The Oregon Limited Liability Company (LLC) is the fastest growing business entity in Oregon. Its creation was mandated by law and it is a hybrid of the corporate structure with the partnership form of doing business.
What is an LLC?
In an LLC, owners are called members, regardless of the number of owners involved. Membership interests can be transferred, but are not sold. (LLCs are not like corporations, which can sell shares of stock.)
It’s important to realize that the members of a limited liability company do not have any legal liability for the actions of the LLC or each other. It’s only the LLC itself that is held liable for any debts or claims against it. This liability protection can be very important since it allows an LLC to act as a pass-through entity for its members.
Unlike the members of a corporation, an LLC is treated as a sole proprietorship for tax purposes. That means that all income generated by the business is passed through to the “owner,” and is not taxable at the owners’ personal tax rate. Members also don’t have to pay self-employment taxes (Social Security and Medicare).
The 5 Steps of forming an LLC in Oregon:
If an LLC’s formation is required by the state of Oregon, it is very simple to set up. The process has been streamlined and simplified with the advent of online LLC formation, which can be completed in just 5 steps:
Step 1: Name your Oregon LLC
In Oregon, a company name must include either “Limited Liability Company” or one of the following: “Limited Company”, “Limited Co.”, “Ltd. Company”, or “Ltd. Co.”
If you’re planning on using your LLC for tax purposes, you’ll want to use the “LLC” name, as that’s what most people think of when they hear “limited company.” The LLC name is up to you; it should reflect your business’s mission or focus.
Find the perfect name for your business
To find the best name for your LLC:
- Do a name search to make sure no one else is using it.
- Register your chosen LLC name with the Oregon Department of Transportation’s Motor Vehicle Division if you’ll be doing business as a company delivering goods or services in Oregon.
- Register the LLC name with the Secretary of State if it will be conducting any other business in Oregon.
- Check your desired LLC name to make sure that it doesn’t contain any regulated words.
Step 2: Appoint a registered agent in Oregon
A registered agent is an individual who is authorized to receive legal documents, like summonses, lawsuits, or notices from the state on behalf of a business. If you dissolve your LLC, the Secretary of State will have to send notices to your registered agent. Because of this, it’s extremely important that your registered agent be available at all times.
Registered agent requirements:
- Must be a resident of U.S. or Green Cardholder
- Must reside in Oregon
- Able to sign as the registered agent for the LLC
- May not be married, nor may he or she be prohibited from owning a firearm under federal law
- Must have a form of identification issued by the United States, and be able to provide two legible copies of that identification – one for the Secretary of State and one for you, if requested.
Step 3: File Oregon Articles of Organization
Oregon does not require LLC owners to file Articles of Organization to form an LLC. However, once you’ve decided on your business name, you must do a name check with the Oregon Secretary of State. If the name is available for use, you’ll have to file articles of organization with the Secretary of State. This is not required, but it’s the best way to make sure that no one else is currently using your business name.
Oregon’s annual report must be filed before April 15 of each year. The filing fee is $120.
An LLC with 2 or more members will also have to file a Statement of Information with the Secretary of State before May 1st. The filing fee for this statement is $75.
Once you complete the above steps, you’ll have to file your Articles of Organization with the Secretary of State so that it is filed with their permanent records. This will allow you to keep your business’ location up-to-date in the Secretary of State’s database.
Step 4: Create an operating agreement
An LLC’s operating agreement is a document that outlines how the business is administered, and how members are to be compensated. The operating agreement can be as simple or as complex as you’d like it to be. It should include:
I. Owners’ rights and obligations
An LLC’s owners have the right to gain control of the company by buying out other members’ ownership interests or by selling their own ownership stakes back to current owners. Also, owners can sell their company’s assets and transfer its ownership interests.
Ownership interests are not transferable without the owners’ consent. Owners can also vote on whether or not the company should be dissolved, and when it should be dissolved.
