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How To Start An LLC In Utah
Considering choosing an LLC business structure to establish your company? Excellent choice! An LLC is a legally secure and convenient business structure to give your venture a solid foundation. Each state has its own set of rules for forming an LLC, and Utah stands out for its straightforward and efficient process.
If you’re looking to launch your business in Utah, you’re in luck! Utah allows for both domestic and foreign LLCs and offers clear and streamlined procedures. Continue reading to understand more about LLCs, the steps involved in starting an LLC in Utah, and insights into the benefits, drawbacks, and costs associated with Utah LLCs
Definition
What is an LLC?
LLC, short for Limited Liability Company, is a common business structure with unique characteristics and rules. It boasts a blend of beneficial features of other business structures, such as corporations and partnerships. Since Utah hosts a large number of small businesses, the popularity of LLCs is increasing exponentially in this region.
One of the salient characteristics of an LLC includes the protection of personal assets. Even if the company involves one or more members, the loss will only affect the selected assets. This means the member’s personal assets will remain secure throughout the membership.
Utah gives many reasons to start an LLC, such as an easy and time-saving process accompanied by minimal requirements and restrictions. Also, the members can receive profits without paying corporate taxes. Later in this article, we will discuss the mandatory steps needed to set up an LLC and why you should go for it.
Starting an LLC in Utah allows you to run the business as you like. It offers flexibility in various matters, including membership, management, addition or removal of members, etc. In addition to domestic LLCs, business owners can also run their foreign companies (companies created in other states) in Utah, provided that they fit the state-defined LLC criteria.
Advantages
Advantages Of an LLC In Georgia
Utah is popular for the formation of an LLC due to several reasons, such as:
Asset protection
As per the LLC regulations, business assets are distinct from personal assets. The profit, loss, and other business issues, including lawsuits and debts, will directly impact business assets only. The personal assets remain untreated, no matter whether the company earns or incurs a loss.
Asset protection is one of the biggest advantages proposed by LLCs. All the members can save their personal assets, such as vehicles, savings, bank accounts, and real estate property, from the consequences of business risks. LLC members mutually decide the business assets.
Additionally, LLC holds all the members equally responsible and accountable in all business affairs. Hence, the individuals feel secure being a member of an LLC.
Flexible membership and management
Utah LLC features a flexible business structure that accommodates unlimited members. Multi-member LLCs are very common due to the benefits it offers.
LLC also encourages individuals to start a single-member company as a sole proprietor. Asset protection is also reserved for single-member LLCs. However, according to the operating agreement and LLC rules, you can add and remove members at any point.
When it comes to managing an LLC, the flexible business structure allows for both member- and manager-managed services. Usually, the members run businesses by themselves as partners, while in many cases, the owners prefer hiring managers for LLC management.
Simple and convenient process
Forming an LLC in Utah is just a few easy steps away. Not only are the laws easy to practice, but the process also requires minimum effort and patience.
Many US states approve an LLC after a long series of steps involving hectic paperwork. In Utah, the paperwork is minimal and uncomplicated, which helps complete the process faster. Operating a Utah LLC also relieves you from attending monthly or yearly official meetings. Additionally, running an LLC does not call for many staff or job roles. Only a few people would be enough for management-related tasks.
Pass-through taxation
LLC owners make the most of the LLC tax treatment, referred to as pass-through taxation. In this type of tax treatment, no corporate tax is applicable at the company level. However, the individual owners are taxed depending on their income and profit share.
The option of double taxation is also available for LLC owners. In double taxation, a business is taxed twice; firstly, the corporate taxes are deducted on behalf of the entire business entity. Then each member pays taxes again according to their share of the profit. The shareholders must show their profit when filing tax returns.
Multiple types of tax treatments
It is up to you how you like to pay the required taxes. The LLC laws include collecting income taxes from the owners in a variety of methods. The method of taxing single-member LLCs is the same as scheduled for a sole proprietorship. Similarly, the partnership tax method works well for multi-member LLCs.
In some cases, the LLC owners switch to the corporation tax method by filing a form with the IRS. The corporation structure uses a double-taxation method to receive taxes from the owners.
Low expenses
Starting an LLC in Utah is not as expensive as in other US states. The process is very affordable from the first step till the end. The low and reasonable filing expenses encourage new business owners to join an LLC in Utah.
Disadvantages
Disadvantages Of LLC In Utah
Incorporating an LLC has some drawbacks as well, though they are nominal. The disadvantages are as follows:
Complicated transference of ownership
If an owner wants to come out of an LLC, they may have difficulty transferring their ownership to someone else. In an LLC, the approval of all the owners is mandatory for adding or removing a member.
Unlike corporations, you can not simply hand your stocks to an interested individual. Instead, you must convince all the owners to approve your removal, which is not an easy task.
