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How to Incorporate in Iowa vs. How to Start an Iowa LLC

A Guide to Choosing the Best Business Entity in Iowa

If you’re interested in starting a business in Iowa, the first decision you’ll need to make is which business entity is right for you. The Limited Liability Company (LLC) and corporation entities are the most popular options with the most desirable elements, such as liability protection and tax advantages. Learning what each of these entities has to offer for your business can be a complicated process, and this Iowa LLC and Iowa incorporation guide will help you make your decision! We’ll go over the specifics of starting an Iowa LLC and an Iowa corporation, what to expect with their annual upkeep, and the advantages and disadvantages of both entities.

At Active Filings, we take care of the incorporation process for your small business, no matter which business structure you choose. Our fast services and affordable prices will show you why Active Filings is America’s most reliable business incorporation service.

 

Hire us to form your LLC or Corporation in Iowa!

LLCs vs. Corporations

You can make your decision based off of the main characteristics true of all LLCs and corporations:

  • Maintenance
    Corporations require a high level of maintenance due to formalities such as annual compliance and taxes. Corporations have legal obligations and formalities like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. On the other hand, LLCs only require a minimal amount of maintenance. LLCs require minimal paperwork, have decision-making flexibility, and low annual upkeep. An LLC is the best choice if you have a small to medium-sized business and can only handle a low amount of maintenance.
  • Tax Structure
    LLCs are much simpler for a business owner during tax season, beings it is not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. Corporations are significantly more complex for a business owner come tax season. A corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
  • Investors
    A corporation will be your best bet for gaining investors. Investors are more comfortable investing their time and money in a traditional and reputable business structure like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. On a similar note, investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you are serious about gaining investors.
  • Entity Prestige
    If you have the “LLC” or “Inc” ending on your business name, it shows a level of prestige and conveys that your serious about your business. These endings show permanence and encourage trust from potential investors or clients. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and the prestige of an LLC is continuing to grow.

 

IA LLCs vs. IA Corporations

Now that we’ve laid the groundwork for the general characteristics between all LLCs and corporations, next is to dig into specifics of what makes an Iowa LLC or Iowa corporation unique, and which one will be better for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details should be taken into consideration when choosing your business entity. The information in this section will provide these specifics for the Iowa LLC and the Iowa corporation.

  • Iowa Corporate Income Tax
    Iowa imposes an income tax on every corporation that earns or receives income in the state of Iowa. This tax can become considerably expensive if your corporation has a high income, and this expense should be taken into consideration for the future of your business.
    This tax rate is based on the marginal rates below:

    Tax Bracket Tax Rate
    0 – $25,000 6%
    $25,000 – $100,000 8% (minus $500)
    $100,000 – $250,000 10% (minus $2,500)
    $250,000+  12% (minus $7,500)
  • No Privilege or Franchise Tax in Iowa
    Unlike most states, Iowa does not subject businesses to a franchise or privilege tax, saving both LLCs and corporations hundreds to thousands of dollars every year.
  • Iowa Personal Income Taxes
    Iowa imposes a progressive personal income tax, with 9 tax brackets. This tiered tax system is especially beneficial for small or new businesses, providing a notably low tax rate on low-income.
    The Iowa personal income tax brackets are as follows:

    Tax Bracket Tax Rate
    $0.00+ .36%
    $1,598.00+ .72%
    $3,196.00+ 2.43%
    $6,392.00+ 4.5%
    $14,382.00+ 6.12%
    $23,970.00+ 6.48%
    $31,960.00+ 6.8%
    $47,940.00+ 7.92%
    $71,910.00+  8.98%
  • Iowa LLC Interest Foreclosure Vulnerability
    LLCs in Iowa do not have the same level of protection as most states, and creditors (a person who is owed funds or assets by a debtor) in Iowa have an extra remedy against LLCs that owe them, and can order a foreclosure on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. For Iowa LLCs, this same charging order and lien can be placed, except a court can also “order a foreclosure of the interest” (IA Code §489.503) on the LLC.
  • Iowa LLC Biennial Reports
    In most states, its required to file an annual report for your LLC and corporation. In Iowa, LLCs and corporations only need to file a biennial report every other year, saving you a noteworthy amount of time and money. If basic information about your LLC or corporation changes before the next biennial report is due, you will need to send in an amendment form and a $50 fee by postal mail, fax, or in person.

 

Iowa LLC or Iowa Corporation? Final Answer.
For an answer on your decision to form either an Iowa LLC or an Iowa corporation, consider the size of your business, level of maintenance you require, priority of investors, and the most beneficial tax structure for the future of your business.

The Iowa LLC wins the decision for small to medium-sized businesses. LLCs in this state are less expensive and time-consuming to form and maintain than corporations, and provide easy management, flexibility and liability protection. Iowa LLCs stay true to character in their low maintenance and simple tax structure. If investors are not one of your top priorities, and you’re looking for liability protection for your business, the LLC is your answer.

The Iowa corporation wins the decision if you plan to grow your business big with the help of investors, and you have the means for the amount of paperwork required. An Iowa corporation remains true to character in its substantial amount of paperwork, high maintenance, and involved yet beneficial tax structure.

How to Incorporate in Iowa

In order to start a corporation in Iowa, also known as incorporating, you must file the Articles of Incorporation with the Iowa Secretary of State. You are not required to submit a specific form, and can create your own form with specific information, or use a template provided on the Secretary of State website.

You can file the Articles of Incorporation in the following ways:

  • Online at the Iowa Secretary of State website (recommended)
  • By postal mail
  • By fax
  • In person at the Lucas building in Des Moines

The state of Iowa charges a $50 filing fee for the Articles of Incorporation. There is typically a 1 day filing time if you file online, and 1–2 day filing time if you file through postal mail (plus mailing time), fax, or in person.

To complete your Iowa Articles of Incorporation, include the following information:

Your Iowa corporation’s name must contain the word “Corporation,” “Company,” “Incorporated,” “Limited,” or an abbreviation of those.
Your corporation name cannot imply it is organized for a purpose other than what is known in the Articles of Incorporation. The name cannot already be in use, and cannot sound similar to the name of any other company or company type in Iowa.

Enter your Iowa registered agent’s name and street address. All Iowa corporations are required by law to have a registered agent physically located in the state to accept service of process on behalf of the corporation.

If you hire Active Filings to form your Iowa corporation, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

State the number of shares your corporation is authorized to share. In the technology industry, larger numbers of shares are more common, such as 10 million. Other industries use much lower numbers, such as 1,000 – 1,500 shares.

List the name and address of each incorporator.

How to Start an LLC in Iowa

When you’re ready to form an LLC in Iowa, you’ll need to file the Certificate of Organization with the Iowa Secretary of State. You are not required to submit a specific form, and can create your own form with specific information, or use a template provided on the Secretary of State website.

You can file the Certificate of Organization in the following ways:

  • Online at the Iowa Secretary of State website (recommended)
  • By postal mail
  • By fax
  • In person at the Lucas building in Des Moines

There is a $50 filing fee to file your Certificate of Organization. There is typically a 1 day filing time if you file online, and 1–2 day filing time if you file through postal mail (plus mailing time), fax, or in person.

To complete the Iowa Certificate of Organization, you must include the following information:

Your Iowa LLC’s name must contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.”, or “LC”. “Limited” may be abbreviated as “Ltd.”, and “company” may be abbreviated as “Co.”.

Your LLC name cannot imply it is organized for a purpose other than what is known in the Certificate of Organization. The name cannot already be in use, and cannot sound similar to the name of any other company or company type in Iowa.

Enter your Iowa registered agent’s name and registered office address. All Iowa LLCs are required by law to have a registered agent physically located in the state to accept service of process on behalf of the LLC.

If you hire Active Filings to form your Iowa LLC, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

Enter the physical street address of your business’s principal business office.

State whether your business will be member-managed, where all the members are owners and are involved in decision-making and day-to-day operations, or manager-managed, where certain members are appointed to make the decisions and run day-to-day operations.

If you don’t want your LLC to have a perpetual (indefinite) lifespan, write in a dissolution date here.

Organizer of this LLC needs to sign and date here.

Iowa Biennial Report Requirement

Completing your annual and biennial maintenance tasks will let your business maintain good standing and stay updated with the state of Iowa.

1. File your biennial report
2. File your annual Iowa business taxes

Below, we’ll walk you through the basic instructions and resources you’ll need to help you take care of your annual maintenance.

What is an Iowa biennial report?
Iowa LLCs and Iowa corporations are required to file biennial reports with the Iowa Secretary of State. The report is meant to update or confirm the records for your business, and lets your business remain in good standing. You can update information such as business address, directors, officers, and managers using the biennial report form.

How do I file a biennial report in Iowa?
Iowa LLCs and Iowa corporations can file their biennial reports by postal mail or at the Secretary of State website.

How much does it cost to file a biennial report in Iowa?
For Iowa LLCs and corporations, the biennial report fee is $60 if filed by mail, and $45 if filed online.

When are Iowa biennial reports due?
For Iowa LLCs, this report is due between January 1 and April 1 of the first odd-numbered year following the year your LLC was created. For Iowa corporations, this report is due between January 1 and April 1 of the first even-numbered year following the year your corporation was created.

Iowa Business Taxes

Iowa business taxes can be complex, and have more moving parts than other states. For corporations, the state imposes a corporate income tax. For LLCs, the profits are only taxed on the owner’s or member’s personal taxes.

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Take a look at our Iowa Business Tax FAQ below:

What’s the Iowa’s corporate income tax?
The state of Iowa imposes a corporate income tax on every corporation that earns or receives income. Currently, Iowa’s corporate income tax percentage depends on your income level:

Tax Bracket Tax Rate
0 – $25,000 6%
$25,000 – $100,000 8% (minus $500)
$100,000 – $250,000 10% (minus $2,500)
$250,000+  12% (minus $7,500)

What tax form does an Iowa corporation need to file?
An Iowa corporation must file Form IA 1120 for the corporate income tax return.

How can I file the Iowa corporate income tax?
An Iowa corporation can file their corporate income taxes at the Iowa Secretary of State website or by paper form return.

What’s the Iowa personal income tax?
Iowa imposes a progressive personal income tax, with 9 tax brackets. This tiered tax system is especially beneficial for small or new businesses, providing a notably low tax rate on low-income.
The Iowa personal income tax brackets are as follows:

Tax Bracket Tax Rate
$0.00+ .36%
$1,598.00+ .72%
$3,196.00+ 2.43%
$6,392.00+ 4.5%
$14,382.00+ 6.12%
$23,970.00+ 6.48%
$31,960.00+ 6.8%
$47,940.00+ 7.92%
$71,910.00+  8.98%

What tax forms does an Iowa LLC need to file?
For single member LLCs, submit a Schedule C in addition to your personal tax return.
For multi-member LLCs, submit Form IA 1065, along with Schedule K-1 included within the form.

When are my Iowa business tax returns due?
Corporate tax payments in Iowa are due within four months after the close of your corporation’s tax year (fiscal year).
For LLCs, individual income tax returns are due by the last day of the 4th month after the fiscal (taxable) year is over, or April 30th for calendar year filers.

Hire us to form your LLC or Corporation in Iowa!