If you’re reading this, it’s a pretty safe bet that you’ve already made the decision to start an LLC in Oregon.
The decision either to form a Limited Liability Company (LLC) in Oregon or to move your business to the state is a pretty major one. So, congratulations! This should be an exciting time for you.
In this guide, I’ll teach you everything you need to know about forming an LLC. But before I get to the tea, I’m going to provide a quick overview of what an LLC is and some of the benefits of choosing this particular business structure over others. With this information you can make an informed decision about whether this is the right move for your business.
(If you want to skip to the ‘how to form an LLC’ section, click here)
What Is An Oregon LLC?
An Oregon LLC is a Limited Liability Company formed in the state of Oregon that is governed by the laws, regulations, and statutes of the state of Oregon.
Why choose An LLC?
Choosing to form an LLC or Limited Liability Company has a few advantages over choosing to form a different type of business structure, like an S or C corporation, sole proprietorship, sole trader or partnership.
1. Limited Liability And Asset Protection
One of the best benefits that business owners enjoy from choosing an LLC as their entity type is that owners of LLCs can’t be held personally responsible for the liabilities and debts of the business entity.
If your Oregon LLC gets sued or goes bankrupt, your creditors can’t come after you personally or try to seize your personal assets, like your house or car. Any sort of financial or legal recourse that a creditor is capable of seeking is limited solely to the assets of the company.
The global pandemic has recently made it obvious that no matter how successful or how prepared a business is, all it takes is one unexpected event to topple it. So, the level of asset protection one gets from forming an LLC in Oregon is very attractive to many business owners.
Another reason people choose to form an LLC in Oregon is it’s a good way to ensure that your personal information is kept safe and off the public record.
Unfortunately, hackers and scammers have become a lot better at what they do within the past decade. They can use the most seemingly insignificant personal information and use it to steal your identity and rack up thousands of dollars of debt in your name.
If you choose a partnership or sole trader structure for your business entity instead of an Oregon LLC, your personal information will be registered publicly for anyone to find by searching the website of the Oregon Secretary of State.
But when you form an LLC in Oregon, you can pretty easily make sure that your information is kept off the public record.
How? You use an LLC formation service. Rather register your information with the Oregon Secretary of State’s website, so their information shows up on the website instead of yours.
One of the other reasons that people choose LLCs over other business entities is that LLCs provide significant tax breaks when compared with other business types.
If you choose a corporation as your business type instead of an Oregon LLC, you’ll experience what is known as “double taxation”.
Here’s how “double taxation” works. A corporation’s profits are initially subject to corporate taxes income tax. Then, the profits left over after the corporate income tax are distributed to each company owner as dividends, which are subject to personal income tax.
So, if you’re an owner of a corporation, your profits will be taxed twice. Thus, it’s called “double taxation”.
However, if you own an Oregon LLC you’ll avoid the “double taxation” experience. Profits of LLCs are taxed at company rates and when they’re distributed to owners, they’re treated as personal income and taxed accordingly. So, if you own an Oregon LLC you’ll only be taxed once.
Not only will you avoid double taxation as an LLC in Oregon, but you’ll also get tax benefits. The 2017 Tax Cuts and Jobs Act instituted Qualified Business Income Deduction, which gives LLCs a discount on their taxes of up to 20%. These tax benefits aren’t enjoyed by other business types.
How To Start An LLC In Oregon
If you’ve read this far and become comfortable with the idea of what an LLC is and still feel that forming an Oregon LLC is the right choice for your business, then there are five steps you need to follow to form your LLC.
IMPORTANT NOTE: If you’ve never started an LLC in Oregon and you want someone to guide you through the jungle of red tape and form filing that you encounter during the registration process of forming a Limited Liability Company, as well as keeping your information protected, then you should consider an LLC formation service.
LLC formation services help LLCs through the registration process and help to establish their LLC with the Oregon Secretary of State Corporation Division. They typically charge fees that start as low as $0 plus the state filing fee. (However, my recommendation for the best LLC formation service is ZenBusiness which charges $49 plus the state filing fee.)
If you want more information about LLC formation services, you can read my guide on the best LLC services here: Best LLC Service.
1. Obtain Articles Of Organization Form
The first step on your journey to forming an LLC in Oregon is to obtain a copy of the Articles of Organization form.
You can get the PDF here.
Once you’ve got the PDF downloaded, you can either fill it in and submit it online after paying the state filing fee or mail it to the Oregon Secretary of State. Here’s the address:
Secretary of State
Public Service Building
255 Capitol St. NE, Suite 151
Salem, OR, 97310
All of the other steps on this list relate to this first one.
2. Choose Your Business Name
Once you have your Oregon Articles of Organization form, the next step is to add your business name to it.
You’ll have to think and be strategic when it comes to creating an LLC name. Every business in the state of Oregon is required to have a unique name. So, you’ll likely have to put a suffix such as “Ltd” or “Co” at the end of your company name, sort of like when you go to register for an email address and the one you originally wanted was taken, so you tack on some numbers to the end of it.
