There are several important steps to take when setting up an LLC in Iowa. The first is determining if any sort of licensing or permits are required. While Iowa does not have a general state business license, certain businesses may require specific licenses or permits depending on the LLC’s intended business type of business. The Iowa Business License Information Center should be consulted for information regarding licensing needed for specific business activities. Additionally, an LLC must register with the Iowa Department of Revenue for a separate permit number for sales tax, consumer’s use tax, retailer’s use tax, withholding tax, and water service excise tax. It is also important to note that individual municipalities and subdivisions may have additional licensing, endorsement, and permit requirements. Furthermore, federal licenses may be required for businesses that operate in federally regulated activities.
The next step is deciding the official name of the LLC; there are both required elements and restricted elements to consider when naming an LLC in Iowa.
1. The name of an Iowa LLC must be set forth in its certificate of organization and 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.”
2. The name of an LLC must be distinguishable from the name of any other entity incorporated, organization, authorized, or reserved to transact business in Iowa.
3. An LLC’s name can be reserved by completing the state of Iowa’s Application for Reservation of Name form provided by the secretary of state. Completed forms, including payment, should be delivered to the Iowa Secretary of State. The fee is $10 for LLCs. A reservation is valid for 120 days.
4. An LLC wishing to do business under any name other than its legal name must complete and file a Fictitious Name Resolution form provided by the secretary of state at the cost of $5 per trade name reserved for use.
After deciding on the name of the LLC, the next step is preparing and filing the necessary formation documents. One or more people may begin by filing a properly executed certificate of organization with the Iowa Secretary of State through its online Fast Track Filing System. The fee for filing a certificate of formation with the Iowa Secretary of State is $50. A member must be admitted as a member of the LLC, and such admission usually occurs when the certificate of organization, filed in the office of the Iowa Secretary of State, becomes effective.
The following components are required within a certificate of organization:
1. The name of the LLC;
2. The address of the company’s registered office;
3. The name and address of the LLC’s registered agent for service of process in Iowa
Iowa Code § 489.201(2).
The date the Secretary of State of Iowa files the certificate of organization is the date the LLC comes into existence. This filing of the certificate by the secretary of state is definitive proof that the person(s) executing the certificate satisfied all formation requirements.
Operating agreements are an essential part of LLCs, and while they are highly recommended, they are not required by Iowa law. Much like a partnership agreement or corporate bylaws, the LLC operating agreement dictates the actions pertaining to the ownership and operation of the LLC. The operating agreement is defined as an agreement of all the members and may be oral, in a record, implied, or any combination thereof. It is highly recommended for individuals to allow counsel to draft an operating agreement when forming an LLC. This agreement can theoretically be contained in more than one document and does not need to be filed with the Iowa Secretary of State or any other public office. It is important to remember that once finalized, unless the agreement itself calls for an expiration date, the operating agreement remains in force until amended or changed by the members’ unanimous consent (or other agreed-upon percentage). There is no incorrect form of operating agreement; agreements should be tailored to fit the individual circumstances and needs of the contracting parties. While there is nothing specifically required in an operating agreement, there are several things it should cover:
1. Management Structure
a. Whether the LLC is member-managed (i.e., managed by its owners) or manager-managed
b. Requirements for voting by quorum, in person, or by proxy, as well as any other matter necessary to exercise the right to vote
c. Procedure for amending the certificate of organization or the operating agreement, including procedures that allow for the amendment of the operating agreement without a vote or approval of the LLC’s members, or certain classes of the LLC’s members
d. Rights and powers of managers, including whether there are multiple classes of managers and the duties and voting powers of each
e. Procedures for electing and removing managers
f. Indemnification of members and managers by the LLC
2. Member Rights and Responsibilities
a. Procedures for admitting and expelling members
b. Initial capital contribution required of members
c. Notice and procedure required for member meetings (and for managers, if applicable), as well as a listing of actions that can be taken by consent without the need for a meeting
d. Management rights and authority of each member, including whether there are different classes of members and the relative rights and responsibilities of each class
e. Voting rights of members and the voting power of each, including the designation of a class or classes of members that hold no voting rights whatsoever
3. Profit and Loss Allocation
a. Allocation of profits, losses, and distributions among members and different classes of members
b. Buy-sell provision
Operating agreements are crucial as they govern the LLC’s actions and behavior. Other than the filing of a certificate of organization, Iowa imposes no organizational formalities on LLCs.