Congratulations! Making the decision to form an LLC is a momentous choice that you will remember for the rest of your life. It’s always exciting when you create a new business or start a business in a new state.
In this article, I’ll break down the process of forming an LLC in Utah, but first I’ll explain what a Limited Liability Company (LLC) is and some reasons people choose Utah LLCs over other business structures (like a sole proprietorship, sole trader, S Corporation or C Corporation) and tell you everything you need to know about LLC formation so you can decide whether a Utah LLC is the right choice for you.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is A Utah LLC?
A Utah LLC is a Limited Liability Company formed in the state of Utah that is governed by the laws, regulations and statutes of the state of Utah.
Why choose An LLC?
You’re likely to notice many benefits to owning a Utah LLC over the years and not just the ones I discuss here. These are the main reasons that many small business owners choose to form an LLC in Utah rather than choosing other business types.
1. Limited Liability And Asset Protection
The first reason that many small business owners choose Utah LLCs is arguably the most attractive feature that LLCs have to offer. When you’re the owner of an LLC in Utah, you can’t be held responsible on a personal level for the debts and liabilities of your Limited Liability Company (LLC).
So, if your Utah LLC should happen to go bankrupt or be sued, the creditors of your LLC can’t demand that you surrender things like your house, car, funds in your personal bank account or other personal assets as part of their compensation. The only things they can name in lawsuits as forms of financial compensation are the assets and liabilities of the LLC. This means that if you were to somehow lose your business in Utah, you won’t also lose your home or all of the things you’ve worked hard to obtain.
Americans are more aware than ever that it only takes one sudden, unexpected event (like a natural disaster or global pandemic) to bring even the most successful businesses to their knees. That’s why personal asset protection is valued by so many small business owners. Any protection is important to business owners because the business industry is so unpredictable and volatile.
The second reason that many business owners choose to form an LLC in Utah is that there are ways you can protect your personal information as an LLC owner.
Unfortunately for most people, hackers and con artists online have become masters of their crafts over the years. They can now steal your identity and very quickly run up thousands of dollars in your name very quickly using the most seemingly unimportant bits of information (like your name and address for instance) and you may not notice it’s happened until it’s too late.
If you have a sole proprietorship or sole trader business type then you’ll be forced to register your personal information with the Utah Division of Corporations and Commercial Code who will then list the information on their website and the public record. So anyone (including hackers) can access your personal information this way.
But if you choose to form an LLC in Utah, you have the option to keep your personal details off the public record.
To do this, you simply need to hire an LLC formation service. The LLC formation service will register their details with the Utah Division of Corporations and Commercial Code to be put on the public record, rather than your own. It’s a win-win situation for LLC owners because they can maintain ownership of their LLCs while also keeping their information safe.
Another reason that sways small business owners’ decisions about forming an LLC in Utah is all of the taxation benefits that Utah LLCs qualify for.
There is one advantage to forming an LLC that is most plain when comparing LLC taxation to the taxation of corporations. When you own a corporation, you’re subject to what is known as “double taxation”.
Here is a breakdown of how “double taxation” works. All profits from a corporation are taxed at corporate rates and are then distributed to shareholders in the form of dividends. This way the profits are heavily taxed twice before the shareholders even get their cuts, hence the name “double taxation”.
LLCs aren’t subject to “double taxation”, however.
Here is how taxation for LLCs works. The profits are taxed at company rates (not corporate rates) and then dispersed to LLC members in the form of personal income (not dividends) which is later subject to personal income tax. So, LLC profits aren’t taxed as many times or as steeply as corporate profits.
There are even more tax benefits for LLCs as well.
The Tax Cuts and Jobs Act was passed in 2017 and it included a tax deduction known as the Qualified Business Income Deduction or QBID. QBID provides a 20% tax deduction that is exclusive to LLCs.
How To Start An LLC In Utah
If you’ve reached this section, then you should know what a Utah LLC is as well as the reasons many business owners choose an LLC as their business structure. If you’re still certain that an LLC is the right business entity type for you, I’ll tell you everything you need to know about how to start an LLC. Here are the steps you’ll need to take to start an LLC in Utah.
*IMPORTANT* If you’re new to the LLC formation process and would like some help to get through all of the red tape and form filing associated with it while also making sure that your personal information remains protected, there are professional services for exactly this scenario.
LLC formation services make the LLC formation process a lot less difficult and tedious and they’ll help to establish your business as a Utah LLC for prices as low as $0 plus the state filing fees. (However, my favorite LLC formation service is ZenBusiness and they charge $49 plus the state filing fees.)
