Iowa LLC Guide (6-Step Guide) – How to Form an LLC in Iowa

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If your business is considering where to form, then an Iowa LLC may be one of the best decisions you could make. An LLC, in general, offers protection for all of your personal assets while Iowa potentially offering a reduced tax rate.

With an Iowa LLC, you can benefit from the state’s low cost of doing business and unemployment as well as the high quality of living. This can give your business a big leg up. Let’s take a closer look at why your business may want to consider forming an Iowa LLC and how you can quickly and easily form your own Iowa LLC.

Why Would You Want an Iowa LLC?

An Iowa LLC can be a great option for your business but don’t just take our word for it. Let’s take a look at why you would want an Iowa LLC.

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  • Limited Personal Liability: An Iowa LLC can protect your personal assets from risk as a result of business failure or lawsuits. If your business does face debts and cannot repay them, your personal assets cannot be held accountable under most circumstances.
  • Reduced Tax Burden: Iowa LLCs are pass-through business entities meaning that, unlike most corporations, they do not pay income taxes as a business entity. Instead, like a sole proprietorship or general partnership, the profit or loss passes through the business to be paid for on its owner’s personal tax returns.
  • Contractual Freedom: Unlike some business structures, which possess rigid rules mandating the duties and rights of the business’s owners and the distribution of profits and losses, an Iowa LLC offers complete freedom. An Iowa LLC’s members are free to establish a contract establishing unique duties, rights, contributions, distributions as well as procedures to protect member’s control of the LLC.
  • Easier Maintenance: Unlike corporations that share the same protection from personal liability, an Iowa LLC requires very little maintenance from its owners. A C-corporation would require regular meetings, a Board of Directors, and a considerable amount of paperwork. However, an Iowa LLC requires none of that and very little more than a Biyearly Report to file with the state.
  • Iowa Has a Fast-Growing Economy: Every year, more than 8,000 LLCs are formed in Iowa, and the state ranks extremely high in productivity, growth, and state gross domestic product, according to rankings from the United States Chamber of Commerce.

Quick Iowa LLC Pros & Cons

You’re looking to start or upgrade a business, so chances are you are a busy person, and we get that. However, it is important to consider the pros and cons of such a big decision as to where you form your business. So, let’s just take a quick look at the biggest pros and cons to help you make your decision on whether to form an Iowa LLC or not.

Pros

There are a lot of pros to forming an Iowa LLC, and here are some of the biggest.

  • Multiple Classes of Membership: With the Iowa LLC Act, members of an LLC are permitted to create classes of membership with voting rights and those without. They may also customize required capital contributions and the distribution of profit and loss. Through all of these provisions, members can truly customize their risks and facilitate investment as well as the ability to plan for succession. This can be great for businesses looking to expand and acquire outside investment and for family businesses looking to facilitate succession and give non-voting interests to families uninterested in running the business.
  • Privacy: With an Iowa LLC, members do not need to worry about putting their names out there when filing their LLC’s Certificate of Organization. The state’s definition of person includes business entities which means the members of an LLC can have an organization file their formation documents with the Iowa Secretary of State on their behalf.
  • Perpetual Duration: The Iowa LLC ACT also specifies that all limited liability companies have a perpetual duration.
  • Working With LLC Members: The Iowa LLC Act allows members a lot of freedom in customizing the duties of their members. The LLC Act does have a default provision that states that members in member-managed LLCs and LLC managers in manager-managed LLCs have fiduciary duties of loyalty and care. This fiduciary duty of loyalty means that members and managers cannot compete with the LLC or take business away from the LLC.  They also cannot do business with the LLC on behalf of people or businesses that have interests that are detrimental to the interests of the LLC.  They also need to act as a trustee of the LLC. The care duty means that any members or managers of the LLC must act with the care that a reasonable person would act within a similar position and in a way that is in the best interests of the company.
  • Freedom to Form Unique Rules: The Iowa LLC Act also allows members and managers to opt out of most default rules, but they cannot approve intentional wrongdoing or lawbreaking in an LLC agreement. The members can also provide activities, or even categories of activities that they agree will not violate the duty of loyalty. They may also agree to have a disinterested or independent party decide under what conditions an act or transaction that would normally be considered in violation of the duty of loyalty may be permitted.
  • Keep Unwanted Business Partners Out: With the Iowa LLC Act, members can make sure they keep control of their LLC. Members can use their LLC agreement to ban other members from transferring their membership interests. Also, even if the members of the LLC choose not to ban transferring membership interest, when a member’s interest in the LLC is transferred, the LLC is not dissolved, and the transfer does not give the new member management rights or even the right to be a member. The transfer only gives the transferee the right to any distributions the transferor had a right to. The other members of the LLC would have to agree to have the transferee become a member before this could happen.
  • Creditors Do Not Get Control Rights: If a creditor gets a charging order against a member’s interest in your LLC, the creditor will only get the distributions that the member would have received. It is possible a court might foreclose on a member’s membership interest, and should this happen, the person buying the membership interest only gets a transferee’s rights and does not become a member unless the other members agree to it. Also, according to the Act, if a person assigns their membership interest to a creditor, is a debtor in bankruptcy, or fails to contest the liquidation or appointment of an individual over their property, they will cease to be a member.

