If you’re here then you’ve either decided to form an LLC or are considering it and you’d like to learn more about forming an LLC in Iowa. Congratulations! Any time you start a new business, open a business in a new state or change the business structure of your company, it’s an exciting time. I’ll tell you everything you need to know about forming an LLC in Iowa, but first I’ll tell you what a Limited Liability Company (LLC) is and some of the reasons small business owners choose to form an LLC.
(If you want to skip to the ‘how to form an LLC’ section, click here)
What Is An Iowa LLC?
An Iowa LLC is a Limited Liability Company formed in the state of Iowa that is governed by the laws, regulations, and statutes of the state of Iowa.
Why choose An LLC?
There are many benefits to forming an LLC instead of a different business entity, and many of these benefits you’ll discover with time. These are some of the most commonly cited reasons that small business owners choose to form an LLC.
1. Limited Liability And Asset Protection
The first and probably biggest reason that many small business owners form an LLC in Iowa is Limited Liability and Asset Protection.
This protection means that you cannot be held personally responsible for the debts and liabilities of your Iowa Limited Liability Company. Therefore, should your LLC become the target of legal action, your finances and personal assets cannot be listed as a means of compensation and the money in your bank account, your home, car, boat, or other property are safe should your LLC go bankrupt or get sued.
During the last few years, we’ve seen many disasters across the country. Wildfires, global pandemics, civil unrest, and unprecedented winter storms are just a few of the disasters that can topple even the most well-prepared businesses. Even without these extreme situations, the economy is un-predict.
For these reasons, many new business owners find the limited liability and asset protection of an LLC to be invaluable. Even if your business has to close its doors for the last time, your hard-earned personal assets and home won’t be at risk from your creditors. You can enjoy a sense of security from forming your LLC.
Another benefit of choosing an LLC as your business entity is the privacy and protection of your personal information.
Cybercriminals have reached new levels of skill and determination in the technology-dominated, modern market. Even the most seemingly insignificant information can be used to steal your identity and accrue massive debt in your name.
If you operate a sole proprietorship or other business structure instead of an LLC, then you’ll be required to list your information with the Iowa Secretary of State. This will register your information on the public record, making it easy for online ne'er-do-wells to obtain.
But when you choose an LLC for your Iowa business structure, you can keep this information off the public record and secure it from those who would misuse it. All you need to do is hire an LLC formation service. These are professional services that will assist you with filing your Certificate of Organization and other paperwork and will register their information instead of yours. This will allow your information to remain off the public record and secure and give you some serious piece of mind.
The last major reason many small business owners choose an LLC for the structure of their Iowa business is the tax benefits.
When you choose to form a corporation, you may experience what is known as “double taxation”. This type of taxation occurs when the already-taxed profits are disbursed to corporation shareholders as dividends, which are then taxed again at a separate rate. This results in “double taxation”.
When you choose an LLC as the structure of your business in Iowa, you avoid double taxation entirely. The LLC’s profits are taxed at a company rate (not a corporate rate) and then split between members as personal income, not dividends. This income is still subject to income tax, but the profits of the LLC are only taxed once instead of twice or more when compared with other business entities. LLCs are also exempt from most federal taxes.
There are more tax benefits to forming an Iowa LLC as well.
In 2017, the Tax Cuts and Jobs Act was passed and it introduced a new type of tax discount called the Qualified Business Income Deduction (QBID). QBID is a 20% tax discount applied exclusively to LLCs. This is an excellent reason to form an Iowa LLC today.
How To Start An LLC In Iowa
Now that you’re more knowledgeable about what a Limited Liability Company is and some of the reasons why a small business owner would choose to start an LLC, you can make an informed decision about whether forming an LLC is the right move for your business in Iowa. Here are the steps you’ll need to take to form an LLC in Iowa.
*IMPORTANT* If you’ve never formed an LLC in Iowa or you’re inexperienced with the business formation process, there is help.
