How To Start An LLC In Oklahoma
Starting a Limited Liability Company in the state of Oklahoma may seem like a tough task in the beginning. However, with the right research and guidance, you can easily open your own Oklahoma-based LLC. There are many different things to consider before you can start your LLC, such as Oklahoma tax laws and different formation costs. So to make your journey easier, we have compiled the required information for you in this guide.
What is an LLC?
A limited liability company, or LLC, is a corporate structure in which owners, unlike conventional corporations, are not personally liable for the business’s debts or liabilities. The proprietors of an LLC are not required to give up their personal property in the event of bankruptcy. A legal document known as an article of incorporation is used to create a company at the state level.
One of their main advantages is that limited liability companies don’t directly pay taxes on their revenues. Instead, earnings and losses are disclosed on tax returns filed by the member or owner.
The ownership of a limited liability business is also often not restricted by law. This implies that anyone, including other corporations and international companies, can join. However, some organizations can’t legitimately incorporate limited liability companies, including banks and insurance businesses.
Most importantly: in comparison to forming a corporation, forming an LLC is significantly less difficult and time-consuming. Investors benefit from greater security, and it is a lot simpler.
Since an LLC’s primary goal is to shield shareholders from direct liability for the company’s debts, fraud may occasionally occur. However, the creditors can go after the members and hold them accountable personally if they are found to have engaged in fraud or are unable to provide their legal reports.
Advantages Of Starting An LLC In Oklahoma
The advantages and disadvantages of forming an LLC in the US can vary depending on which state you are in. Each jurisdiction has its advantages and disadvantages, and for this guide, we will look at some of the advantages of forming an LLC in Oklahoma.
One of the main advantages Oklahoma LLC owners can benefit from is limited liability. This means that creditors suing an Oklahoma LLC typically cannot pursue the personal assets of the owners unless certain exceptions apply, such as personal guarantees or actual fraudulent activities. To reiterate: if you are found guilty for any personal and valid reason, you can still land in legal trouble.
Any LLC owner, no matter the state, is free to choose whatever tax type they want to adopt for this business. For instance, they can choose the default sole proprietorship/partnership option, where the income is only taxed once. You can also tax your Oklahoma business like an S-Corp or C-corp to attract more investors and potentially lower personal income tax. We’ll discuss more of this below, but just know that flexible taxation is one of the biggest benefits of forming an LLC.
Another major tax benefit of forming an LLC in Oklahoma is that the government provides various tax credit programs, which you can benefit from. These programs include the small employer quality jobs program, mostly designed for newer businesses. If you are a new business in Oklahoma and are providing jobs to the residents of the state, you can receive up to 5% cash rebates on a quarterly basis.
Furthermore, an Oklahoma LLC can benefit from this program for about seven years. Moreover, the state of Oklahoma also issues tax credits to a company if they create more full-time jobs in the state.
Lower filing fees
Oklahoma is often regarded as an attractive state for starting an LLC due to its relatively low filing fees compared to other areas. The one-time filing fee in the state of Oklahoma is $100. This modest fee contributes to the cost-effectiveness of starting a business in the state and can be advantageous for startups looking to minimize their initial expenses.
Another significant advantage is the streamlined and efficient LLC filing process, which is known to be faster and simpler compared to many other states. Oklahoma’s online filing system further facilitates the process by providing a convenient and expedited method for submitting the required documents.
What Are The Disadvantages Of Forming An LLC In Oklahoma?
While there are multiple advantages to owning an LLC in Oklahoma, there are also a few disadvantages that you must consider. Some of these include the following:
Managing disagreements in multi-member LLCs
Unless you are the only owner, there may be a few inconveniences you have to deal with. If the ownership of the LLC is spread across multiple members, there is a possibility of disagreements or conflicts arising among them. Since most LLC decisions have to be unanimous, it’ll very likely affect operations.
Tax liabilities on unreceived profits in LLCs
The members may pay individual taxes on their portion of the shares even if they have not received their profits. This can be a problem if shareholders do not receive their set of profits or if a member forgets to file. All owners are liable to pay taxes on their shares, and your business could land in big trouble if even one of you misses the deadline.
How To Start An LLC In Oklahoma?
