“Is this heaven?” – John Kinsella
“It’s lowa.” – Ray Kinsella
Iowa is not just a great state to make a baseball movie about a Field of Dreams. It’s also a great state to form a limited liability company (LLC) for your new business venture.
Iowa boasts an educated pool of productive and hardworking people, a sales and use tax exemption for industrial machinery and computers, low corporate income taxes, no personal property taxes, and extra perks.
If you want to start a business in the state known as the Field of Opportunities, this guide will explain how to get your operations up and running.
7 steps to form an LLC in Iowa
- Step 1: Choose a business name for your Iowa LLC
- Step 2: Designate a registered agent
- Step 3: File the Iowa LLC Certificate of Organization
- Step 4: Obtain an Employer Identification Number from the IRS
- Step 5: Register with the Iowa Department of Revenue
- Step 6: Prepare an LLC operating agreement
- Step 7: Open an Iowa business bank account
Step 1: Choose a business name for your Iowa LLC
Choosing a name for your new LLC is the first step.
While this can be a fun and creative task, you should also understand the legal business name requirements.
Generally, the name of your LLC must be distinguishable from other business names already registered in Iowa. Under limited circumstances, a new LLC may use the name of another registered business entity. That’s mostly the case for mergers and acquisitions.
Also, your legal name must include an abbreviation such as “L.L.C.,” “LLC,” “L.C.,” or “LC” in the name. “Limited” may be abbreviated as “Ltd.”, and “Company” may be shortened as “Co.”
You must add either of these tags to your brandable name.
Finally, you can’t include words in the name that would suggest an affiliation with a government agency (e.g., “FBI,” “Treasury,” “IRS,” etc.).
In Iowa, you can reserve your LLC name for up to 120 days.
It gives you extra time to prepare other company formation documents. Complete an “Application For Reservation of Name” and file it with a $10 state fee.
Your LLC may need to operate under a name other than the legal name.
For example, if you have several product lines (brand names) known to the public. Or if you apply to register as a foreign LLC in Iowa and your business name is used by another legal entity.
In Iowa, an alternative business name is called a “fictitious name.”
Other states call it a “trade name,” “assumed name,” or “DBA” (“doing business as” name).
You can register a fictitious name by filing a Fictitious Name Resolution form with the Iowa Secretary of State. The filing fee is $5.
You may also be able to file it online by opening a fast track account with the Iowa Secretary of State and submitting the form through their portal.
Step 2: Designate a registered agent
As with other states, Iowa requires every new LLC to designate a registered agent. The registered agent is designated in the Certificate of Organization.
A registered agent is a person or organization appointed by the LLC to receive important documents on behalf of the LLC, such as a lawsuit, tax notices, or correspondence from the Iowa Secretary of State.
The registered agent must have a physical address in the State of Iowa. You can be your own registered agent provided you are of legal age and a resident in the state.
However, it’s not advisable. First, state law requires a registered agent to be physically present at the place of business during normal business hours.
It can be inconvenient. Second, most entrepreneurs do not want a process server showing up at their place of business.
That’s why many choose to use commercial registered agent service providers instead. Fees for a professional agent range from $50 to $150 annually.
Step 3: File the Iowa LLC Certificate of Organization
The legal document that creates your new LLC in Iowa is called a Certificate of Organization.
The name varies in other states — it can be called Articles of Organization or Certificate of Formation.
The Iowa Certificate of Organization form asks for basic information such as the name of the LLC, street address, and the registered agent’s address.
Other optional information regarding the LLC is optional.
For example, you may include the names of the member(s) of the LLC or state the business purpose of the LLC, but you are not required to do so.
Iowa doesn’t provide a sample Certificate of Organization on the Secretary of State’s website. Therefore, you will have to create your own.
The LLC is legally formed upon filing the Certificate of Organization unless the certificate states a delayed effective date. The filing fee is $50.
The document can be filed online following these steps or by mail.
If filed by mail, it can take up to three weeks for the Secretary of State to process the filing.
It’s possible to speed up the processing of your filing by paying additional fees:
- $50 for two-day service
- $15 for five-day service
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
Once your new entity is formed, you should get an employer identification number (EIN) from the Internal Revenue Service. An EIN is necessary to hire employees and file employment tax returns.
If you are a single-member LLC and have no employees, you are not required to apply for EIN. Instead, you can use your social security number (SSN) for federal tax purposes.
Multi-member LLCs, however, need to have an EIN.
The application process is straightforward and can be done online in under 10 minutes.
Step 5: Register with the Iowa Department of Revenue
Depending on the nature of your business, you may be required to collect and pay taxes to the Iowa Department of Revenue (“IDR”).
State LLC taxes include sales taxes, rental taxes, hotel taxes, use taxes, income withholding taxes, or certain excise taxes.
To report the above taxes, you must obtain an Iowa Tax Permit, also known as a Business efile Number (BEN), from the IDR for each type of tax your small business is required to collect and remit.