Cons

  • Forming an Iowa LLC does have one disadvantage; it can be difficult to get people to invest in the LLC. LLCs cannot issue stock, and changing the owners of an LLC is often not easy. So for businesses that want to attract a lot of investors, a corporation might be a better choice.

How to Form Your Iowa LLC in Six Easy Steps

If you are still with us, that’s great! Now let’s talk about how you can form your Iowa LLC in only six easy steps!

Step 1: Pick a Name for Your Iowa LLC

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First, it’s time to pick a name for your Iowa LLC. A good business name should be creative and express what product or service your company can provide. Also, Iowa law requires any LLC name to contain the words “Limited Liability Company” or the abbreviations L.L.C. or LLC at the end of the name. The word “Limited” can be abbreviated as ltd., and the word company can be abbreviated as “Co.”

You need to choose a name that is noticeably different from any other business names that have been registered with the Iowa Secretary of State. You can check to see if the name you want is available by checking the Business Name Database on the Secretary of State’s website. Then if the name is available, and you want to reserve it by filing an Application for Reservation of Name, you can fill out an application to reserve the name for up to 120 days. The application can be filed online or by mail and will cost $10.

Using a Trade Name

You’ll need to use your business’s legal name on your Certificate of Organization, but you don’t always need to use this name when you’re doing business. You can choose to use a fictitious name for your business, commonly known as a doing business as (DBA) name or trade name. However, to use one of these names, you need to register the name with the Iowa Secretary of State. You can do this online or by mail. Just fill out and file a Fictitious Name Resolution, which will cost $5.


Step 2: Choose a Registered Agent for Your Iowa LLC

Appoint-Registered-Agent

Every Iowa LLC needs to appoint a registered agent to receive legal communications from the state, including service of process. This individual or business entity must have a physical street address located within the state of Iowa. If you choose an individual, they must reside in the state, and if you choose a business entity, they must be authorized to do business in the state.

  • Should You Consider a Registered Agent Service: There are a number of advantages in choosing a registered agent service to represent your business as its registered agent, and, this is why most businesses choose to go with this route. Here are some of the advantages a registered agent service can offer you:
  • Greater Flexibility: Many businesses have non-traditional hours, such as bars and restaurants. This can make it difficult for these owners to be their own registered agents. But with a registered agent service, these hours aren’t a problem. A registered agent service will be open during all regular business hours to accept service of process and any other important documents.

A registered agent service also works well for those who need to do a lot of business travel. With a registered agent service, you won’t have to worry about missing any important documents while you are traveling.

  • Keep Your Privacy: If you choose to be your own registered agent, your address will be a part of the public record. This is true whether you have a business address you’re going to use or whether you work from home and use your home address. So, having your address be public can be inconvenient. If you work from home, you could find yourself getting a lot of annoying sales calls or having service of process take place in front of your family or friends.
  • You Plan on Expanding to Another State: All LLCs are required to have registered agents in every state they do business in. So, you’re not always going to be able to be your own registered agent if your business is located in more than one state.

But if you choose to have a commercial registered agent service, you likely won’t have to worry about this since most of these services operate in every state. So if you’re planning on expanding your business, you might just want to hire a registered agent service rather than changing your registered agent later.

  • Keep All of Your Important Documents in One Place: Having a registered agent allows you to keep all your important documents together. Most commercial registered agents will keep any important documents for you as long as you need them. This way, you don’t have to worry about losing any of your important documents from the state.

Step 3: File Your Iowa LLC’s Certificate of Organization

File-your-Atricles-of-Organization

To form your Iowa LLC, you will need to file a Certificate Of Organization with the Iowa Secretary of State Business Services Division. Unfortunately, this is not as easy in Iowa as it is in most states. Iowa does not provide a downloadable or online form as most states do. So you will either have to make your own form or have a lawyer prepare a form for you. There are certain details the form must include, such as:

  • Name of your LLC
  • Your LLC’s address
  • Your registered agent’s name and address

After you complete your Certificate of Organization, you can upload it and file it online or send it in and file it by mail. It will cost $50 to file your certificate.


Step 4: Prepare an Operating Agreement for Your LLC in Iowa

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Iowa does not require LLCs to have an operating agreement, but it is still a good idea. This agreement is a legal document that details the rights and responsibilities of your LLC’s members as well as how your LLC will be run. It will also help show that your LLC is a separate entity, which can help to keep your business’s limited liability.

There are no rules on what must be included in your operating agreement, but there are some that you should include in it, which we will discuss below.

  • Name of Your LLC: You will want to include the name of your LLC. Be sure to include the words limited liability or one of the accepted abbreviations of these words.
  • Address of your LLC: You should include the address of your business’s primary office.
  • Percentage of Ownership: The names and addresses of each of the members, along with their percentage of ownership, should be included. This is normally based on the member’s initial investment in the LLC, but this doesn’t have to be the case. Members can consider other contributions, such as experience and the idea for the business.
  • Profits and Losses: Most LLCs distribute profits and losses based on the percentage of ownership of the members. But, your business is free to choose a different method. However, if you do choose another method, you should include it in your operating agreement.
  • Management Structure: There are two different management structures you can choose from, member-managed or manager-managed. Most LLCs use member-managed, in which all of the members manage the day-to-day operations of the LLC and make the decisions for their own LLC. This works well for small businesses and those in which the members want to be actively involved in running the business.

The other type of management is manager-management. This form of management is typically used for larger businesses or those in which the members do not want to be actively involved in running the business. In this type of management, a manager or managers chosen by the members runs the day-to-day affairs of the business and makes the decisions for the business. If the members wish to reserve some decisions for themselves, they should include this in their operating agreement.

  • Member Withdrawl: You may find that one of your members will eventually want to withdraw from the business; so, it is best to be prepared by specifying what will happen if someone does decide to withdraw. You should include in your operating agreement whether the person will be required to offer their shares for sale to other members before offering them to outsiders. You should also include whether there will be any restrictions on who the member is allowed to sell their shares to.
  • Voting Rules: In multi-member LLCs, there are typically a number of decisions that will need to be voted on. This makes it a good idea to include how these votes will be handled in your operating agreement. Voting rights are generally allocated on the basis of the percentage of ownership, but the members are free to choose another method if they want to. However, whatever method you decide to use, you should include this in the operating agreement. You’ll also want to include what type of vote will be required for different decisions, such as a majority or supermajority vote.
  • Dissolution: You may not want to consider the end of your business, but it is best to be prepared. You’ll want to include in your operating agreement how any assets that are left over after debts are paid will be divided and whether any of the members will be allowed to carry on with the idea of the business after it is dissolved.

Step 5: Obtain Your EIN

Obtain-EIN

An EIN is a nine-digit number similar to a Social Security Number, which your business will need if you are going to hire employees or have two or more members in your LLC.  The IRS uses your EIN to identify your business for tax purposes. You may also need this number if you decide to apply for a business bank account.   

How To Apply

You can apply for an EIN  for free on the IRS website if you have a Federal Tax ID, such as a Social Security Number, or you can apply by mail or fax. Additionally, international applicants can apply by telephone. Applying online is the fastest way to get your EIN; you will receive the number as soon as you finish the application and submit it. You just need to be sure you finish the application in one session as it cannot be saved.

If you want to apply by mail, you can print Form SS-4 and mail it to the IRS. The address is:

Internal Revenue Service

Attn:  EIN Operation

Cincinnati, OH 45999

For those who want to fax Form SS-4, just fill it out and fax it to (855) 641-6935.  International applicants can call 267-941-1099 from 6 am to 11 pm Eastern Time Monday through Friday to apply for their EIN.


Step 6: File Your Biyearly Report

Annual-Report

Your Iowa LLC will need to file a report every two years with the Iowa Secretary of State. You’ll need to file the report by March 31st of every odd-numbered year.  However, you should be notified that the report is coming due. If you file online at the Iowa Secretary of State website, it will cost $30. Whereas, if you file by mail, it will cost $45.


Steps for Growing and Maintaining Your Iowa LLC

Now that you have finished forming your Iowa LLC, you can take a step back to appreciate all you have accomplished. But, then it is time to get back to growing and maintaining your new Iowa LLC. Here are some ways to do just that.

1. Obtain a Business Bank Account

Open-a-Business-Bank-Account

After you finish forming your LLC, one of the first things you should do is to get a business bank account. You aren’t required to get a business bank account, but it is still important for your business. If you want to keep the limited liability you get from forming an LLC, your business needs to be a separate entity. This means you need to keep your business and personal finances totally separate. This allows any court to see that your business is a separate entity. If you combine your personal finances and you get sued, the court could remove your business’s limited liability, which is called piercing the corporate veil. If this happens, your personal assets could be at risk. So, opening a business bank account that will keep your business transactions totally separate is important.

You’ll find a business bank account has other advantages as well. Your business will have a more professional appearance because your customers will be able to write out their checks to your business instead of you.

The account will also give you an opportunity to form a relationship with a bank, which may increase the likelihood of being able to obtain a loan or line of credit at a later time. The account will also allow you to accept credit cards.


2. Get Business Insurance

Get-Business-Insurance

Every LLC should have business insurance. In most cases, having an LLC will protect you from having your personal assets such as your house and car be accessed to satisfy any business debts. However, with all the work and money you’ve put into your business, you probably want to protect your business assets as well. If someone decides to sue your business, your business assets can be taken to satisfy any judgment. In some cases, this could cause you to lose your business. So, it’s a good idea to get business insurance to protect your business assets.

Another type of liability insurance you’ll want is insurance for the members of your LLC. Although in most cases, their personal assets are safe from being taken to satisfy suits related to the business. If a suit involves wrongdoing or negligence, the personal assets of the member could be at risk. Therefore, you’ll probably want to get liability insurance to protect your members in case of an accident or mistake.

You may also need Workers’ Compensation Insurance. Most states require this insurance for any business that hires employees. Workers’ Compensation Insurance will cover these workers in case of illness, injury, or death on the job.


Form an Iowa LLC with Professional Help Today

Forming a business can seem awfully time-consuming, particularly when you are spending all your time getting your ideas off the ground. So, if you need some help forming your Iowa LLC, here are some excellent services to help you do it.

#1: Start an Iowa LLC with ZenBusiness

ZenBusiness is one of the best LLC formation services. They have reasonable prices and a number of great features to offer, such as a free operating agreement and 25% off of their registered agent service with any of their packages. They will also file your annual report for you, which can save you some trouble. In addition to this, they are known as being a very socially conscious business.

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Form an LLC today with ZenBusiness for only $49. They Have 98% customer satisfaction rating and over 4500+ verified reviews.


#2: Start an Iowa LLC with Incfile

Incfile is one of the top LLC formation companies. The main reason for this is probably their free formation package. All you have to pay is the state fee. But this isn’t all Incfile has to offer; they include a number of good features with their free packages, such as a year of free registered agent service and lifetime company alerts. With these alerts, Incfile will inform you of any upcoming filing deadlines with the state so you can keep in compliance with the state.

$0+State Fees

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Form an LLC today with IncFile starting from $0 + state fees. They Have 97% customer satisfaction rating and over 3900+ verified reviews.


Final Thoughts

An Iowa LLC is a great business structure for lowering your costs and protecting all of your personal assets. With all the advantages this structure and state can offer you, it is no wonder that this state is a highly rated place to do business. So, if you haven’t already, don’t delay in forming your Iowa LLC.


FAQs

Will my Iowa LLC be taxed?

Your LLC will be taxed. Although, since an LLC is a pass-through entity, which means the profits pass through the business to the owner’s personal tax returns, any profits the LLC makes will be taxed on the members’ personal tax returns.

All of the members will need to pay self-employment taxes on their share of the LLC’s profits. This works the same way it does in a partnership. Also, just like in a partnership, you can deduct half of the self-employment tax. Additionally, if your LLC is member-managed, you may not be required to pay self-employment taxes. It’s always best to check with a tax professional in this case to make sure you’re paying any necessary taxes.

For state taxes, your business will need to register with the Iowa Department of Revenue. All new businesses in Iowa are required to do this.

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About the Author
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Founder & author

Ian Broderick is an avid author and owner of LLCGuys.com. He's been involved with the LLC formation field for over 4 years. On top of that, he has worked in several well-known LLC formation service providers. Now he decided to share his knowledge and advice with everybody. Since there are a lot of questions and concerns surrounding this field - his aim is to make LLCGuys a top-notch information provider in regards to LLC creation, service reviews and etc..

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