There is a type of professional service designed to make the business formation process easier. They’re called LLC formation services. An LLC formation service will help you design and file your Certificate of Organization, the Operating Agreement for your business in Iowa, pay each state filing fee, form your Iowa LLC, and establish it with the Iowa Secretary of State Business Services Division.
An LLC formation service can cost you as little as $0 plus state filing fees. However, my personal favorite LLC formation service is Zenbusiness and they charge $49 plus state filing fees.
If you’d like to know more about LLC formation services, click here to check out my guide about the best LLC service.
1. Obtain Certificate Of Organization Form
The first step you’ll need to complete to start an LLC in Iowa is to get a copy of the Certificate of Organization form. You need to obtain this form from the Iowa Secretary of State.
Here’s a PDF copy of the Certificate of Organization form from the Secretary of State’s website. (Don’t worry that it says Certificate of Authority;it’s the same thing.)
Because the Certificate of Organization is the primary form you’ll need to file with the Iowa Secretary of State to start an LLC in Iowa, the following steps will refer to this form.
2. Choose Your Business Name
One of the first things you’ll need to list on your Certificate of Organization form is the LLC name.
Unfortunately, this isn’t as simple as one would think. You can’t just list the first business name that comes to mind here. Each business in the state of Iowa must have a name that is unique and differentiates it from other businesses in the state. It’s easy enough to find out if the name you want is available, however. Just perform a search on the Secretary of State’s Business Name Database here.
It’s important to know that in the state of Iowa, an Iowa LLC must include the words “Limited Liability Company” in the LLC name. You can use abbreviations such as “LLC”, “L.L.C.”, “Ltd.”, or “Co.” This is quite useful in the event that your desired LLC name is unavailable because you can attach these suffixes to the end of your business name in much the same way you add numbers to the end of an online screen name.
Once you’ve found a name for your Iowa LLC that’s available, you’ll need to obtain and file an Application for Reservation of Name with the Iowa Secretary of State. You can find the PDF form here. You can file online or by mail (online filing here) and there’s a state filing fee of $10.
If the LLC name that you’ve registered with the Iowa Secretary of State doesn’t sound good to you, you can obtain what is known as a trade name, fictitious name, or DBA (“Doing Business As) name. This is the name for your Limited Liability Company that you’ll present to the world on signs, advertisements, websites, social media, etc. You do so by filing a Fictitious Name Resolution form with the Secretary of State. You can find the PDF form here. You can either file by mail or online and there’s a $5 filing fee. If filing online, you can pay with a debit or credit card.
3. Choose A Iowa Registered Agent
According to Iowa state law, each LLC must have what is known as a registered agent.
A registered agent is a person or professional service that will receive mail from official state offices (like the Iowa Secretary of State), service of process, and legal documents on behalf of your Iowa LLC during normal business hours. A professional registered agent in Iowa will also register their name and address with the Secretary of State as the point of contact information for your business in Iowa, which protects your personal information and keeps it off the public record.
You can choose to take on the role of registered agent for your Iowa LLC yourself or hire a registered agent in Iowa. I’ll go over the pros and cons of both with you so that you can make the right decision for your Limited Liability Company.
If you choose to take on the role of registered agent yourself, you’ll need to be available during normal business hours to accept mail, legal documents, and service of process for your business in Iowa. That sounds pretty self-explanatory, but there’s one major problem with this.
Most businesses are also operational during normal business hours on business days and you can’t be in two places at once. If you stretch yourself too thin, you’ll not only be stressed out but also risk missing an important service of process. If you miss a service of process, you could be sued without the ability to defend yourself.
Furthermore, missing a service of process could result in the Secretary of State revoking the Certificate of Good Standing for your LLC in Iowa, which will result in your LLC no longer being able to legally conduct business in the state of Iowa. The only real upside to being your own registered agent is that you won’t have to pay any registered agent service fees.
