How to Start an LLC in Iowa
Iowa is known for its farmland but it has much to offer in terms of entrepreneurship opportunities. Its demographics make it one of the most important political states, so much so that the Iowa State Fair is known as much for its politicians as for fair events. Iowa still has a well-based farming community but the state began diversifying its economy in the latter half of the 20th century to include advanced manufacturing. It had a strong but steady .4% population growth rate over the past five years with a current population of 3.2 million, making it 31st in the U.S. The gross state product (GSP) in Iowa reached $179.5 billion in 2022 with 1.1% growth over the past five years. Most of that remains in agriculture, primarily raising soybeans, along with egg and pork production. Much of the manufacturing is in food processing but there are also manufacturers of metals, machinery, electric equipment, and chemical products. Those who are taken by America’s heartland may want to consider forming an LLC, or limited liability company, in Iowa. We’ve crafted a step-by-step guide with information to help entrepreneurs get started so you can grow your business correctly.
Recommended LLC Services
Starting a business is a process. By selecting an LLC as a business structure, you’ll have personal liability protection, so your personal assets like a home are protected if the business falls into debt or is sued.
To establish this type of business entity, you need to register your LLC with the state. LLC formation is done by completing the steps below.
Name your LLC
Do you know the business name you want? Look to find out if it’s listed in the state’s business directory. Names that show up are unavailable. If your chosen name doesn’t appear, it’s yours to claim.
You should pick a name for your LLC first because you will need one to move forward with any other paperwork to start a business in Iowa.
Check name availability
Every state, including Iowa, wants your business name to be unique to that state. That means no other business has a name either exactly or similar to your business name. While the exact rules for each state are different, you can start by making sure no one has the name you want.
Iowa has a business name search tool that is free to use to check your proposed name against all other business names in the state. It’s found on the Iowa Secretary of State website and is easy to use. Enter your desired name and search. A list of businesses with similar names will show and you will know if your name is unique to register it as your business name.
Keep the Secretary of State page bookmarked. It has a wealth of information about all kinds of business topics from trademarks to land patents. You will visit it many times while starting your business.
Consider what makes a name memorable
It’s not always easy to pick a good name. Things to consider are local recognition and memorability, branding, and if it’s a good description of the business. Some people name businesses after a family member, like Wendy’s, but that doesn’t always work out. Others pick a catchy name like River Run Roundup. The key element is uniqueness. Avoid abbreviations or names that are hard to say or spell.
Those who think they have the right name but need to work out some other details before registering a business can put the name on reservation with the State of Iowa. This prevents anyone else from using it while you consider it.
Filing a name reservation with the Iowa Secretary of State’s office saves the name for 120 days. The name reservation only cost $10 so it’s a cheap way to protect your creative and distinctive name. You can transfer the name to full registration anytime during the 120 days. You will need to file a Notice for Transfer of Corporate Name with the Secretary of State to complete that.
Check on a matching domain name too, before settling on a name.
Select a registered agent
Anyone starting an LLC in Iowa will need a registered agent. States require registered agents to be appointed so they can accept legal documents on behalf of the business in case the business is sued, along with other official documents.
Iowa has three general rules about who can be a registered agent. They include:
- The person must be a legal resident of Iowa.
- They must be willing to have their name and mailing address listed publicly. P.O. boxes are not allowed.
- They must be available at that address during normal business hours.
Some business owners serve as their own registered agents. While it sounds like a simple enough task, being your own registered agent can be stressful. After all, you don’t want to be served in front of a customer.
One option is to ask a family member or friend to do it. Many business owners appoint their attorneys as registered agents. Another option is to use a professional registered agent service to do the job.
Some of the larger companies are ZenBusiness, Incfile, and Northwest Registered Agent. As long as the business is registered to do business in Iowa, you are good to go.
A benefit of using a registered agent service is they can handle numerous other things for your startup. Some can handle the entire process including picking your business logo, and slogan, registering you with the state and getting your state filing number as well as your EIN.
