as required. Ensuring accurate records and following the state’s sales tax rules is essential to prevent any complications.
Franchise Tax in Louisiana
Some states impose taxes on certain businesses to allow them to exist as legal entities and operate within the state. In Louisiana, this is known as a franchise tax or privilege tax. The franchise tax is essential to filing taxes for your limited liability company in Louisiana.
Federal Self-Employment Tax
All managers and members of an LLC are obligated to pay self-employment taxes, which contribute to Social Security and Medicare through the Federal Insurance Contributions Act (FICA). This tax pertains to the income you take out from your company. The current tax rate is 15.3%
Federal Income Tax
You also need to pay federal income tax on the money you take out of your company. The amount of income tax you owe depends on deductions, your current tax bracket, filing status, and earnings. Additionally, there are other taxes to consider, such as employee and employer taxes, along with employee insurance and related expenses.
Costs
What Are The Costs Involved In Forming An LLC in Louisiana?
The cost of forming an LLC in Louisiana is very low compared to most business structures and jurisdictions. Just don’t forget that aside from annual taxes and the filing fee, you may also need to pay for various licenses and registrations.
Here are all the costs related to forming an LLC in Louisiana:
LLC Costs
Articles of Organization filing fee
$100
Name reservation fee (optional)
$25
Registered agent fee (varies, up to)
$300
EIN (Employer Identification Number)
Free
Annual report filing fee
$30
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.
LLC vs Sole Proprietorship
The primary difference is that an LLC provides limited liability protection for its owners, while a sole proprietorship does not.
FAQ
Frequently Asked Questions About Starting An LLC In Louisiana
Here are the most commonly asked questions about forming an LLC business in the state of Louisiana:
Apart from meeting your federal income tax and sales tax requirements, you’ll also need to pay an annual fee of $30. This fee contributes to the ongoing administrative and regulatory processes that help ensure the proper functioning of your LLC within the state.
To do that, you’ll need to amend both your company’s Articles of Organization and the operating agreement. This can be done conveniently on the Secretary of State’s website. If needed, it’s a good idea to consult your lawyer to ensure a smooth and accurate process.
Absolutely! Louisiana is the perfect state for you to start a limited liability company. The state office has many programs and incentives for small startups and LLCs to thrive.
Every year after starting your company, you must file an annual report with a $30 fee to the Secretary of State. This serves as a way to update essential company information and maintain your LLC’s active status in the state.
Conclusion
The LLC business structure is a smart option for medium to small-sized businesses looking to protect their assets from potential risks. Take your time, do thorough research, and make informed decisions. Don’t worry about feeling overwhelmed—Louisiana is a great place for new businesses and LLCs, offering a welcoming business atmosphere and attractive incentives. If you run into any challenges while setting up your LLC, seek professional legal assistance.