To find out if an LLC name is already registered, you search the Business Registry Database on the website of the Oregon Secretary of State.
Don’t worry much if your official LLC name isn’t exactly something that rolls off the tongue. You can register for a trading name or DBA (Doing Business As). This is the name that you’ll present to the world.
In order to get a DBA, you have to fill out an application form and submit it to the Oregon Secretary of State. You can do this online after paying the $50 filing fee, or print out the PDF form and mail it to the Secretary of State along with the fee.
The address of the Secretary of State is:
Public Service Building
255 Capitol St. NE, Suite 151
Salem, OR, 97310
3. Choose An Oregon Registered Agent
Every LLC in Oregon is required to maintain a registered agent or resident agent. What’s a registered agent? A registered agent or resident agent is someone who is available during business hours to accept mail and official mail from the Secretary of State Corporation Division on behalf of your Oregon LLC.
So the next step LLCs must complete is to choose a registered agent.
Technically, you can choose to function as your own registered agent or resident agent. The other option LLCs have is to maintain a registered agent service in the state.
If you choose to act as your own registered agent, you’re willingly choosing to put your personal information on the public record, and hackers and scammers can access it from the website of the Oregon Secretary of State. Then there’s also the caveat of having to be available during business hours to accept mail and legal documents from the Oregon Secretary of State. Unfortunately, that’s usually when most LLCs operate as well, and you run the risk of missing service of process.
So taking this job is not only time-consuming but getting it wrong could possibly mean that your LLC could be sued. The only real benefit of being your own registered agent is that you won’t have to pay any fees for doing it yourself.
If you choose to go with a registered agent service, your information will be kept off the public record because they’ll put an address on the Business Registry Database of the Secretary of State on behalf of your Oregon LLC. Any good registered agent service in the state will alert you when your LLC receives official mail and then forward it to your company. The drawback is that registered agent services typically cost between $99-$299.
When you take into account that NOT using a registered agent service can cause a lot of legal and financial problems for your Oregon LLC, it makes a lot of sense to hire a registered agent service. Because of this, I always advise LLCs to use a registered agent service.
If you’d like more information about registered agents, you can check out my guide on the best Oregon registered agent here.
You can also check out this information about registered agents on the website of the Oregon Secretary of State.
4. Choose Your LLC Address
Not only do you have to enter your company name on the Articles of Organization form, but you also have to choose an address to register your business with on the application. Oregon LLCs have to have an address that is accessible to the public via a search on the website of the Oregon Secretary of State. This step is fairly simple to complete.
If you’ve chosen to forego a registered agent service, then you’re pretty much forced to use your home or office address because your Oregon LLC must have a street address.
If you do use a registered agent, they provide an office address for your company that can’t be traced back to you or your Oregon LLC.
5. Sign And File Your Articles Of Organization
The next step is to make sure that all of the information on the application is correct and that every line is filled out properly. Once you’re satisfied that you’ve properly filled out the application, it’s time to sign it and submit it.
You can submit the application online, or by mail to the Oregon Secretary of State Corporation Division. Once received, it generally takes around 7 days for processing, with additional time added if you’ve mailed your form in. Once the processing is complete, the Secretary of State Corporation Division will contact you by mail or email.
Of course, if you want to speed up the registration process then you can use one of the many registered agents in the state of Oregon who offer expedited processing. Some can get everything processed for your business in 72 hours or less.
Other LLC Activities
There are some other activities that LLCs in the state have to take part in beyond the initial formation of the Oregon LLC.
LLCs in the state of Oregon need to file their annual report, acquire a Certificate of Good Standing, pay state and federal tax, update information about their business, and other such things in order to maintain a legally operating LLC.
You can relieve yourself of some of the workload associated with signing up with an Oregon LLC by choosing an Oregon PEO company, as well as subscribing to your choice of online attorneys and legal services. An Oregon PEO service will file a lot of the forms for your Oregon LLC (like your annual report), while online legal services and attorneys will help ensure that there are no problems with your federal tax forms.
Oregon LLC Fee Summary
Whether you make the decision to form your Oregon LLC yourself or use an LLC formation service for your business, there are a few fees that you’ll have to pay. Here are the fees you can expect to pay when forming your business into an LLC:
Articles of Organization filing fee: $100
Name Reservation filing fee: $100
Registered Agent fee: $99-$299
Annual Report filing fee: $100 for domestic LLCs, $275 for foreign entities
State Personal Income Tax: 4.75% – 9.90%
State Corporate Income Tax: 6.6% – 7.6%
After Starting Your Oregon LLC
Of course, converting your business into an LLC is a monumental step. You should take time to celebrate by going out to dinner, cracking a beer or opening a bottle of wine, or going out. But, don’t relax for too long because there’s still more important work to be done before your LLC can function properly as a business.
