A Limited Liability Company can provide a lot of benefits, such as having a simpler structure than a corporation, tax benefits, and of course personal asset protection. But what many people don’t tell you is that even if it’s simpler than a corporation, it still requires a lot of paperwork to form an LLC. And once that’s all done, you have to wait for approval. How long does approval take? We’ll tell you all about LLC formation in Rhode Island in this guide.
Discovering Rhode Island
First, you should know a bit about the state you plan to do business in. Let’s start with its geography and natural resources so you can get an idea of what sort of climate you’ll encounter and what sorts of businesses will work well there.
Known as The Ocean State, Rhode Island has a long history with Italian explorers exploring the land all the way in 1524, and being the first colony to declare its independence from Great Britain. It’s called “The Ocean State” because no matter where you live in the state, you need only drive around half an hour to access the state’s 400+ miles of pristine coastline.
It’s the smallest of the states, being only 37 miles wide and 48 miles long. It borders Massachusetts, Connecticut, and of course the Atlantic Ocean.
Some of its geography includes beaches, lagoons, hills, lakes and ponds, as well as Block Island and Narragansett Bay.
Many people feel that Narragansett Bay is a crucial location in Rhode Island because of its bounty of fish, fertile soil and the fact that it’s a major shipping gateway. Narragansett Bay is famous for its clams, as well, so clams cooked in a variety of ways are served up nearby. Today, the biomedicine, manufacturing, maritime products and defense shipbuilding industries are thriving in Rhode Island.
Economic Overview of Rhode Island
The GSP, or Gross State Product of Rhode Island is $55.6 billion and it had a growth rate of 14.0k% from 2018-2023.
The top industries in the state by revenue are Third-Party Administrators & Insurance Claims Adjusters, Commercial Banking, Health & Medical Insurance, Colleges & Universities, and Property, Casualty & Direct Insurance. The biggest employers in Rhode Island are Lifespan Health System, Care New England Health System, Roman Catholic Diocese of Providence, CVS Health Corporation, and Brown University. And the top contributing sectors to the state’s Gross Domestic Product are Real Estate & Rental & Leasing, Healthcare & Social Assistance, Manufacturing, Finance & Insurance, and Professional, Scientific & Technical Services.
Business Environment in Rhode Island
Usnews.com has ranked Rhode Island as #9 in the country for Business Environment, #38 in Growth and #23 for Employment. It was rated #42 for both Long-Term and Short-Term Fiscal Stability.
It’s ranked #49 for transportation infrastructure. 48.1% of the state’s roads are in poor condition, compared to the national average of 19.0%.
It’s rated #37 for Affordability and #16 for Economic Opportunity. This is because the cost of living index in the state is 102.1 (the national average is 100.0) and the median household income in Rhode Island is $74,008 while it’s $69,717 on average nationally. And the poverty rate in the state is only 11.4%, which is 1.4% lower than the national 12.8%.
WalletHub recently ranked Rhode Island as the worst state in the U.S. to do business. This is because it ranks so low for business environment and business cost.
State Specific Regulations and Incentives for Forming an LLC in Rhode Island
Here’s a look at some of the incentives designed to help support businesses in the state.
- Job Incentive Credit: The Rhode Island Qualified Jobs Incentive Act of 2015 created tax credits for as many as 10 years for businesses creating new jobs in the state. It’s usually equal to the amount of W-2 withholdings the state receives for each new job. The number of jobs you’re required to create to qualify is based on whether your company is in a targeted industry, as well as the number of existing full-time employees you already have. Credits range from $2,500-$7,500 per year per job and are capped based on W-2 withholdings.
- Rebuild Rhode Island Tax Credit: This program was designed to stimulate commercial development and redevelopment. The maximum credit award is either 20% of the project cost, or the amount necessary to bridge the financing gap of a project, whichever is less. Credit awards can’t exceed $15 million. The credit is paid out over a 5 year period.
- Tax Increment Financing (TIF) Program: If a project is located in a TIF area, then you could take advantage of the TIF program to retain around 75% of the state tax revenues that are generated by your project. The payments won’t exceed 30% of the total project costs.
- Sales and Use Tax Exemptions: Equipment and machinery for industrial plants, scientific equipment, software and computers that are used for Research & Development are all exempt from the sales and use tax.
- First Wave Closing Fund: This program is discretionary and provides loans and grants to bridge financing gaps for economic development projects that will create and maintain jobs. You must be able to prove the financing gap, and that you’ve exhausted all other options. Your project must create or retain at least 25 jobs, and have the potential to encourage private investment and other economic activities within the community. You can use the funds to cover equipment, working capital, fixtures and furnishings, rehabilitation, construction or the purchase of real property.
- Industry Cluster Grants: These competitive grants are provided by the Commerce Corporation and they’re designed to start, grow and improve partnerships in industry sectors, and encourage businesses to collaborate to solve problems, share talent and exchange technology.