Termination of an LLC after death
The death of an owner causes the LLC to dissolve. If this matter is left unaddressed in an operating agreement, the other members must bring their ownership to an end by default.
LLC Formation
How To Form an LLC In Utah
In Utah, the rules and regulations for the formation of an LLC are very simple but strictly followed. Unlike other states, Utah does not demand unnecessary licenses or certificates. Instead, it requires little paperwork to keep the process fast and manageable. Therefore, it is considered one of the best locations to form an LLC for high-risk and small businesses.
Scroll down to acknowledge the steps you will be asked to follow when creating an LLC. We have explained each step in detail to help you understand the process deeply, so you can avoid potential circumstances and create an LLC as soon as possible.
- Decide on a unique name for your company
- Hire a Registered Agent
- File the Certificate of Organization
- Obtain an LLC EIN
- Prepare an LLC Operating Agreement
- Create an official website
Decide on a unique name for your company
Your business entity must have a unique name when applying for an LLC. So, select a name of your choice for the company. Make sure the name complies with Utah LLC naming rules.
You can check business naming guidelines issued by the Business Name Conventions and Policies. Some common rules include adding the word Limited Liability Company or Limited Company in the name. You can also keep their initials, LLC or LC, if the full forms don’t sound good with the selected name.
According to the state name rules, you are not allowed to use institute-specific words like financing, bank, attorney, college, trust, institute, or institution. Moreover, your name should not contain any word that signifies the association of your company with a political entity or government department. However, permission from concerned departments must be taken to use restricted words, which adds to the paperwork and overall costs. Going against the name rules will only end up rejecting your LLC application, so follow the rules precisely.
As mentioned earlier, the name must not match any existing company name. To confirm the availability of the name, search it on the Division of Corporations and Commercial Code.
You also have the option to choose a name and reserve it for 120 days. Yes, you heard it right! Utah Division of Corporations allows name reservation for $22, followed by an application. Many people opt for name reservations to keep the desired name unique until they finalize other business affairs.
Hire a Registered Agent
Your next step should be to hire a reliable registered agent. The role of a registered agent in an LLC is inevitable. Also, you must mention the agent and contact information when filing the documents with Utah LLC departments.
A registered agent is appointed to perform critical tasks related to official documents and lawsuits. Their job responsibilities include collecting application forms, notices of lawsuits, and government and legal documents. The availability of a registered agent ensures that LLC official and law matters are carried out smoothly.
Who Can Be A Registered Agent?
One of the most common questions is who we can choose to be a registered agent. A registered agent can be any Utah resident able to provide a real street address and contact information. If the agent is currently involved in any other business in Utah, you can still hire them to serve your company.
You can also assign this position to a person already working in your company or hire professional registered agent services. The latter will require you to submit an application and pay fees. Commercial registered agent services are the best to choose from as they are always available and handle all matters professionally and efficiently.
You can also fill the position of a registered agent. However, juggling your duties as a registered agent and those of a company owner can be challenging for you. Doing so may also distract your focus from the company’s growth. Therefore, becoming a registered agent while also being an LLC owner is not recommended. If you decide to be a registered agent, keep your current address updated to ensure that you receive documents and notifications uninterruptedly.
File the Certificate of Organization
This step requires you to file the Certificate of Organization, also known as the Articles of Organization, with the Utah Division of Corporations. This certificate contains information about your LLC business, including proper office address, address of members and managers, details and contact information of registered agents, and names and signatures of LLC members. If you opt for registered agent services, mention the organization’s name along with the required information.
Utah LLC registration fees are very low compared to other US states. Currently, it costs approximately $70. You can file the certificate through both mail and online platforms. Upon approving your certificate, the government officially allows you to operate an LLC business in Utah. However, the department may reject the LLC application in case the registered agent service company is found to be unauthorized.
Obtain an LLC EIN
The Internal Revenue Service (IRS) assigns 9 digits to every business entity. In Utah, having an EIN is essential to create and operate an LLC. With this number, you can open bank accounts, operate bank functions, and pay federal taxes. Also, EIN will be required if you need to get business licenses or hire employees for your firm. EIN works similarly to the Social Security Number.
This step involves getting an LLC EIN from the IRS for free. You have various methods to apply for EIN, including via mail, fax, and website. Whether you already have an EIN for an existing business structure, you need to get a new EIN for the new structure you are converting to.
Prepare an LLC Operating Agreement
A Utah operating agreement is drafted to set boundaries for every member. It specifies authorities, privileges, and management rules for all LLC members.
All LLC members must abide by the contents of the agreement till their membership lasts. By signing the operating agreement, the members can avoid fighting over potential business issues, such as profit distribution, duties, rules for adding or removal of members, etc.