Here are the three steps you need to take to ensure that your LLC has the proper business foundations:
Step 1. Create An Operating Agreement
If you were to consider your business as an animal, the LLC would be like its skin or shell, and the Operating Agreement would be like its nervous system.
An Oregon LLC Operating Agreement isn’t required by the Secretary of State Corporations Division in order for a business to function as an LLC. However, it’s highly advisable that you complete one for your business anyway.
An LLC Operating Agreement functions as a contract between LLC members that clearly defines how the business will run. It should identify each member of the LLC, as well as define the structural, operational, financial and managerial aspects of the business to clearly illustrate how it will run.
An Operating Agreement defines each LLC member as a business owner, it also serves to establish the ownership percentages of each LLC member, as well as pointing out who should be making high-level decisions. If an Operating Agreement is good, it will outline each member’s roles, responsibilities and rights, as well as the relationships each LLC member will have with each other. As well as defining ownership percentages of each LLC member, the Operating Agreement should indicate each member’s shares of profits and losses.
An Operating Agreement should also describe what happens if a member leaves the LLC or if a new member joins the company. If your Operating Agreement is written this way, it will provide your business with operating instructions as well as instructions about what to do if there is ever a disagreement between your Oregon LLC members.
It’s probably pretty evident that the LLC Operating Agreement is VITAL to the successful operation of your business because each of the items outlined in the agreement defines how it is run. Essentially, your business has to operate based on the directions that are outlined in the Operating Agreement so if you get it wrong, your business growth could be stunted, the progress of your daily operations will be slow because of the poor decisions laid out in your agreement, together with its faulty inherent structure for advancement and innovation.
If this is your first time starting a business, or you’ve never written an Operating Agreement for an LLC and you’re worried about getting it right (which is understandable) then there are plenty of LLC services in the state of Oregon that will help to draft and file the Operating Agreement on behalf of your business.
Step 2. Apply For An Employer Identification Number (EIN)
You’ll need to get an Employer Identification Number (EIN) if you plan on hiring employees or opening a bank account specifically for your business. An EIN can also let you handle employee payrolls, as well as apply for certain licenses and permits. You don’t have to hire employees to get an EIN in Oregon, it’s basically just a tax identification number for LLCs.
An Employer Identification Number (EIN) is a number that identifies LLCs in the same sort of way that a Social Security Number identifies individual people. Entities can apply for an Employer Identification Number (EIN) through the Internal Revenue Service (IRS).
A lot of LLC formation services in the state of Oregon will apply for an Employer Identification Number (EIN) on behalf of your business making the process a lot simpler.
If you want to apply for an Employer Identification Number (EIN) for your company yourself and forego the formation services, you can do so on the IRS’s website. Simply log on between 7am and 10pm Monday through Friday to file the form needed to apply for an Employee Identification Number (EIN).
Step 3. Open A Business Bank Account
The last step that you need to complete before you run headlong into the business world is to open an LLC bank account.
A lot of people bypass this step and make things a lot more difficult on themselves than they need to be. Many people use their personal bank accounts for both business and personal use and then try to figure out which purchases were which when it comes time for federal tax filing. It seems easier to conduct business this way, but in the long run there are a couple of reasons you shouldn’t.
The first is that you may be able to easily determine the difference between business and personal transactions a few days after they were made. But when it’s time for federal tax filing, it will have been months since these transactions were made and it will be a lot harder to try to remember what the purchases were for. Using your personal account makes filing taxes for your business unnecessarily complicated.
The second reason is using your personal account for business transactions makes you vulnerable to personal lawsuits. Yes, even though you’re awarded a certain amount of asset protection whenever you form an LLC, using your personal bank account eliminates some of that protection, which most attorneys will tell you.
In order to start an LLC bank account, you’ll need a bank kit. This includes certified copies of documents like your Articles of Organization, EIN, Operating Agreement and your initial resolution.
This is yet another thing that an LLC formation service can do on behalf of your company. Bank kits generally come with LLC formation services, so they’ll put together a kit containing all the necessary documentation (like your EIN and annual report) for you.
The decision to start an LLC in the state of Oregon is a giant step, and one of many on your business journey, so congratulations!
If you decide to go through the process of forming your Oregon LLC yourself rather than using an LLC service (which can cost as little as $0 plus state fees), here are the 5 steps to LLC formation you’ll need to follow.
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
There’s a lot of red tape to cut through (like filing to register your LLC name and filing your annual report as well as having to update numerous details for your LLC each year), you’ll have to learn a ton of legal jargon, and the entire process of forming an LLC in Oregon can be really time-consuming. But one of the biggest benefits of starting an Oregon LLC yourself is the sense of accomplishment you get from having done it on your own.
Congratulations on deciding to take on the Oregon LLC formation process on your own! I hope that this guide was useful to you, and I hope that this is just the first of many successful steps as you make your way through your business journey!