Multiple steps must be taken in order to form your LLC in Oklahoma. However, the overall process does not take as much time as you expect. These steps include:
- Name your Oklahoma LLC
- Choose your registered agent
- Prepare and file the Articles of Organization
- Receive the State Certificate
- Prepare an Operating Agreement
- Acquire an EIN
Name your Oklahoma LLC
The first step of starting an LLC in Oklahoma is deciding on a name for your company. There are different naming rules and conventions that you must comply with, including the following:
- Words like attorney and lawyer may require you to provide additional legal documents
- The name must not include words used for government agencies, such as the CIA, FBI, etc.
- The name you choose for your LLC must not be the same as any registered entity in Oklahoma
- Your business name must include the words limited liability company or LLC in their name
- It is important to reserve the LLC name beforehand if you are not planning to register immediately, as someone else can take that name
You must also reserve the name for your LLC in advance, as someone else might take that name while you’re in the process of submitting your other requirements. There is an extra fee involved for this process.
When an LLC is formed, the company is granted the authority and the exclusive right to use the name of its business entity in the state in which it is located. It could make an open record of its activities. Generally speaking, it is against the law to create a new business with the same name as an already existing business.
Choose your registered agent
Oklahoma requires you to appoint a registered agent for your LLC. A registered agent is an individual hired on behalf of an organization to receive and handle all the important official and legal documents from the government.
The registered agent you choose for your company can either be an individual or an outside entity. You can even elect a member from your organization to act as a registered agent. However, there are a few requirements that your registered agent must meet:
- If opting for an entity, make sure they offer the services of registered agents.
- The agent needs to have an official address in Oklahoma
- The registered agent has to be available on-site to receive all business documents during the business timings.
Prepare and file the Article(s) Of Organization
The state of Oklahoma requires all new LLCs to file a set of documents called the Article of Organization. The Article of Organization is a legal document that establishes your LLC by providing all the necessary information related to your business. The Articles are filed directly to the Oklahoma State Secretary. The filing fee for the Article of Organization in Oklahoma is $100.
Once you have filed your documents, the Secretary of State will go over them. Once your application is approved, you will receive a certificate confirming that you are an officially established LLC in the state. This certificate will help you acquire an employer identification number (EIN) and the ability to set up an official bank account for your organization.
Receive the State Certificate
Once you have completed these steps, the state of Oklahoma will send you a certificate confirming the existence of your LLC and confirming that it is registered in the state of Oklahoma. This certificate will help you acquire an employer identification number and the ability to set up an official bank account for your organization.
Prepare an Operating Agreement
The Operating Agreement gives a general description of how your limited liability company will operate. The following may need to be stated in an Operating Agreement document:
- Clauses for losses and liabilities
- The name of the LLC and its address
- The LLC’s period
- The registered agent’s name and residing address
- Details about the Articles of Organization
- Your business’ purpose
- Names of the members and their respective contributions
- Method of dividing losses and profits
- The way new members will be admitted
- Information about the LLC’s management
Filing an Oklahoma Operating Agreement is optional in the state. However, you need to submit one of these formal documents to guarantee smooth operations. When an operating agreement is unavailable, the courts may use state law to resolve disputes instead, which could prove advantageous for your business.
Acquire an EIN
EIN, or Employer Identification Number, is a nine-digit number that the Internal Revenue Service issues to your company. Aside from being used to pay and file your taxes, having an EIN lets you enjoy the following benefits:
- Open a business bank account
- Quickly apply for loans
- Manage taxes on a federal level (note that LLC owners can also use their personal number to file for taxes)
- Hire employees
Types of LLC
Which type of LLC is ideal for me?
In Oklahoma, Limited Liability Companies (LLCs) can be structured in a few different ways. While the specific terminology and classification may vary, the most common types of LLCs include:
- Single-member LLC: This type of LLC has only one owner, known as a member. The owner has limited liability protection, and the company’s income and expenses are reported on the owner’s personal tax return.
- Multi-member LLC: A multi-member LLC has two or more members who share ownership of the company. Members can decide how to allocate profits, losses, and management responsibilities among themselves. Like a single-member LLC, a multi-member LLC offers limited liability protection for its members.
- Manager-managed LLC: In this type of LLC, the management is delegated to one or more appointed managers instead of being managed by the members themselves. The managers can be either members or non-members. They are responsible for making the day-to-day decisions, while the members retain their limited liability protection and focus on big-picture decisions.
- Member-managed LLC: In a member-managed LLC, all members actively participate in the management and operation of the business. This is the default management structure for an LLC in Oklahoma unless specified otherwise in the operating agreement.
