Discovering Iowa
Northern and Central Iowa is made up of the Young Drift Plains. Drift is a combination of gravel, sand, rocks and clay that were left behind by glaciers thousands of years ago. You’ll find lakes, rivers, swamps and streams all over the state. There are also lots of forests. Iowa is the #1 state for producing both corn and ethanol, which is a fuel made from corn.
Economic Overview of Iowa
Iowa has a Gross State Product (GSP) of $178.9 billion, with a growth rate of 17.7k% over the past five years. The highest-earning industries in Iowa are Life Insurance & Annuities, Farm Supplies Wholesaling, Corn, Wheat & Soybean Wholesaling, Meat, Beef & Poultry Processing, and Commercial Banking. The biggest employers in the state are the State of Iowa, UnityPoint Health, Walmart, MercyOne and the University of Iowa. And the sectors that add to the GSP the most are Manufacturing, Finance and Insurance, Real Estate and Rental Leasing, Healthcare and Social Assistance, and Wholesale Trade.
Business Environment in Iowa
Many people seem to agree that the business environment in Iowa isn’t all it could be. Usnews.com ranks it #46 in the nation for its business environment. That same survey reveals that the state has -0.5% job growth (the national average is 0.2%), and in terms of infrastructure, it ranks #34 for transportation and #26 for internet access.
The cost of living index in the state is 89.6, which is well under the national average of 100.0. And the median household income is $65,6000, which is slightly lower than the national average of $69,717. That means that workers make less on the hour than they would in other states, but it costs them less to live in the state. For instance, WalletHub’s survey of the best states to start a business in lists Iowa as the state with the cheapest office spaces for rent.
But even though it’s not terribly expensive to hire employees in Iowa, or to rent office space, taxes will be what gets you. Corporate income tax rates are as high as 9.80%, and you may think that since you own a pass-through entity that doesn’t affect you, but their personal income tax rates are as high as 6.50%. So even if you aren’t taxed as a corporation, your LLC is going to pay taxes through the nose in Iowa.
If you talk to some of the people in the state, you’ll learn why taxes are so high. People and businesses are leaving the state. In years past, businesses flocked to the state because it was inexpensive to purchase real estate and rent property there, and hiring employees was a low-cost endeavor, as well. And though Iowa isn’t near many big cities, it had the infrastructure necessary to bring in and export goods that businesses needed. But in recent years the state government has let infrastructure maintenance fall to the wayside in an attempt to lower taxes in the state.
State-Specific Regulations and Incentives for Forming an LLC in Iowa
These are some of the state-specific incentives and programs you can take advantage of in Iowa.
- High Quality Jobs Program: If your business creates jobs and makes capital investments, then some of the investments it qualifies for include: financial assistance like loans and forgivable loans, and tax exemptions up to 100% of the amount of incremental value added up to 20 years, as well as an increase in Iowa’s research activities credit while you participate in this program.
- New Jobs Tax Credit: This is a one-time tax credit provided to your business to increase your workforce 10% or more as well as participate in the New Jobs Training Program. You can get up to $2,155 per each new job created annually.
- Targeted Jobs Withholding Tax Credit: This incentive allows for as much as 3% of a project’s withholdings to be diverted and funneled into the project’s budget quarterly.
- Research Activities Credit (R&D or RAC): Any businesses in the state that qualify for federal research tax credits can also get an Iowa Research Activities Credit, up to 6.5% of research expenses in the state. Some companies that take part in the High-Quality Jobs Program can also get supplemental research credits.
- Economic Development Set-Aside (EDSA): In an effort to promote businesses that create and retain jobs in the state, the state government provides a one-time direct or forgivable loan up to $1 million. There are several qualifications for this assistance, like providing proof of a funding gap, being located in an disadvantaged area, having an insufficient return on investments, creating jobs that pay 80% or more of the area’s “laborshed” average wage, and having 51% or more of those positions filled by low-to-moderate income individuals.
- Iowa Industrial New Jobs Training: This training is supplied by the 15 community colleges in the state, and is financed using bonds that are sold by them. Businesses can divert between 1.5% and 3.0% of its withholding taxes produced by the positions (dependent on the wages of the trainees) to the college. This process ensures that the training is either of low or no cost to the business.
- Targeted Small Business Program: This program is designed to specifically help women, minorities, disabled veterans and individuals with disabilities who own small businesses. Targeted Small Business (TSB) loans come with benefits like being listed on the Certified TSB Directory online, invitations to TSB networking and other events, introductions with partners which could facilitate the growth of your business, new connections, or purchases, and a TSB badge or window cling that you can use to promote your business.
- State Small Business Credit Initiative (SSBCI): This is $96 million worth of funding that’s intended to help small businesses, startups, veteran-owned businesses, businesses run by a diverse number of backgrounds, and manufacturers grow. You apply for the funding through the U.S. Treasury Department’s SSBCI program.
- Loan Participation Program for Manufacturing 4.0 Investments: Part of the SSBCI, this is $28 million intended to assist manufacturers in Iowa in investing in new technology in the industry.