An operating agreement is not necessary for establishing an LLC. Yet, it is essential to prevent conflicts among members that may affect the integrity of the LLC in the future.
Operating agreements are equally beneficial for single-member LLCs. The agreement clarifies the rules for adding or removing members and dissolving the company, keeping the LLC owner informed of the accessible powers and business plan. This way, an operating agreement helps maintain the discipline of an LLC, regardless of the type of membership being practiced.
Create an official website
While preparing to launch your LLC, do not forget to make it officially available on the Internet. The online existence of a business contributes to its popularity and growth. Creating a website may sound unnecessary, but it can boost your productivity and expand your reach immensely in the long run.
Once again, you need to check the availability of domain names. The website URL must also be unique. A tip is to keep the company and domain names the same.
Types of LLC
Which type of LLC is ideal for me?
If you’re considering starting an LLC in Utah, you’ve come to the right place. Utah is a great state for entrepreneurs, offering a business-friendly environment and plenty of opportunities. Before you dive in, it’s important to understand the different types of LLCs available in Utah. This way, you can choose the best fit for your business.
- Domestic LLC: A Domestic LLC is the most common type of LLC in Utah. If you’re starting a brand-new business in the state, this is likely the one for you. A Domestic LLC is formed under Utah state law and is meant for businesses operating within the state. To establish a Domestic LLC, you’ll need to file Articles of Organization with the Utah Division of Corporations and Commercial Code.
- Foreign LLC: If you already have an LLC in another state and you’re looking to expand your operations into Utah, you’ll want to register as a Foreign LLC. This allows you to legally conduct business in the state while maintaining your original LLC. To do this, you’ll need to file an Application for Certificate of Authority with the Utah Division of Corporations and Commercial Code.
- Series LLC: A Series LLC is a unique type of LLC that allows for the creation of separate “series” or divisions within a single LLC. Each series can have its own assets, liabilities, and operations, providing additional flexibility and liability protection for your business. This structure is especially useful for businesses with multiple locations, product lines, or real estate investments. However, it’s worth noting that not all states recognize Series LLCs, so you should consult with a legal or tax professional before opting for this structure.
- Professional LLC (PLLC): If you’re part of a licensed profession like law, medicine, or accounting, you might consider forming a Professional LLC (PLLC). This type of LLC is specifically designed for licensed professionals and requires that all members hold the necessary licenses to practice in their field. It’s important to note that PLLCs don’t offer the same liability protection for malpractice claims as they do for other types of claims, so professional liability insurance is still essential.
So, which type of LLC is right for you? Take some time to think about your business goals, the nature of your operations, and any specific legal or financial requirements you might have. Each LLC structure has its own unique benefits and drawbacks, so it’s important to choose wisely. And remember, it’s always a good idea to consult with an attorney or accountant to ensure you’re making the best decision for your business.
LLC Taxes
Applicable LLC taxes in Georgia
An LLC owner has to pay different types of taxes at different stages when creating and operating an LLC in Utah. The profit earned by LLC owners is subjected to self-employment tax they must pay yearly. The self-employment tax rate is 16.75% on their individual profits.
Then comes income tax imposed by federal and state authorities. The tax rate remains the same for all earnings, which is 4.95%.
The LLC owners also have to pay employer or payroll tax at a rate of 4.95% if they hire employees for their business. Apart from this, a sales and use tax is also applicable to LLC owners if their business involves the sale of retail goods and services in Utah. A tax of 6.1% is imposed on LLC owners once they register their retail company officially. Corporation-based LLC owners also pay a tax of 5% as corporate income tax.
Costs
Costs Of Forming an LLC In Utah
Let’s look at the costs required to form an LLC in Utah. These costs may vary with time and additional requirements. The general LLC costs are:
LLC Costs
Utah LLC filing fee
$70
Name reservation (optional)
$22
Expedited processing (optional)
$75
Annual renewal fee
$20
Registered agent fee
Varies
Utah business license
Varies
EIN (Federal Tax ID)
Free
Operating agreement
Varies
Professional services
Varies
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 Utah
Here are the most commonly asked questions about forming an LLC business in the state of Utah:
Like LLC formation, the dissolution of an LLC also takes place after following a few steps. First, you need to let the creditors and third parties know that LLC is about to end, so they can claim debts and dues before the dissolution.
After settling all the debts, consider closing business banks and tax accounts. Then get tax clearance from the Utah Department of Revenue. The final step includes submitting the Articles of Dissolution to the Utah Division of Corporations and Commercial Code via mail or online.
Utah LLC protects your personal assets from the beginning until it lasts. None of the business circumstances, including debts, lawsuits, operational losses, data breaches, etc., will be able to affect the integrity of the personal assets of all the LLC owners. Only the business assets – tangible and intangible – are susceptible to business risks.