- Competitive Program Grants: The grant amounts range between $100,000- $500,000 and are available to businesses if they enhance cluster growth and effectiveness.
- Job Training Grants: These are grants from the Governor’s Workforce Board that are available for businesses to make customized training programs that are tailor made for them and aren’t hampered by the restrictions that federally-funded programs impose.
Pros and Cons of Establishing an LLC in Rhode Island
Doing business in Rhode Island has its ups and its downs. Here’s a realistic look at doing business in the state.
Rhode Island allows a bit of privacy for LLC members that other states don’t. You aren’t required to submit personal information about each LLC member to the Department of State.
In Rhode Island, LLCs are granted extra protection against creditors. In other states creditors have the ability to ask the courts to order foreclosure on the LLC. But in Rhode Island, they can only issue a charge order that puts a lien on the interest of the debtor in question. From there, the creditor can receive distributions made to the debtor from their LLC if the Limited Liability Company does make a distribution. This means that in many cases the creditor doesn’t get anything because they can’t just force an LLC to make distributions.
Rhode Island has fairly low personal income tax rates. They range from 3.75%-5.99%. Those numbers are great news if you plan on being taxed as a pass-through entity.
There are disadvantages, too.
Rhode Island has been ranked dead last on a list of the best states to do business in that was put out by WalletHub. It’s because thanks to high prices for office space, high taxes, meager job growth statistics and a long average work week, the state got slow scores for both business environment and business cost.
The cost of forming an LLC in Rhode Island and maintaining it is higher in Rhode Island than other states. The filing fee for Articles of Organization alone is $150. When you factor in a yearly fee of $50-$480 for your annual report, based on the gross assets of your company, it’s quite and expensive place to do business.
Outside of high business costs, another major problem that business owners in the state site is government regulations both at the state and local level. There are several state regulations that overlap with federal regulations, and it isn’t really clear how they differ or relate to each other.
Zoning can be a real pain throughout Rhode Island, and it changes frequently. There have been reports of businesses being in the clear as far as licensing and permits go, only to find out that within a couple of weeks time that they need a new permit. And just to be put on the list to be considered for the permit can take a couple of months in some areas.
Procedure of Establishing an LLC in Rhode Island
Before you learn about formation times, you must first learn about the formation process. In this section we’ll walk you through the steps of LLC formation.
Necessary Documentation for Filing an LLC in Rhode Island
To ensure a smooth formation process, you should gather up all of the documents you’ll need. Here’s a look at the required documents.
- Articles of Organization: To get an LLC, you need to submit Articles of Organization to the Department of State. You’ll need to send in two copies, one for the state to keep and another which they’ll send back to you once your LLC is approved. Some of the information listed on the form is your business name, address, a list of LLC members (although you don’t have to list their contact information in Rhode Island) and managers, your registered agent’s information, and sometimes your business’s purpose and duration.
- Operating Agreement: Full transparency, you’re not legally required to create an operating agreement for your Limited Liability Company, but it’s highly recommended. It functions as an agreement between LLC members, provides information about how your company will run, the roles of each LLC member, and information about how they should behave. Some of the information included is the roles, names, contributions and ownership shares of each LLC member, a detailed description of the distribution of profits and losses, the names of LLC managers and instructions for meetings and voting, as well as a system for adding and removing LLC members, and instructions that explain what to do in the event of the death of an LLC member.
- Name Reservation Application: Many legal requirements surround business names, like being totally unique to your business, not being too close to other business names in the state, and containing language that indicates your business is an LLC. To make sure that your business name is available and suitable to use, you can run a search on the business name database on the Department of State website. Then, once you’ve landed on a viable name, you’re required to file a Reservation of Entity Name form, or Form 620 with the Department of State.
- Employer Identification Number (EIN): You need an Employer Identification Number or EIN to perform various business activities, including opening a business bank account, filling out certain tax forms, or hiring employees. You can get your EIN for free by submitting an application on the IRS website. It’s designated as Form SS-4 by the IRS.
- Initial Report: In Rhode Island, LLCs must file an annual report every year. The first one is submitted along with Articles of Organization and is called an initial report.
- Tax Registrations: You need to register your business with the Division of Taxation (DOT) by submitting a Business Application Registration form on their website. Every business in the state must register with the DOT.
- Business Licenses: You’ll need to obtain a state business license, but you may also need licenses and permits from county and local authorities. For state licenses, you can reach out to the Department of Business Regulation. And for county and local licenses you’ll need to check with county and municipal clerks.
Legal Requirements for Starting an LLC in Rhode Island
Here’s the process to start an LLC in Rhode Island.