- Small Business Collateral Support Program: Part of the SSBCI, this is $15 for helping small businesses offset collateral shortfalls when they secure loans through traditional commercial lenders. Business owners that qualify for the program are those who can say their business is at least 51% owned by women, veterans, minorities, people with disabilities, or residents from rural backgrounds, as well as businesses that further culture and bring the arts to the state.
- Venture Capital Innovation Fund Program: Part of the SSBCI, this is $22 million to go towards increasing the funding opportunities throughout the state’s many assistance programs already in place for entrepreneurs.
Pros and Cons of Establishing an LLC in Iowa
There are advantages and disadvantages to starting an LLC in Iowa, which we’ll go over in this section so you can understand them and make a proper decision.
There are low filing fees for forming an LLC in Iowa. Filing your Certificate of Organization with the Secretary of State costs only $50, which is one of the lowest filing fees in the country. And it only costs $45 to file biennial reports online ($60 by mail).
The low costs of commercial real estate rental are enough to attract many business owners to the state. Iowa has some of the lowest commercial rental fees in the nation.
Iowa has also made forming an LLC in the state simple due to its regulations on the entities. It’s one of only 20 states in the nation to adopt the Uniform LLC Act that was proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL). And it’s one of the few states that allows Series LLCs. This is the ability to create a series of LLCs all within one single LLC wherein the debts and liabilities of the series can only be enforced in that particular series.
There are some downsides, as well.
The biggest drawback is the tax rates in Iowa. The sales and use tax rate in the state is 6%, but an additional 1% or more is typically added to that for local sales taxes, which could drive sales taxes as high as 8%. Corporate income taxes are 9.80%, which makes it one of the highest in the country. And even personal income tax rates aren’t low at 6.50%. So, no matter how your business is taxed, you can expect to pay oodles in taxes in Iowa.
It’s always difficult for LLCs to gain access to capital, due in part to the fact that they don’t sell shares the way that corporations do. But Iowa poses another problem in that area because it ranks 27th in the nation according to WalletHub for Access to Resources.
The infrastructure in Iowa is declining. Usnews.com ranks the transportation infrastructure in the state at #34, and internet access at #26. That means that getting to-and-from some places might be a pain, and delivery of your goods could be slowed down. It may also be difficult to get your business quality internet if it’s located in areas where internet access is limited.
Procedure of Establishing an LLC in Iowa
You need to know the process of forming an LLC in state in order to properly understand formation time frames. Here are the steps to forming a Limited Liability Company in Iowa.
- Get a Certificate of Organization Form: To initiate the formation process, you need to submit a Certificate of Organization for your business. It’s vital to the creation of your company. You can quite easily get the form from the Secretary of State.
- Choose a Business Name: Your business name is an important part of business creation. It’s not only the moniker your customers will associate with your products and services, it’s also how the state government will be able to look up your business in their database. Your business name has to have the words “Limited Liability Company”, or some variation or abbreviation of it because of its LLC status. It also can’t be too similar to another business name, or the same as another business name. To find out if your chosen business name is available, run a search on the business name database on the Secretary of State’s website.
- Name a Registered Agent: Your LLC is required to have a registered agent, so you’ll need to name one on your formation paperwork. A registered agent is someone who will receive legal notices, like service of process, and mail and documents from government agencies on your business’s behalf. We’ll discuss it in more detail in an upcoming section, but for now just know that you have two options here: hire any qualifying Idaho resident that you trust, or a professional registered agent service.
- Choose Your Business Address: All of your company documents and legal notices will be sent to your business address, and it’s listed on the public record so that government agencies and customers alike can find it. This means you need to choose the right business address to make it professional and convenient. After all, you don’t want to list your home address on the public record, right? Your registered agent may allow you to list their address as your business address, but because they typically aren’t legally registered to receive anything other than service of process and official government mail for your business, this isn’t the best option. Check into virtual offices and virtual addresses in your area as PO boxes often aren’t allowed.
- Sign and File Your Certificate of Organization: Make sure that all of the information you’ve added to the Certificate of Organization form is correct, and then it’s time to sign and file it. But if you sign and file it yourself, then your name and information will be listed on the public record as the LLC’s organizer. If you’d rather maintain your privacy, then you could use an LLC formation service. Once your form has been submitted, then you’ll need to wait for the Secretary of State to contact you about the approval of your LLC.
After you’ve filed for your LLC, you’ll still need to tick a few more items off your to-do list. You’ll need to get both a state and local business licenses and permits for your businesses, which you can do through the Business License Information Center. You also have to get registered to collect sales tax through the Iowa Department of Revenue. And you’ll need an Employer Identification Number, or EIN. An EIN is a tax identification number that’s used to identify businesses, and you can get one for free through the IRS.
There are several other LLC activities you’ll need to take part in, so if you want to learn more about them check out How to Start an LLC in Iowa.