1. Obtain Certificate Of Organization Form
The first step you’ll need to complete to form a Utah LLC is to get your hands on a copy of the Certificate of Organization form from the Utah Division of Corporations. This form is pretty much synonymous with the form that is called the “Articles of Organization” in other states.
You can get the PDF form here.
The Certificate of Organization form is the main document that you’ll need to file when forming your Utah LLC, so the following steps will refer to this form.
2. Choose Your Business Name
One of the first bits of information you’ll need to add to this form is your chosen business name.
But wait! You can’t just add any business name to this form, so don’t start jotting down the first name you think of. Every Utah business and Utah LLC must have a different and unique business name, so you can’t choose a name that has already been taken.
To make sure that your business name is unique and legal, search the business name database on the Divisions of Corporations and Commercial Code website.
If the name your favored business name is unavailable, you can add suffixes such as “Limited Company”, “LLC”, “L.L.C.”, “Limited Liability Company”, “Ltd.” or “Co.”. Adding suffixes to your business name is a bit like adding numbers to the end of an online screen name when you find that the screen name you originally tried to register was unavailable.
If you don’t like the official LLC name that you’ve registered, you can use what is known as a trade name, DBA (Doing Business As) name or assumed name. This is the business name that you’ll show to the world on signs, advertisements, etc. You can get the application for an assumed name here which you can mail in, or you can register your assumed name online here.
3. Choose A Utah Registered Agent
The next step you’ll need to complete along your LLC formation journey is to choose a registered agent for your LLC. Each LLC in Utah is required to have what is known as a “registered agent”.
A registered agent is a person or professional service that will make themselves available on business days during normal business hours to receive mail from official government offices, as well as legal documents and notices (like service of process) on behalf of your business in Utah.
You have a few options when it comes to choosing the registered agent for your Utah LLC. Of course, you can be the registered agent for your LLC, but you can also hire either a registered agent service or a commercial registered agent. I’ll go over the pros and cons of each choice so that you can make an informed decision for your company.
If you choose to take on the role of registered agent for your LLC, it’s going to cost you a lot of time and require a bit of work. A registered agent must be available to receive mail and legal documents (like service of process) on business days, during regular business hours. But the problem here is that many LLCs also operate on business days during normal business hours, and you can’t be in two places at once.
If you miss important correspondence from official government offices or service of process, you could lose your “good standing” status with the Division of Corporations or even be subject to lawsuits that you can’t defend yourself from. A default decision against your business could be devastating. Becoming the registered agent for your business also means that you’ll be required to register your personal information with the Division of Corporations, which means that it will be on the public record for anyone to see and access.
The only upside to being your own registered agent is that you won’t have to pay any registered agent fees.
What’s the difference between a registered agent service and a commercial registered agent service? A commercial registered agent service has been registered with the Division of Corporations as a registered agent service. It’s not something that’s required of registered agent services and, in fact, there are many fine Utah registered agents that aren’t commercial.
If you choose a registered agent service, it’s pretty much guaranteed that you’ll receive all of the mail that is sent to your business in Utah and your personal information will remain safe. The only real downside of using a registered agent service is that you’ll have to pay a registered agent fee, which is typically between $99-$299 per year.
However, the fact that you could lose the “good standing” status of your business and that a default judgment could be made against your company resulting in possibly losing your entire Utah LLC, it’s well worth the money to hire a Utah registered agent service. In fact, I recommend hiring a registered agent service to EVERY new Utah LLC.
If you’d like to ensure that your identity remains safe, that you receive all the mail and legal documents that are sent to your business and you’d like to learn more about registered agent services, check out my guide to the best Utah registered agent service.
4. Choose Your LLC Address
The name of your business entity isn’t the only important bit of information that you’ll add to the form. You must also register an address for your business with the Division of Corporations to be listed on the public record.
If you’ve decided not to use a registered agent service then you’ll have to add the physical street address of the principal office of your business. If your business doesn’t have a physical street address or a principal office then you’re forced to register your own home or home office address, which will put your personal information on the public record and leave you vulnerable to identity theft. No matter which address you decide to register, you can’t enter a PO Box address here.
Of course, if you have decided to use a registered agent service, they will add an address to the form that can’t be traced back to you or your home by hackers.
5. Sign And File Your Certificate Of Organization
The last step you’ll need to complete to form your LLC is to sign and file your Certificate of Organization form.
As discussed in previous steps, you have two choices here. You can either sign and file the certificate yourself and put your personal information on the public record and make yourself vulnerable to cybercrime, or you can use an LLC formation service that will sign and file the certificate on behalf of your business.
