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It is possible to run a business without setting up a formal legal structure. But the benefits of forming an LLC far outweigh the time and money you’ll spend in the process. This guide explores everything you need to know about starting an LLC, including a step-by-step overview of the process.
Why Starting an LLC in Montana Is Worth It
First off, you’ll be happy to know that Montana is one of the best states to start an LLC. The sales tax rate is 0%, while the individual income tax rate is between 1% and 6.9% depending on your income. Also, the average effective property tax rate is 0.87%.
For comparison, New Jersey has a 6.625% sales tax rate. In addition, the individual income tax rate in New Jersey ranges between 3.5% and 10.75%, depending on income. Finally, the average effective property tax rate in New Jersey is 2.4%.
Montana’s favorable business environment aside, there are several reasons to consider forming an LLC. The most obvious benefit of starting an LLC is personal liability protection. Your business is treated as a separate legal entity from yourself. That means you won’t be personally liable for any business losses, debts, or lawsuits. In addition, your personal assets will be safe from your LLC’s legal obligations.
Furthermore, an LLC is a suitable choice for small business owners who value autonomy. You don’t have to run your decisions through a board of directors, which is the case in a corporation. Even where there are multiple members, an LLC is governed by an operating agreement. This document spells out each member’s role, responsibilities, and obligations, making it much easier to structure your business in the way it best suits you.
Finally, LLC members enjoy pass-through taxation. This means that your profits aren’t taxed at the corporate level. Instead, members only report profits in their individual income tax returns. This setup allows you to avoid double taxation. Conversely, corporations are taxed at the corporate level and again at the shareholder level.
While an LLC is often the best option for small business owners, this business structure does have its limitations. For example, LLCs cannot issue stocks and bonds. This situation makes it difficult to attract investors. You can check our post on LLC vs. Corporation for more details on the downsides of LLCs and whether a corporation structure may be a better fit.
The Investment Needed To Start an LLC in Montana
For the most part, starting an LLC in Montana is straightforward. The two significant investments are time and money.
The most obvious cost of starting your LLC is the filing fee. For example, Montana charges $70 to file an Articles of Organization with the secretary of state.
The process takes about a week. But you can speed things up if you pay an additional $20 for a 24-hour turnaround time. You can further reduce this time to one hour if you pay an extra $100 to expedite the process.
You’ll also need to appoint a registered agent. A registered agent in Montana costs between $50 and $300 per year. You can cut this cost by designating yourself as a registered agent. Similarly, you can also appoint a member of the LLC to be the registered agent.
The final cost is the legal service or LLC formation service. Of course, this cost is optional. You can choose to do the LLC formation process yourself. But I highly recommend hiring a formation service like Northwest Registered Agent. Despite the name, this formation service will do everything for you, including filing the Articles of Organization, paying the related fees, and acting as your registered agent.
Northwest charges a $100 filing service exclusive of the state’s filing fee. You’ll also pay an additional $125 for Northwest registered agent services. So, your total will come to $295, inclusive of the state filing fee. There’s also the option to pay $32 per month.
6 Steps to Start an LLC in Montana
Forming an LLC in Montana is pretty straightforward. Here’s how to complete the process.
Step 1 – Choose an LLC Formation Service
I highly recommend using an LLC formation service to take charge of the filing process. It will cost you more than the DIY route. But it is a worthwhile investment. The formation service will help you eliminate formation errors that can delay or stall the process. The service also has contacts in the secretary of state to ensure the process goes smoothly.
For this step, I recommend Northwest for several reasons. Firstly, Northwest will hold your hand throughout the process, including verifying that your business name is available, preparing the Articles of Organization, and filing your documents with the secretary of state.
Your Northwest account also comes with many valuable tools you’ll need during and after the LLC formation process. For example, Northwest will be your registered agent for at least one year. The service will also help you draw up an operating agreement and even obtain an Employer Identification Number.
Finally, the best part with Northwest is its simple order form. There are no confusing upsells, and you can get started right away.
Simply go to this link to choose your package.
You’ll be asked to choose the type of business you want to start. Choose LLC. Next, select Montana from the dropdown menu. Finally, decide how you want to be billed and click Continue.
Then, simply provide the billing information to create your account.
Step 2 – Name Your LLC
You’ll need a unique name for your LLC before you can register it with the secretary of state. If you haven’t already, pick a name for your company. Remember, your company name must include some form of the words “Limited Liability Company” or “Limited Company.” You can also use the abbreviations such as LC, L.L.C, or LLC instead.