Necessary Documentation for Filing an LLC in Iowa
Here are a few of the documents you’ll need to form an LLC in Iowa.
- Certificate of Organization: You need a Certificate of Organization to form an LLC. Make sure that you have the correct number of copies (sometimes you’re required to have two copies, one for you and one for the state) because failure to do so could result in the rejection of your filing application. You need to add your business name, purpose, duration, address, and registered agent to the form. You’ll also need to include information about the ownership and management of your LLC, such as information about each LLC member, and whether LLC members will manage the company or managers.
- EIN: Your business needs an EIN in order to open a business bank account, hire employees, or qualify for certain grants and incentives. You can apply for one on the IRS’s website.
- Name Reservation Application: Once you’ve checked that your business name is available, you have to reserve it so that your business can legally use it in the state, and your name reservation application must be filed along with your Certificate of Organization.
- Operating Agreement: An Operating Agreement isn’t required by Iowa state law. There are regulations on the record that detail the sorts of provisions that can be listed in Operating Agreements in Iowa, but don’t require the document. With that being said, it’s an incredibly useful internal document that’s recommended for every LLC. It describes the amount of shares and profits of each LLC member, their roles, how they interact with each other, how the business should run and more.
- Initial Report: You’re required to file a biennial report in Iowa, and you’ll need the first one, called the initial report when you file your Certificate of Organization.
- Tax Registration: You need the forms and documents that prove you’ve signed your company up with the Department of Revenue for things like sales tax.
- Business Licenses: Your business may need both a state and local business licenses, and all of your licenses should be sent along with your Certificate of Organization to the Secretary of State.
Legal Requirements for Starting an LLC in Iowa
Every LLC in Iowa is required to file a Biennial Report. This report ensures that your business information remains updated with the Secretary of State. It’s typically $35 to file online, which is quite a small filing fee in comparison with other states.
Your Limited Liability Company is required to have a registered agent. A registered agent’s job is to remain posted at their address to receive service of process and official mail from government agencies during normal business hours. Because of these requirements, a registered agent isn’t allowed to use a PO box. You’re allowed to choose a friend, co-worker, employee, family member, or trusted professional (like a lawyer), to fill the role, or hire a professional registered agent service.
Time Frame for Establishing an LLC in Iowa
Here’s a complete guide to the LLC formation times you can expect in Iowa.
How Long Does the Initial Paperwork Take in the State of Iowa?
It can take up to 4 weeks to get an LLC if you file by mail, and 1 business day if you file online.
Processing Times in the State of Iowa
Processing time is the amount of time it takes for the Secretary of State’s office to actually process your filing and get it entered into their system. Processing times for mail filings are 7-10 business days, and processing time for online filings is one business day.
Common Delays in the LLC Formation Process in Iowa
Here are some things that can delay the formation process.
- Document Errors: Any errors with your documents from your end could result in your application being rejected. This means that if you enter the wrong information or don’t print enough copies, the application could be thrown out and you’ll need to start the lengthy application process again.
- Filing Volume: If there’s a large volume of filings at the Secretary of State’s office, it could delay processing times. This typically happens at the end and the first of the year.
- Weekends and Holidays: Government offices typically only process filings on business days, which means they won’t get to your filing until the next business day after the weekend or holiday.
Expedited Processing for LLC Formation in Iowa
Expedited processing is a speedy processing option in some states. Let’s go over expedited processing in Iowa.
What Are the Expedited Options Available?
Although you may be excited to try expedited processing to speed up your LLC formation process, I regret to inform you that there aren’t expedited processing options in Iowa. This is probably because they have 1-day processing on online filings.
Comparing LLC Formation Time Frame in Iowa with Other States
Sometimes looking at the process in other states gives you perspective about the process in your own state. Here’s a look at some processing times across the nation.
Brief Comparison with Key States
Once again, processing times for online filings in Iowa are 1 business day, and it’s 7-10 business days for mail filings. There is no expedited processing.
A week to ten days may seem like a long time for mail filings, but there are other states that are even slower. Washington D.C. has mail processing times of 2-4 weeks, Missouri and Nevada come in at 3-4 weeks, Oregon has times of 4-6 weeks, Texas has times of 4-8 weeks, Washington’s is 5-6 weeks, and Maryland’s is 5-8 weeks, with New York coming in at an incredible 8 whole months! Iowa’s online filings have a one-day processing time, and in Arizona it takes 14-16 days. And while Iowa doesn’t have expedited processing, some states have such slow expedited options that it’s almost not reasonable to even have them, like Maryland’s 7-day expedited option.
Why is Iowa a Favorable Place for Forming an LLC?
Iowa is a good place to form an LLC due to several factors. The state has low filing fees, which makes business start-up inexpensive. It’s only $50 to file your Certificate of Organization, and $35 to file your biennial report, which are some of the lowest filing fees in the country. It also has some of the lowest commercial property rental fees in the nation. And its LLC regulations, and the ability to create a series LLC, make it a uniquely LLC-friendly state.