Once your form is filled out and signed you can either submit it by mail or online along with a payment for the state filing fee. If you’re submitting your Certificate of Organization by mail then attach a check or money order and send it to:
Utah Division of Corporations and Commercial Code
PO Box 146705
Salt Lake City, Utah, 84114
If you want to submit the Certificate of Organization online, you can make a payment for the filing fee using a debit or credit card. You can submit your certificate online at the Division of Corporation’s website here.
Once you have submitted your Certificate of Organization and paid the filing fee, the Division of Corporations will contact you once they’ve completed the filing process. It can take between 7-10 days to process your forms and payment. If you’d like to speed up that process a bit, many LLC formation services offer expedited processing that can get you through the process in around 72 hours.
Other LLC Activities
Once you’ve formed your LLC in the state of Utah, there will be several activities that you’ll need to take part in to make sure that your LLC remains in good standing and has a legal right to conduct business in the state. Some of these are one-time activities, while others are annual activities. Here are some of the other LLC activities you must conduct.
All LLCs must obtain local business licenses from the city or county where the LLC is located. You can find out which office to obtain your licenses from here and find a list of various business licenses that could apply to your business here.
You may also need to register your business with the Department of Commerce under certain conditions, such as collecting sales tax. If your business entity collects sales tax then you must register with the Department of Commerce and the Utah State Tax Commission. Click here to go to the Utah Department of Commerce website for more information about registering.
Every LLC in Utah must file what is known as an Annual Renewal, which is the equivalent of an Annual Report, so I’m going to refer to it as an annual report. The report is due on the anniversary of your LLC’s official formation date, so this is the date you must file an annual report each year. There is a $20 fee to file an annual report.
You can register your business entity as an LLC from a different state, which is known as a foreign LLC. To do so, you must file a Foreign Registration Statement which you can do online (by using the online business registration website here using a debit or credit card to pay the filing fee), or submit it by mail using the PDF file above. The filing fee is $70 and the application must also be accompanied by either a Certificate of Legal Existence or Certificate of Good Standing from your LLC in your home state dated within the last 60 days of filing a Foreign Registration Statement in Utah.
Other than these activities, you must obtain a Certificate of Good Standing and pay both state and federal taxes for your LLC each year.
This may sound like a lot of things to remember, and it is. So if you’d like some help with all of this filing and submission of various applications, you should consider hiring a Utah PEO service as well as subscribing to some online legal services.
Utah LLC Fee Summary
How much does it cost to form an LLC in Utah? No matter whether you choose to hire an LLC formation service or you’ve decided to form your LLC on your own without any professional help, you’re going to incur some state filing fees and service fees. Here are some of the fees you can expect when you form your LLC in the state of Utah.
Certificate of Organization filing fee: $70
Name Reservation filing fee: $22
Registered Agent Fee: $99-$299 per year
Annual Report filing fee: $20
State Personal Income Tax: 4.95%
State Corporate Income Tax: 5.0%
After Starting Your Utah LLC
You’ve just formed an LLC, which is a monumental accomplishment that should be celebrated. So go do something special to commemorate this achievement, like going on a weekend trip, having a fancy dinner, hosting a small party with close family and friends, or simply enjoying a glass of champagne or wine. But you can’t relax for too long because there’s still work to do to make sure that your LLC has the necessary foundations to be a properly functioning business entity.
Step 1. Create An Operating Agreement
You’re not required to create an LLC Operating Agreement when you form an LLC in Utah, but it’s highly advisable.
To help explain how important an Operating Agreement is to your business entity, I’d like you to imagine your business as an animal. It could be any animal you choose, maybe even your favorite animal. The LLC would be the animal’s skin, outer shell or scales that work to protect it and the Operating Agreement would be like the animal’s central nervous system which functions to tell the creature how to react to things and what to do.
Operating Agreements are legal documents that serve both as a contract between LLC members and as a set of precise instructions that describe how the company will run. It should list each of your LLC members and then proceed to establish all of the structural, managerial, operational, and functional aspects of your business.
*IMPORTANT* Before drafting your LLC’s Operating Agreement, you should decide whether you want a one-member or a multi-member management system. With a one-member management system, one member will make all of the high-level decisions for your company, while a multi-member managerial system means that a handful of members or managers vote on each high-level decision. Making this decision now helps determine who will make the important decisions for the LLC and how they will go about it.
Not only should your Operating Agreement list all of your LLC members individually, it should also clearly explain which member or members are in charge of making high-level decisions for the company, and then also provide a concise description of each member’s shares of profits and losses and ownership shares percentages. It’s important that your Operating Agreement should describe each member’s job, who they should report to, which member or department they should work most closely with and what tasks each department is in charge of. This should provide all of the necessary information regarding job descriptions to avoid squabbles in the workplace.
One of the most important parts that Operating Agreements should contain is one that many people leave out, most likely underestimating its importance. Your Operating Agreement should contain a section with instructions about what should happen if an LLC member leaves or if a new member joins so that in the event of a falling out or disagreement between LLC members, there is a clear set of instructions for how to proceed. Having a set of clear and logical instructions is massively helpful during times when emotions are running high.
Your LLC’s Operating Agreement is one of the most important documents during its inception. It lays out job descriptions for all of your LLC members along with how much they can expect to be paid and also provides specific directions about how the business should be run.
While you can write your Operating Agreement any way you choose (or even choose not to create one for your company because it’s not a requirement of the Division of Corporations in Utah), there are many reasons you should add the things I’ve described here into your agreement, if you choose to create one. I’ll explain what happens if you don’t add these things to your Agreement.
If I haven’t made this fact clear, your business will have to operate according to the rules that you’ve laid out in your Operating Agreement, so if you’ve drafted a poorly-written agreement your business growth and success could be stifled. It’s easy to screw up your Operating Agreement by not allowing wiggle room in it for things like growth, change and innovation. But if you draft a well-thought-out Operating Agreement, it should be easy to sit back and watch as your business takes off and grows, flourishing without the constrictions of a poorly-written Operating Agreement that doesn’t include the things I’ve mentioned here.
If you’ve never created an LLC Operating Agreement and you’re worried about getting it right (which is a legitimate concern), you have a few options to ensure that you’ve written a good Operating Agreement for your business entity.
The first option is to use the free Operating Agreement template from Northwest Registered Agent provides on their website. The next is to use an LLC formation service because they will typically draft an Operating Agreement on your behalf as part of their services. But if you’d rather draft the agreement yourself and simply require some guidance, you should check out some online legal services because they will typically help you with outlines and legal jargon.
Step 2. Apply For An Employer Identification Number
Certain activities your LLC takes part in require an Employer Identification Number (EIN), like opening a business bank account or deciding to hire employees. An EIN also qualifies your business for certain types of permits and licenses that it wouldn’t qualify for without one. Of course, you aren’t required to hire employees to obtain an EIN – an EIN is just a type of tax identification number.
An EIN identifies businesses in much the same way that a Social Security Number works to identify individual people. You can obtain an EIN through the Internal Revenue Service (IRS) website, and it’s not as difficult as you would expect.
A lot of LLC formation services in Utah will apply for an EIN for your company as part of their services, but if you want to apply for an EIN without using an LLC formation service, that’s possible too. Simply go to the IRS website here Monday – Friday between the hours of 7 am and 10 pm to fill out an EIN application.
Step 3. Open A Business Bank Account
The last step towards creating strong business foundations for your LLC is to open a business bank account.
Oftentimes, small business owners skip this step, underestimating its importance. Many business owners prefer to run all of their financial transactions through their personal account, mistakenly assuming that using one bank account for several purposes is easier. But there are a couple of reasons why you shouldn’t do this.
The first reason is if you have a bank account that is dedicated to business transactions, it makes filing taxes much simpler. Oftentimes business owners think they will be able to differentiate between business and personal transactions for tax purposes, but tax season often rolls around several months after the purchases were made and the passage of time makes remembering things more difficult. So opening a business bank account makes filing taxes easier.
The next reason is that doing business this way makes you vulnerable to lawsuits and cybercrimes. Of course, you enjoy some level of protection of your personal information when you form an LLC, but that becomes nullified when you run business transactions through your personal account. This not only puts your identity at risk but also your bank account and all the funds inside it.
So, to make tax filing easier and to protect yourself from identity theft and cybercrimes, you should open a business bank account for your Utah LLC.
To open an LLC bank account you’ll need to create what’s known as a “bank kit”. A bank kit contains copies of several formation documents like your Certificate of Organization, Operating Agreement, Certificate of Good Standing, EIN and your initial resolution. As with many other aspects of LLC formation, a Utah LLC formation service will create a bank kit on your behalf as part of their services.
Congratulations! Making the decision to form an LLC in Utah is the first big step of your business journey.
If you’ve chosen to form your LLC without using an LLC formation service (which can cost as little as $0 plus state filing fees), these are the steps you’ll need to take to form an LLC in Utah.
- Obtain the Certificate of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
You can easily become overwhelmed by all of the legal jargon, red tape, form filing and application processing associated with LLC formation in Utah, but, if you get through it all on your own, there’s really nothing to compare to the strong feelings of achievement and accomplishment that come from forming your LLC on your own, so all of the work is worth it!
Congratulations again on deciding to form an LLC in Utah and good luck along your business journey!