If you hire a registered agent service, you’re guaranteed to receive and be notified about service of process and mail that your business receives. Registered agent services can run to between $99-$299 per year. But that’s not much of a downside when you consider that some of the risks involved with being the registered agent for your Iowa LLC yourself can result in lawsuits, default judgments against your business and even losing your business’s Certificate of Good Standing, $99-$299 per year is a small price to pay.
I ALWAYS suggest that new LLC owners hire a registered agent service. You can click here to learn more about the best Iowa registered agent service.
4. Choose Your LLC Address
You’re required to add an Iowa state address for your Iowa LLC to your Certificate of Organization form. This is important because every Iowa business is required to list a principal business address on public record. So, the address you list and register with the Secretary of State is then listed on their website, which is public record.
You can list your business’s physical street address on the form if you’ve chosen not to use a registered agent service. If you’ve chosen a business structure such as a sole proprietorship rather than an Iowa LLC or if your Iowa business doesn’t have a physical street address, you’ll be forced to list your home or office address. The address you choose to register must be a physical address, as you’re not allowed to list a P.O. Box address for your Iowa LLC.
If you’ve decided to use an Iowa registered agent service for your LLC in Iowa, then they’ll register their name and address with the Iowa Secretary of State, and it won’t be traced back to you or your home address.
5. Sign And File Your Certificate Of Organization
The last step you must complete to form an LLC in Iowa is to sign and file your Certificate of Organization form with the Iowa Secretary of State. Make sure that you’ve triple-checked all of the information listed on the form for accuracy.
Some of the information you’ll need to include on the form includes:
- The LLC name,
- The principal office address of your Iowa LLC, and
- The name and address of your registered agent.
It’s important to note that if you sign this form yourself, your name will be listed on the public record. But if you use an LLC formation service, they’ll sign and file the Certificate of Organization on behalf of your Iowa LLC.
To file the Certificate of Organization for your LLC in Iowa, send it and a check or money order to pay the state filing fee of $50 to this address:
Secretary of State
Business Services Division
Lucas Building, 1st Floor
Des Moines, IA, 50319
You can also file the Certificate of Organization form for your Iowa LLC here and pay the filing fee with a debit or credit card.
Once you’ve filed the Certificate of Organization for your LLC in Iowa, the Secretary of State will contact you by email or mail to let you know when they’ve processed the form and the payment. If you’ve filed by mail this can take 3-4 weeks, while online applications are generally processed within 48 hours.
Other LLC Activities
Filing your Certificate of Organization isn’t your last act as the owner of an LLC in Iowa. Once your LLC is formed there are many activities you’ll need to take part in that have nothing to do with LLC formation. Here’s a look at some of the things you’ll need to do to make sure your Iowa LLC maintains its good standing status with the Iowa Secretary of State.
One of these activities you’ll need to take part in so that your Iowa LLC maintains its “good standing” status is filing biennial reports. A biennial report is a way for the Secretary of State to update the information of every Iowa LLC at once. You can file your biennial report online here or download and print out a pre-filled form to file by mail. Biennial reports are due by March 31st on odd-numbered years. Conveniently, the Secretary of State will send you a notice to remind you to file the biennial report for your Iowa LLC. The filing fee to file a biennial report online is $30 and it’s $45 to file your biennial report by mail.
You’ll need to find out if you need business licenses for your LLC in Iowa. This is determined by the type of business you conduct, as well as the location of your business. You’ll need to check with the city government your LLC is located in, as well as the county. To inquire about state business licenses, you can go here.
There are some LLC tax requirements if your LLC does things like hire employees or collect sales tax. Check with the Iowa Department of Revenue to see if your LLC will need to register because you may need to even if you don’t collect sales tax. You can register online or by mail if it’s determined that your LLC will need to register with the Department of Revenue for tax purposes.