Registration is quick and can be done online via Iowa GovConnect. There is no fee for obtaining the permit. Your copy of the registration request is temporary proof of registration until you receive your permit number, and you may begin collecting taxes immediately.
Step 6: Prepare an LLC operating agreement
An operating agreement is a document governing the rights and obligations of the LLC members, similar to the by-laws of a corporation.
It’s an internal contract between members, which is typical, although not always, in writing and signed and dated upon formation of the LLC.
The operating agreement governs the relations among the LLC members. It also governs the rights and duties of a manager of the LLC under Iowa law, the activities of the business structure, and how those activities are to be conducted.
Whenever the operating agreement does not cover a particular issue, Iowa LLC law will apply.
Even where an operating agreement does address an issue, Iowa law may override the operating agreement in certain circumstances.
The operating agreement may be written, oral, or implied. Also, business owners don’t need to file a copy with the Iowa Secretary of State.
When in writing, a copy of the operating agreement should be given to all members of the LLC and kept with the LLC records.
Whether your LLC has one member or multiple members, a written operating agreement specifically addressing the operations of the LLC and the rights and obligations of the members is strongly recommended.
A written operating agreement may provide greater liability protection for the LLC and its members than the Iowa LLC statutes. A written operating agreement also helps prevent conflicts between members.
A properly drafted operating agreement will include the incorporation of, at a minimum, the following member issues:
- Member identity
- Member interests
- Member capital contributions
- Allocation of profit and loss among the members
- Amount and timing of member distributions
- Management responsibilities
- Voting rights
- Procedures for changing the LLC ownership structure
- Financial reporting responsibilities
- LLC dissolution procedures
Step 7: Open an Iowa business bank account
Opening a business bank account is another crucial step for maintaining LLC protections. Legally, you’re not allowed to commingle business and personal funds.
Better open a dedicated business bank account as soon as you have your incorporation documents improved.
If your company operates in several states, you may want to use a national bank such as Bank of America or Chase. If your business will be confined to Iowa and you live in the state, opt for a more affordable local bank.
Local banks usually offer more personal services and lower fees than national banks. GNB Bank, Fairfax State Savings Bank, Farmers Trust & Savings Bank, and First National Bank have excellent reputations in the state.
To open a business account, you will usually need to provide your Certificate of Formation, a company resolution authorizing the opening of a bank account, and your EIN from the IRS.
If you are a single-member LLC and report your income on your Federal 1040, you aren’t legally required to obtain an EIN. However, the bank may require it anyway.
Fees will vary depending on the amount of activity in your account and the amount of cash on deposit.
Iowa LLC taxes, costs, and fees
LLC incorporation comes with extra maintenance costs. All Iowa business entities must file a biannual report (every odd-numbered year) to state authorities to maintain good standing in the state. The cost is $60 for mailed filings and $45 for online submissions.
Likewise, business owners are subject to several types of local taxes:
- Iowa sales taxes are currently 6%. The total tax rate can be as high as 8%, depending on local municipalities. All businesses selling tangible personal property or engaging in retail sales must register with the state.
- Other local taxes include use tax, fuel tax, water excise tax, and cigarette and tobacco taxes.
On the pro side, Iowa doesn’t impose a franchise tax on LLCs. You can learn more about business taxes at the Iowa Department of Revenue website.
Iowa business permits and licenses
On a state level, there isn’t a general business license for local businesses.
But if you operate in a regulated industry, you may need to obtain a professional license for yourself and your business employees.
For example, if you’re a lawyer, accountant, doctor, contractor, beautician, real estate broker, the individual licensing boards will govern the procedures for obtaining a license to practice in those professions in Iowa.
The costs and requirements for obtaining a license will vary from board to board. Verify the details with the Iowa Business License Information Center (BLIC).
Pros and cons of forming an LLC in Iowa
Iowa is a field of dreams and opportunities for operating a new business with limited foul ball territory. Still, there are some disadvantages to account for.
Iowa LLC pros
- Relatively low company formation costs
- Pro-business government and legislature
- No property tax on industrial machinery and equipment
- Business investment tax incentives
- Reasonable worker’s compensation costs
- Favorable “Right to Work” laws
Iowa LLC cons
- Limited tech business opportunities
- Attracting capital to Iowa may be difficult
- Government agencies may not respond as quickly as other states
- Iowa is a low-tax state with business-friendly laws.
- Iowa has an educated, hard-working talent pool available to new businesses.
- LLC formation in Iowa is similar to other states and relatively easy.
- The state fee to register an LLC is $50.
- An LLC must file a biennial report and pay a fee of $60.
- Iowa does not require a general business license. Licensing requirements are governed according to the specific business of the LLC.
- A sales permit may be required to collect and remit certain taxes to the Iowa Department of Revenue.
Iowa LLC FAQs
Below are some of the most frequently asked questions (FAQs) about forming an LLC in Iowa.
This material is provided for informational purposes only. The provision of this material does not create an attorney-client relationship between Paul Donovan and/or Donovan Legal PLLC and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel. Do not take action in reliance on the contents of this material without seeking the advice of counsel.