- Obtain an Articles of Organization Form: The first step to forming an LLC is to get your application: an Articles of Organization form. It’s available from the Secretary of State in most states, but in Rhode Island you’ll find it at the Department of State.
- Pick a Business Name: Once you’ve ensured that your business name meets all of the legal requirements and is available for use, you must file a Reservation of Entity Name form. This reservation should be submitted along with your other formation documents when you file.
- Choose a Registered Agent: LLCs in Rhode Island must have registered agents to receive mail and correspondence from government agencies and accept service of process for your company at their address during normal business hours. It’s an extremely important role, and you’re allowed to choose anyone who meets the requirements to fill it, like a family member, employee or friend. But if your registered agent slips up, it could cost you your business, which is why many business owners choose a professional registered agent service.
- Choose Your LLC Address: This may seem like a no-brainer, but the reality is that you should choose your address carefully. It’s listed on the public record, which means that listing your home address may not be the best idea. If your business doesn’t have its own physical address, consider a virtual address, or requesting to use your registered agent’s address.
- Sign and Submit Your Articles of Organization: It’s crucial that you make sure that you haven’t missed anything on your form, and that all of the information is correct. But once that’s done, it’s time for it to be signed and filed. If you’d prefer not to be listed on the public record as the organizer of your LLC, you could hire an LLC formation service. Once the form is signed, it must be submitted to the Rhode Island Department of State Business Services Division with the appropriate filing fees.
Once you’ve submitted your forms, the clock starts ticking on the formation time frame.
Time Frame for Establishing an LLC in Rhode Island
In this section, we’ll tell you how long you can expect to wait before hearing from the Department of State Business Services Division about your Limited Liability Company.
How Long Does the Initial Paperwork Take in the State of Rhode Island?
If you file by mail, you can expect an approval time of 2 weeks, or 3-4 business days if you file online.
For clarity, approval time refers to the entire LLC formation duration, from start to finish, and it includes processing time and transit time.
Processing Times in the State of Rhode Island
Processing time is simply how long it takes for the Department of State’s office to receive your documents, review them, and enter them into their system. Once this is completed they will send your approved documents back to you either electronically or by mail.
Processing times for both online and mail filing is 3-4 business days.
Common Delays in the LLC Formation Process in Rhode Island
Sometimes delays are unavoidable, and that’s true of the LLC formation process, too. Here are some common delays to look out for.
- Timing: The Department of State only processes LLC filings on business days, so you don’t want to file on a weekend or holiday because processing will be delayed until someone is in the office.
- High Filing Volumes: Filing volumes are high during the beginning and end of the year when it’s most common for people to file. But any time there is a high volume of filings, it will cause a delay in processing times.
- Document Errors: The Department of State Business Services Division is quite strict about the state of the documents you submit. You’re required to submit the proper number of copies, which is usually two because they’ll send one copy back to you once your LLC is approved. You must also make sure that you don’t leave sections blank, and it’s important that the information you add is correct- no typos or mistakes! Otherwise, your application could be rejected, which is going to cause major formation delays.
Expedited Processing for LLC Formation in Rhode Island
Generally speaking, expedited processing is the fastest way to get an LLC in states that offer it.
What are the Expedited Options Available?
Unfortunately, expedited processing isn’t offered in Rhode Island.
Additional Costs for Expedited Services in Rhode Island
When you choose expedited service, you must pay extra fees on top of the filing fee. But this isn’t something you’ll need to worry about as Rhode Island doesn’t provide expedited processing.
Comparing LLC Formation Time Frame in Rhode Island with Other States
Looking at the formation times of other states can put the formation times of your own state into perspective. Here’s a comparison of Rhode Island’s times with other states.
Brief Comparison with Key States
Let’s go back over Rhode Island’s processing times. Processing times for both mail and online filing are between 3-4 business days, and there isn’t an option for expedited services.
There are certainly slower options. It takes 8 months to process mail filings in New York, 5-8 weeks in Maryland and 5-6 weeks in Washington. If you file online in Arizona, processing times can take 14-16 days, while it’s 13-15 days in Texas and 12-14 days in Washington. And expedited processing doesn’t always guarantee fast service because it takes a whole 7 days in Maryland.
There are faster options, as well. Delaware, Michigan, Montana, Nevada, Pennsylvania and West Virginia all have one-hour expedited service options. Mail processing times are 1-2 days in Alabama, Massachusetts and South Dakota, and as fast as 1 day in Kentucky and Ohio. And Alabama, Alaska, Colorado, Kansas, Kentucky, Minnesota, Missouri, New York, South Dakota, Tennessee, Wisconsin and Wyoming all have immediate processing for online filing.
Why is Rhode Island a Favorable Place for Forming an LLC?
Rhode Island is a suitable place to form an LLC because it protects LLCs from creditors, protects the privacy of LLC members, and has low personal income tax rates that are great for any pass-through entity.