If you don’t live in Iowa and would still like to form an LLC in the state, then there’s good news. Iowa law allows for what is known as a foreign LLC. A foreign LLC is formed from another state and operates in Iowa. To form a foreign LLC, you follow the same general instructions that you follow to form a domestic LLC in Iowa. You file an Application for Certificate of Authority form (PDF here) with the Secretary of State online or by mail and pay a filing fee of $100. A foreign LLC must send either a Certificate of Good Standing or a Certificate of Existence from their home state that is dated no earlier than 90 days prior to filing for an LLC in Iowa. According to Iowa law, a foreign LLC must have a registered agent in Iowa as well.
Aside from filing your biennial report, you’ll need to obtain a Certificate of Good Standing from the Secretary of State for your LLC, follow laws pertaining to collecting sales tax, and pay any LLC tax, federal tax, or state tax that your LLC is charged. If this sounds like a lot of work, that’s because it is, in fact, a lot of work. If you’d like some help getting through all of these forms, applications, registration forms, and filing fees, you should consider hiring an Iowa PEO service and subscribing to an online legal service.
Iowa LLC Fee Summary
Many small business owners ask “How much does it cost to start an LLC in Iowa? It doesn’t matter whether you’ve made the decision to hire an LLC formation service to help form your LLC, or if you’ve decided to form an LLC on your own, you’re going to make several state filing fee payments and pay some taxes. Here’s a list of some of the state filing fee payments and taxes you can expect to pay when you form your Iowa LLC:
Certificate of Organization filing fee: $50
Name Reservation filing fee: $10
Registered Agent Fee: $99-$299
Biennial Report filing fee: $30 online and $45 by mail
State Personal Income Tax: 0.33%-6.5%
State Corporate Income Tax: 5.5% 9.8%
After Starting Your Iowa LLC
Congratulations! You’ve filed your Iowa LLC Certificate of Organization and collected all the other licenses, permits, and paperwork you need to establish a solid foundation for your Iowa LLC. Feel free to take some time to celebrate with a weekend trip, a fancy dinner with friends or family, or even a short vacation.
Don’t take too long though, because there are still a few things you’ll need to do in order to ensure your Iowa LLC maintains good standing with the Secretary of State.
Step 1. Create An Operating Agreement
Your LLC in Iowa isn’t under any legal obligation from the Iowa Secretary of State or any other regulations to adopt an operating agreement, but it’s still in the best interest of your LLC to do so.
Without an LLC Operating Agreement, your Iowa LLC will be governed solely by state laws and regulations for its operating procedures, which may not be ideal for your business. It’s typically better for you to decide how you want your business to operate as opposed to accepting the default regulations.
To emphasize how important an LLC Operating Agreement is, think of your LLC like a computer. The LLC is like the computer’s case. It protects the sensitive components from damage. The LLC Operating Agreement is similar to a computer’s operating system. The Operating Agreement tells your LLC members and departments how to interact with each other and outlines your operational procedures. A computer without an operating system can barely do more than the most basic functions; likewise, an LLC without an Operating Agreement is severely limited in its operational efficiency.
*IMPORTANT* Before you create your LLC Operating Agreement, it’s important that you decide on your LLC’s managerial structure. A member-managed LLC is a business whose important decisions are voted on by a group of LLC members, or by one single LLC member. If you have a large number of LLC members or your LLC members lack managerial experience, then you might want to use a manager-managed system instead. In this system, your LLC will have managers who are authorized to make high-level, business decisions instead of making the decisions yourself. If you choose to use managers in this way, it’s important to ensure that each manager is qualified and trustworthy.
When drafting your Operating Agreement, you’ll want to ensure that you word all of your instructions and operational procedures clearly and explicitly state the responsibilities of each member, manager, and department of your LLC. Well-written Operating Agreements should begin by listing each LLC member, their responsibilities, shares of the profits and losses, and their interactions with each other and the departments of your LLC. Poorly written LLC operating agreements often leave these instructions vague or unclear and can create a lot of conflict or friction between LLC members and departments.