Also, be sure that the name isn’t already taken. You can visit the Montana Business Search to determine if another company uses the business name you chose.
Finally, consider reserving your LLC name. The filing process may take some time, especially if you don’t choose the expedited option. However, you only need to pay a $10 fee to reserve your name for up to 120 days. Then, you can take your time to register your business at your convenience. You’ll need to create an ePass Montana account to reserve the name.
Alternatively, you can request Northwest Registered Agent to reserve the name for you. You can do this from the Northwest account you created in the first step.
Step 3 – Choose a Registered Agent
According to Montana Code 35-7-144, you’ll need to appoint a registered agent. The registered agent acts as the point of contact between your business and the secretary of state. They’ll be receiving legal documents such as tax notices, compliance notices, and service of process documents on behalf of your business.
If you chose Northwest in the previous step, this service is already included in your package. Most other formation services also act as your registered agent for at least one year.
However, you can still choose to be your own registered agent. You can also appoint one of the other LLC members (owners) to be the registered agent. This type of agent is known as a new agent.
One of the advantages of hiring a commercial registered agent like Northwest is privacy. The address you list on your formation documents will be public information. This can be a problem if you don’t want to make your business address public. Worst still, you may be running your business out of your home.
Either way, make sure that the registered agent is a resident of Montana. The agent should also be available to receive legal mail at the listed address during all regular business hours. Again, these are requirements from the secretary of state.
Step 4 – Draft an Operating Agreement
You don’t need an operating agreement to register your LLC with the secretary of state. You don’t even need an operating agreement at all, at least as far as legal requirements for forming an LLC are concerned. But this document is highly recommended at this stage of business formation.
An operating agreement is simply a document that details how your business operates. These details include:
- The number of members
- Each member’s investment
- Voting rights
- Dispute resolution
- Allocating profits and losses among members
- Transfer of membership interest
- Dissolving the business
You may also need an operating agreement to open a company bank account. However, you don’t need to file your operating agreement together with the Articles of Organization.
We have a great guide to help you draft an operating agreement. Northwest will also help you draw one up as part of your package. You’ll get a ready-to-use operating agreement template to make sure you don’t miss any crucial details.
Step 5 – File Articles of Organization
It’s time to register your business formally. To do this, you will need to fill out the Articles of Organization form and file it with the secretary of state.
If you’re not using a formation service, you can do this by creating an ePass Montana account. You’ll have to file the articles online. There is no option to mail in your forms. Some of the information you’ll need to provide in the Articles of Organization include:
- The LLC name and mailing address
- Registered agent’s details
- The type of LLC
- The purpose of the LLC
- LLC management type
- List of LLC members
- Tribal designation
- Management names and addresses
If you let Northwest take the lead, you won’t have to worry about creating an ePass account or filing the document. Instead, the filing service will look over your details and call you in case of any questions. Then, Northwest will complete, process, and file the Articles of Organization with the secretary of state on your behalf.
You’ll also be able to check the order status during the filing from your Northwest account.
Step 6 – Wait For Your Certificate
The only thing left is to wait for the secretary of state’s approval. This shouldn’t be a problem if you have correctly prepared and filed the Articles of Organization. Then, you’ll receive a certificate by email confirming that your LLC has been formed successfully.
Typically, you’ll receive your certificate in five to eight business days, though you can always pay extra for expedited processing. Finally, you’ll receive an email with the filed paperwork as soon as Northwest gets it from the secretary of state.
You’ll need this certificate to apply for an Employer Identification Number (EIN), business bank account, and business licenses.
Your LLC is now a legal business entity at this stage. But there are a few more things left to do. The most obvious next step is to apply for an Employer Identification Number. This number is mandatory for all LLCs except for single-member LLCs. You’ll need this number for crucial business functions, including filing tax returns, paying income tax, and opening business bank accounts.
Northwest Registered Agent offers an EIN as an add-on service. You’ll only need to pay a small fee, and the service will help you obtain your EIN. Otherwise, you can apply to get your EIN for free on the IRS website.
Lastly, you’ll need to file annual reports for your LLC. This step ensures that you are in good standing with the Secretary of State. Also, the annual report helps to update your LLC records with the secretary of state. This report is due by April 15 every year, and there is a $20 filing fee.
Again, Northwest offers annual report filing as an add-on service. Forgetting to file your annual report can have serious consequences. For example, failing to file by December 1 means that your LLC is automatically dissolved. Similarly, missing the April 15 deadline attracts a $35 fine. It is better to let Northwest handle the process on your behalf.
Below are two more Crazy Egg posts relating to this topic that you might find helpful: