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How to Incorporate in Rhode Island vs.
How to Start a Rhode Island LLC

A Guide to Choosing the Best Business Entity in Rhode Island

When you’re ready to start a business in Rhode Island, the first big decision you’ll have to make is which business entity structure is best for your company. The Limited Liability Company (LLC) and corporate entities are the most popular structures in the states, and have the most desirable elements from all the business entities, such as limited liability protection and flexible tax structuring options. This Rhode Island LLC formation and incorporation guide will help you understand both business structures and explain their main characteristics. We’ll discuss the details of starting both a Rhode Island LLC and a Rhode Island corporation, what to expect with their annual maintenance, and the advantages and disadvantages of the LLC and corporation.

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 Rhode Island!

LLCs vs. Corporations

Here are the main characteristics for all LLCs and corporations that are important to understand and can base your decision of off:

  • Maintenance
    An LLC is the most simple business structure to maintain. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have 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. On the flip side, a corporation will require a high level of maintenance, both on a day-to-day and annual basis. Corporations have more legal formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.
  • Tax Structure
    An LLC is not a separate taxable entity apart from its owners, therefore making it a pass-through tax entity. Income and losses pass through the business and onto the members to report on their personal income tax return. LLCs are the simpler and less expensive option in terms of time and paperwork for business owners during tax season. Corporations are more advanced for a business owner to take care of during tax season. A standard 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 (dividends) and losses. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, 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.
  • Prospective Investors
    A corporation is the clear choice if you need to appeal to investors. Entrepreneurs looking to expand their company in the future will need investor funds, making the corporate entity the suitable choice. Investors are more comfortable investing their time and money in a traditional business structure that offers stock, 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, unlike an LLC. 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 the other hand, 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. A corporation should be considered if you are serious about gaining investors.
  • Business Prestige
    A business starts with its appearance, and having the “LLC” or “Inc” ending on your business name will provide your company with certain a level of prestige. These endings convey permanence and encourage trust from likely investors or clients, and show that you are serious about your business. 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 growing significantly.

 

RI LLCs vs. RI Corporations

Once you understand the main characteristics that apply to all LLCs and corporations, next is to uncover more specific characteristics of what makes a Rhode Island LLC or Rhode Island corporation unique from other states, which will bring us to the final answer on which entity is best 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 must be considered when choosing your business entity.

The information in this section will provide these specifics for the Rhode Island LLC and the Rhode Island corporation.

  • No Franchise Tax on Businesses in Rhode Island
    Unlike most states, the state of Rhode Island does not impose a typical business franchise tax on businesses, saving both LLCs and corporations in Rhode Island a significant amount of money every year.
  • Rhode Island Business Corporation Tax
    The Rhode Island business corporation tax is imposed on the income of traditional C corporations, and is a flat 7% with a minimum tax of $400, which is fairly average compared to corporate tax rates across the nation. If you are considering a corporation, talk to a professional about how this corporate income tax can impact your business compared to the tax structure of an LLC.
  • Rhode Island Individual Income Tax
    The Rhode Island individual income tax rate is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Rhode Island currently has 3 tax brackets:

    Taxable Income  Tax Rate
    $0 – $62,550  3.75%
    $62,550 – $142,150 4.75%
    $142,150+  5.99%
  • Rhode Island LLC Protection From Creditors
    LLCs in Rhode Island have a strong level of protection against creditors (a person who is owed funds or assets by a debtor of an LLC). In other states, creditors can have the courts order a foreclosure on the LLC. In Rhode Island, creditors only 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. Often times, this leads to the creditor ending up with nothing, since creditors can’t order the LLC to make distributions (RI §7-16-37).

 

Rhode Island LLC or Rhode Island Corporation? Final Answer.
To make your decision on either forming a corporation or an LLC in Rhode Island, look at the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

The Rhode Island LLC will be best if you have a small to medium-sized business. LLCs in Rhode Island stay true to character in terms of easy formation and maintenance, simple management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and you’re just needing limited liability protection for your business, the LLC is your answer.

The Rhode Island corporation will be best if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. a Rhode Island corporation remains true to character in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

How to Incorporate in Rhode Island

If you’ve decided to form a Rhode Island corporation, also known as incorporating, you must file the Articles of Incorporation with the Rhode Island Secretary of State. You can download the Articles of Incorporation online at the Rhode Island Secretary of State website. Once your Articles of Incorporation are approved, your corporation is officially formed.

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

  • Online at the Rhode Island Secretary of State website
  • By postal mail
  • In person at the Rhode Island Secretary of State office

If you file your Rhode Island Articles of Incorporation on the website, it will be the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs $230. The state of Rhode Island processes business registration forms such as the Articles of Incorporation quicker than most states, and you can expect to get your corporation approved in about 2 days.

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

Enter your corporation’s name exactly as you would like it to appear. Your corporation name must include one of the following words: “Incorporated,” “Corporation,” “Company,” “Limited,” or an abbreviation of one of those words.

Your corporation name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Incorporation. The name can’t already be in use, and can’t sound similar to the name of any other company in Rhode Island.

State the number of shares your corporation is authorized to issue (most corporations start out with around 1,500).

A registered agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. Enter the name and address of your Rhode Island registered agent here.

If you have any additional limitations, modifications, or contingencies regarding your corporation or its purpose, list them here.

List the names and addresses of each person responsible for forming this business.

Check the appropriate box depending on whether you would like your corporation’s official formation date to be the day the Secretary of State approves this document, or on a later date (no more than 90 days after the filing date).

Have the incorporators sign and print their names here.

Provide the filer’s contact information here in case the Secretary of State needs more information to finish filing the document.

How to Form an LLC in Rhode Island

If you’ve decided to form a Rhode Island LLC, you must file the Articles of Organization with the Rhode Island Secretary of State. You can download the Articles of Incorporation online at the Secretary of State website. Once your Articles of Organization are approved, your LLC is officially formed.

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

  • Online at the Rhode Island Secretary of State website (recommended)
  • By postal mail
  • In person at the Rhode Island Secretary of State office

If you file your Rhode Island Articles of Organization on the website, it will be the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Organization costs a flat $150. The state of Rhode Island processes business registration forms such as the Articles of Organization quicker than most states, and you can expect to get your corporation approved in about 2 day.

To complete the Rhode Island Articles of Organization, include the following information:

Enter your LLC name exactly as you would like it to appear. Your company name must include the words “Limited Liability Company” or the abbreviations “L.L.C.” “LLC.”

Your company name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Organization. The name can’t already be in use, and can’t sound similar to the name of any other company in Rhode Island.

A registered agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. Enter the name and address of your Rhode Island registered agent here.

Check the appropriate box based on whether you’d like your company to be treated as a partnership, a corporation, or an entity disregarded as an entity separate from its members (such as an LLC) for tax purposes with the IRS.

List the physical address of your LLC’s principal office.

If you have any additional limitations, modifications, or contingencies regarding your LLC or its purpose, list them here.

If all the members are owners and are involved in decision-making and day-to-day operations, the LLC is member-managed. If certain members are appointed as managers to make the decisions and run day-to-day operations, the LLC is manager-managed.

Check the appropriate box depending on whether your LLC is manager-managed or member-managed, and list the names and addresses of the managers (if applicable).

Check the appropriate box depending on whether you would like your LLC’s official formation date to be the day the Secretary of State approves this document, or on a later date (no more than 90 days after the filing date).

Write the name and address of the organizer of this LLC, and have them sign and date.

Provide the filer’s contact information here in case the Secretary of State needs more information to finish filing the document.

Rhode Island Annual Reports

Keeping your business updated and in good standing with the state of Rhode Island and in good standing every year by taking care of a few annual maintenance tasks.

1. File your corporation’s annual report
2. File your annual Rhode Island business tax returns

Below, we’ll explain the basic instructions and resources you’ll need to help you take care of your tax-related upkeep and annual maintenance.

What is a Rhode Island annual report?
An annual report updates or confirms the records for your business, such as officer/member names and addresses, and lets your business remain in good standing. Rhode Island LLCs and Rhode Island corporations that do business in the state are required to file annual reports with the Secretary of State.

How do I file an annual report in Rhode Island?
Corporations and LLCs in Rhode Island need to either file their annual reports online at the Secretary of State website (recommended), or by postal mail.

How much does it cost to file an annual report in Rhode Island?
For LLCs and corporations, the annual report fee in Rhode Island is $50, with an extra $2.50 fee to file online.

When are Rhode Island annual reports due?
For corporations, your Rhode Island annual report is due by March 1st every year. For LLCs, the due date is November 1st (with the filing period starting on September 1st).

Rhode Island Business 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.

Check out our Rhode Island Business Tax FAQ below:

What is the Rhode Island Business Corporation Tax?
The Rhode Island business corporation tax is imposed on the income of traditional C corporations, and is a flat 7% with a minimum tax of $400, which is fairly average compared to corporate tax rates across the nation. If you are considering a corporation, talk to a professional about how this corporate income tax can impact your business compared to the tax structure of an LLC.

What is the Rhode Island individual income tax rate?
The Rhode Island individual income tax rate is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Rhode Island currently has 3 tax brackets:

Taxable Income  Tax Rate
$0 – $62,550  3.75%
$62,550 – $142,150 4.75%
$142,150+  5.99%

What forms do you file for your Rhode Island business taxes?
State:
For the Rhode Island business corporation tax, submit Form RI-1120C.

Federal returns:
For C corporations, submit Form 1120 federal income tax return.

For S corporations, submit Form 1120S federal income tax return for an S corporation.

For single member LLCs, submit Schedule C as part of your Form 1040 individual income tax return.
For multi-member LLCs, submit Form 1065 partnership income tax return along with Schedule K-1.

When are my Rhode Island business tax returns due?
Your Rhode Island business corporation tax return is due on or before the 15th day of the 4th month after the close of the taxable year, or April 15th for calendar year filers. All other federal tax returns are typically due April 15th as well.

Hire us to form your LLC or Corporation in Rhode Island!