- Professional LLC (PLLC): A PLLC is a type of LLC specifically designed for licensed professionals, such as doctors, lawyers, architects, or accountants. The PLLC structure allows these professionals to form an LLC while adhering to the regulations and licensing requirements of their respective professions.
- Series LLC: Although not as common, Oklahoma also allows the formation of series LLCs. A series LLC is a single legal entity that can have multiple distinct “series” or “cells” within it. Each series can have its own assets, liabilities, and business operations, separate from the other series within the same LLC. This structure can be useful for businesses with multiple distinct operations or for holding different types of assets.
Keep in mind that the specific regulations and requirements for forming an LLC in Oklahoma may change over time, so it’s essential to consult with a legal or business professional and review the Oklahoma Secretary of State’s website for the most up-to-date information.
How Are Oklahoma LLCs Taxed?
Limited liability companies have a number of tax benefits that greatly increase their flexibility compared to other business forms. The money earned is then reported by all LLC members as personal income and taxed as expenses on their personal tax returns. LLC owners are regarded as self-employed and must report their income and pay self-employment taxes on it.
There are two default taxation methods for limited liability companies: partnership and sole proprietorship. If there is just one member, they are taxed as a sole proprietorship. If there are numerous members, it is taxed as a partnership. If it’s a partnership, all members split the profits and tax relative to their share.
An LLC may elect to be taxed as an S-Corp or a C-Corp. In an S-Corp, the limited liability company’s income, deductions, losses, and credits are passed through to the owners, who report them on their individual tax returns—similar to a partnership. The LLC itself is not subject to a separate federal income tax, and the shareholders are taxed based on their share of the corporation’s profits.
S-Corp enjoys more benefits, however, such as enabling owners to give themselves lower “wage” and separating profits of the company from their assigned salary. This results in lower personal income tax. Owners can also be entitled to employee perks available in the state.
C-Corp LLCs becomes a separate taxable entity, and it pays corporate income tax on all its profits. The owners and shareholders of a C-Corp are not personally liable for the corporate income tax. Instead, they are taxed on any dividends or distributions they receive from the C-Corp, in addition to any other income they may have. Investors like this type of setup better as well since they get a lot of tax benefits from it (such as qualifying for tax exemptions).
Applicable Limited Liability Taxes in Oklahoma
Now that we’ve discussed ways your LLC can be taxed, let’s talk about the specific tax types you need to be aware of as a business that operates in the state. Some of these may include:
Annual registration fee
Like most states, Oklahoma requires you to pay an annual registration fee, which is, fortunately, less than other states. The annual certificate fee in the state of Oklahoma is $25 and must be renewed every year.
Personal income tax
Personal income tax is a tax imposed on the income earned by individuals. It is based on the income they receive from various sources, such as employment, self-employment, investments, and other taxable activities. To determine the amount of personal income tax owed, report your income and eligible deductions, exemptions, or credits on their tax returns. Oklahoma has a graduated income tax bracket (0.25% to 4.75%) depending on your filed returns.
If you’re available on the C-corp tax formation that we discussed above, you are liable to pay for business tax. Depending on your setup, an S-Corp-taxed LLC may also need to pay for this. Oklahoma levies a flat 4% corporate income tax on a corporation’s net income, which is significantly lesser than other states, such as Oklahoma, where the corporate income tax is a flat 6.25%.
The corporate income tax in Oklahoma used to be a flat 6% like most other states. However, it was reduced to 4%, making it very advantageous, especially for new business owners.
What Are the Costs Of Forming An LLC in Oklahoma?
There are a few costs you may encounter when forming your LLC, and most of these can vary depending on your state or the state where you choose to form your LLC in. The costs an LLC may encounter in its formation in Oklahoma are as follows:
Oklahoma LLC filing fee
Name reservation (optional)
Registered agent services (optional, up to)
Operating agreement (optional)
Business license and permits
Annual certificate of good standing
Annual franchise tax (for applicable LLCs)
Annual report (not required in Oklahoma)
Choosing a Limited Liability Company business structure in Oklahoma has advantages. For one, the owners are not held accountable for the company’s debts. It provides decent security and benefits for both owners and shareholders during taxation. You may easily create an LLC in Oklahoma by following our guide above, which will help you learn the dos and don’ts of forming an LLC in Oklahoma.
Oklahoma is considered one of the cheaper states to form an LLC in as there are various tax advantages compared to other states. Moreover, the filing and annual fees are significantly less than in most other states.
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.
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