File Certificate of Organization
Filing to start a business in Iowa includes filing a Certificate of Organization. The guidelines for filing fall under Section 489-201 of the state code and only require two basic things:
- The name of the entity
- The name and address of the registered agent.
It can include other details but these are the only requirements in Iowa.
Those who find filling out forms too complicated and burdensome can hire out the service through a business service company. One advantage of hiring a company to form your business for you is that you can be sure it is done as the state law dictates and nothing is overlooked.
In other states, you’d file Articles of Organization. Different name, same purpose.
You can find out more about filing formation documents here.
The filing fee for filing a Certificate of Organization to create an LLC in Iowa is $50. You can get a pre-clearance on business filings. Same-day service is $250 and two-day service is $100 for an LLC. Three-day service is an additional $50.
Iowa processing time
Those filing for a Certificate of Organization online can see it processed in one or two days. Those submitting it by mail will wait three to four weeks to have it reviewed. You can get expedited service with guaranteed five-day service costing $15 and guaranteed two-day service costing $50.
Create an LLC operating agreement
An operating agreement isn’t required in Iowa. However, every business expert suggests doing it anyway because it protects your business in multiple ways. Primarily, it shields your LLC from troublesome state laws that you may not even know about. It also puts your LLC on a solid base to operate smoothly.
Drafting an operating agreement is a good way for your LLC members to discuss things they typically wouldn’t think of, such as how to handle the business in case of a natural disaster or death and what you will do if there is a sudden downturn in the economy.
An operating agreement should include things like:
- Listing LLC activities
- Listing decision-makers
- Voter rights
- Member interest transfers
- Initial contributions
- Profit and loss management
- Management structure (like member-managed, manager-managed)
- LLC member compensation
- Bookkeeping methods
- Dissolution procedures
The nuts and bolts of running a business deal with the government and taxes. That includes both the federal government and the state government.
Get your EIN
The vast majority of businesses are required to get an employer identification number (EIN) from the Internal Revenue Service (IRS). It’s like a social security number for your business. The only ones who don’t are sole proprietorships. The IRS requires this number to file business taxes so you will need it as an LLC. You will also be required to have it to hire employees, get a loan and even open a business bank account.
An EIN is easily obtained online by going to the IRS website. You will be assigned one immediately once you file. There are a few questions the IRS will ask first like the industry your business falls under, the names of all LLC owners, and the type of business you have.
New businesses must also get a business permit registration from the Iowa Department of Revenue. A tax permit allows you to sell products and services in Iowa. There are specific types of businesses that must get separate, special permits. Those include those who fall under the sales and use tax like automobile rental companies, hotels, and those owning construction equipment. Special permitting is also required for those dealing with hazardous materials, and fuel.
You can get your EIN by visiting the IRS website.
Open business bank accounts
Anyone who starts an LLC will need a business bank account. This is required to deposit checks and for payment processing. You will also need a good business checking account history to apply for a business loan. It’s also important to have a business savings account and some business credit cards to help during crucial times of the year.
Some banks and credit card companies cater to small businesses with special rates, cash-back bonuses, and other good options so be sure to look around to get the most for your business. Having separate banking and credit cards for your LLC does one other incredibly important thing. It protects you if you are ever audited.
Keeping your business money separated from personal money is crucial. Having separate accounts and credit cards ensures there isn’t a comingling of funds. It also helps track all your expenses.
Review LLC tax rules in Iowa
For tax purposes, you’ll pay taxes on your company’s income on your personal tax return. Both federal taxes and state taxes are also paid via your own returns.
Iowa has new graduated income tax rates for 2023. It starts at 5.5% for those earning less than $25,000 and goes up to 8.4% for those earning more than $250,000.
Sales tax in Iowa
Iowa has both a sales and a use tax and the rate is 6% for each. Local governments can also charge a tax and many have a 1% tax.
Iowa has several tax credits and initiatives. It allows a 25% tax credit of an investor’s equity investment for qualified businesses with a limit of $100,000 credits per year. There are lots of other incentives including an Iowa New Jobs Tax Credit and a Research and Development Tax Credit.
The state offers no sales and use tax on machinery and equipment, no property tax on industrial machinery and equipment, and no personal property or inventory tax. It has a few programs for businesses available that are helpful including the high-quality job creation program and the Iowa New Jobs Training Program.
File a biennial report
Biennial reports for businesses are required in Iowa. These updated reports allow you the chance to make changes in the name, the registered agent, and other vital information. Your first report is due by April 1 the first odd or even numbered year after you create a business. Reports are due between Jan. 1 and April 1.
You will file this report every other year afterward. You can submit a biennial report through Fast Track Filing for $30.
In most states, reports are filed annually and called annual reports, but Iowa is different. Some states call these regularly-required forms a Statement of Information.
To stay in good standing, an Iowa biennial report can be filed online at the Iowa Fast Track Filing system.
Get insurance for your LLC
Those wanting to start an LLC should make insurance a priority. Insurance protects the business and LLC members from liability and also protects their investments. Iowa doesn’t require that businesses have liability insurance but it is crucial to cover your business and you personally if you are ever sued.
Most policies for small businesses come affordably so it’s a safe investment to make in your future.
Iowa does require worker’s compensation insurance. This is insurance that pays for any injuries your employees incur on the job. In Iowa, any business that hires employees is required to have worker’s compensation with few exceptions.
Iowa also requires general liability and related insurance for businesses that own vehicles. This protects against injury and property damage as well as theft, collision, and damage from weather and vandalism.
Property insurance isn’t required in Iowa but it’s another good idea because it covers the cost of rebuilding if your store and equipment are damaged in a fire, flood, natural disaster, theft, or vandalism.
Additional resources to help you set up a business in Iowa
Iowa has several resources to help get your LLC started. Some include:
Where does Iowa rank in terms of business taxes?
Iowa has both state and local taxes which amount to around 6.94% depending on where you live. That ranks it 38th overall in the 2022 State Business Tax Climate Index by the Tax Foundation.
Is Iowa a good place to live and work?
Iowa has many advantages including a low crime rate, a good family atmosphere, and lots of small towns that make it desirable for many seeking a friendly, close-knit community.
Is Iowa affordable to live in and work?
Iowa is one of the best places in the country to live when it comes to affordability. Living costs range around 90% of the national average and housing is 75% of the U.S. average. That means it is more affordable for businesses too with lower costs for space and other operational expenses.
Are home-based businesses successful in Iowa?
Several Iowa home-based businesses have earned enormous success including fashion business Knee Deep Limited LLC which earns $40,000 monthly and Essential Business, a home contractor remodel business, which earns a gross revenue of almost $146,000.
What are some good business opportunities to start an LLC in Iowa?
Some opportunities exist in recycling, dog breeding, online retail consulting, music production, and in CBD products. CBD products are a growing industry there so that is something to look into.
What is a trademark or service mark in Iowa?
A trademark or service mark is a distinctive name, symbol, device, or combination of the three that distinguishes one business from another. It can be used for both businesses and individuals. Trademarks are stamped onto products while service marks are used to identify specific services offered by a person or company.
What is a trade name in Iowa?
A trade name is a name a person or business uses that is different from the legal entity name or the sole proprietor’s name. Some people call it a doing-business-as (DBA) name. In Iowa, you must file a trade name with the state under the law but registering it doesn’t prevent others from using it. It merely identifies who you are in using it.
What’s the difference between a domestic and foreign business in Iowa?
A domestic corporation is formed under Iowa state law in Iowa while a foreign corporation operates under any other law other than those in Iowa. That can be a neighboring state, federal law, or a foreign country.
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