Your LLC Operating Agreement should also include procedures and contingencies for gaining or losing LLC members over the course of your business adventure. Without a clear set of guidelines for accepting a new LLC member or procedures for an LLC member leaving, there can be a lot of confusion regarding how to redistribute ownership percentages and profit shares. A lack of procedures for gaining LLC members can also cause problems as your business expands and grows.
So as you can see, an Operating Agreement can save you a lot of trouble concerning your daily operations. Once you’ve drafted and adopted the Operating Agreement, it serves as a legal contract between LLC members and becomes the guidelines for how your LLC will operate. As previously stated, poorly written Operating Agreements can create confusion and friction between LLC members, so you’ll want to ensure the Operating Agreement is worded as clearly as possible and leaves no room for confusion.
If you’ve never drafted an Operating Agreement before and want to ensure that you get it right the first time, don’t worry. There are professional services available that can assist you.
LLC Formation services often offer assistance with drafting and filing your Operating Agreement, which can reduce your workload immensely. If you just need assistance with the structure and wording of your Agreement, online legal services are available to help ensure your Operating Agreement is worded correctly the first time. You can also obtain a free Operating Agreement template on Northwest Registered Agent’s site, which you can get here.
Step 2. Apply For An Employer Identification Number
If your Limited Liability Company has more than one member or will be hiring employees then you will need to apply for an EIN, or Employer Identification Number.
An Employer Identification Number (EIN) is a unique number used to identify your business for tax purposes, similar to how a social security number is used to identify an individual. An EIN is also necessary for single-member LLCs that elect to be taxed as a corporation instead of a sole proprietorship. You can apply for an Employer Identification Number (EIN) through the Internal Revenue Service (IRS) via their website. The Internal Revenue Service website can be accessed here and you can file an application for an EIN anytime.
Step 3. Open A Business Bank Account
One of the most important activities that is also the most overlooked by new business owners is opening a business bank account.
Many first-time business owners feel like it would be easier to use their personal bank account for their business transactions, and it’s easy to see why this seems like a good idea at first. After all, managing one account sounds easier than managing two, right?
The reality is that sharing your personal account with your business creates more problems than it solves.
First, operating your business in this way makes it harder to track business expenses for tax purposes. Unless you keep a detailed ledger with your receipts and records of purchase, determining which transactions were personal and which were business when tax season comes around can be a nightmare. By opening a separate account for your business, getting this information is as easy as printing off a bank statement from your office.
Another problem that stems from using your personal account for your business finances is that it jeopardizes the limited liability and asset protection you receive from your LLC. By using your personal account as your business account, you blur the distinction between yourself and your LLC and leave your personal finances and personal assets vulnerable should your LLC encounter legal trouble.
Thankfully, opening a business bank account is relatively simple. To start a business account, most banks will require a “bank kit”. A bank kit contains certified copies of most of the documents you’ve been collecting so far, such as your Operating Agreement and Certificate of Organization, and other important items such as your LLC’s EIN.
Many LLC formation services will assemble a bank kit for your LLC as part of their services as well, making it easier to open a dedicated bank account for your business.
Congratulations on deciding to start your Iowa LLC! Starting your own business is an adventure and just like any good adventure, you’ll need the right equipment to succeed. Luckily for you, choosing an LLC as your business structure gives you advantages like limited liability and asset protection to keep your personal assets and finances safe in case of disaster. You also get the added security of keeping your information off the public record and safe from nefarious online criminals.
If you’ve chosen to forgo an LLC formation service and file all of the paperwork yourself, then these are the five steps you’ll need to follow to form your Iowa LLC.
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
The amount of paperwork, filing fees, and bureaucracy from the Iowa Secretary of State may seem daunting, but if you make it through all of that without the assistance of a professional service then it’s worth the sense of pride and accomplishment you’ll feel once you receive your approved Certificate of Organization.
Congratulations again on launching your Iowa LLC and good luck on your business adventure!