II. Members’ rights and obligations
Each member of an LLC has a certain set of rights and obligations. These are outlined in the operating agreement, but they include:
A limited liability company is allowed to pay a member dividends out of its earnings. Dividends are not taxable to the member who receives them.
IV. Notice of Dissolution
When an LLC is required to be dissolved, all members must be notified and a meeting must be called. The notice should include the date and time of the meeting, and whether or not dissolution will be voluntary or mandatory.
An operating agreement should address all of these issues. If your LLC has more than 2 members, you’ll need to file an Oregon LLC operating agreement with the Secretary of State beforehand.
- Must be filed before April 15th
- Can be done online at the Secretary of State’s website
- Must be on the Secretary of State’s letterhead
- Must include the physical street address where the business will be located
- Must include information about your LLC’s registered agent service
Step 5: Apply for an EIN
An Employer Identification Number (EIN) is a number assigned by the IRS to a business. It’s used to identify the business for tax and employment purposes. If your LLC is classified as a corporation, you will need an EIN to file taxes with the IRS. Your federal employer identification number will be located on a letter that was sent to you by the IRS after your EIN was approved.
If your LLC is classified as a partnership or an S corporation, you’ll need to apply for an EIN yourself. You can do this online at the IRS website. If you are operating as an individual, you don’t need an EIN.
If you decide that you’d like more than one LLC, make sure that each business gets its own EIN number from the IRS. This will allow you to file taxes from all of your LLCs with the same account.
Pros and Cons of creating an LLC in Oregon
The difference between an LLC and a corporation in Oregon is the amount of control you have in the business.
The benefits of creating an LLC include:
- You can now own property, including real estate.
- Your LLC is not subject to taxes.
- You have the flexibility to keep your LLC’s business location hidden from the public.
The risks of creating an LLC are:
- You may not be able to collect all of your income.
- If you dissolve the company, some or all of your creditors will still be able to file with the Secretary of State for their debts owed to you.
The biggest advantage of creating an LLC in Oregon is that you don’t have to worry about sales taxes. This means that you can receive income from your business without having to worry about paying taxes on the money. There are other advantages, too, such as the ability to pay yourself out of your business’s profits or acting as a sole proprietorship.
The biggest disadvantage of creating an LLC in Oregon is that you have less control over everything. You do not own the property that your LLC does business at, and you can’t decide what to do with it. You will also have to register all of your business activities, including but not limited to – paying and receiving money.
Because there are a lot of restrictions associated with creating an LLC in Oregon, it’s best to consult an attorney before you create your LLC.
For additional information on Oregon LLCs, please visit:
- Oregon Secretary of State’s Office at www.sos.state.or.us/forms/bus_corp.shtml
- Internal Revenue Service at www.irs.gov/businesses/small/article/0,,id=174926,00.html
- The Secretary of State’s Operating Agreement at http://www.sos.state.or.us/docs/forms_pdfs/.
How much does it cost to start an Oregon LLC?
The cost of creating your LLC is $100. You’ll also have to pay taxes on the money you make from your business.
The secretary of state is required to file a federal Employer Identification Number with the Internal Revenue Service (IRS) for every business that it registers. The IRS requires an EIN to file taxes with them. If you are classified as an individual, you will not need an EIN and will not have to pay taxes on any income received from your LLC. Your business will be taxed like a sole proprietorship.
If you are classified as an LLC, you may be taxed as a corporation on the income your business receives from its profits. You will use the information contained on your LLC application to apply for an EIN with the IRS.
The cost to file taxes with the IRS is $50 if your LLC is classified as an individual, and $125 if it’s classified as an LLC or corporation.
How long does it take to start an LLC in Oregon?
Unless you have already prepared and filed your LLC application prior to submitting it to the Secretary of State, the registration process will take around 2 months. You will need to make sure that your LLC is in good standing with the Secretary of State before you can start it. It’s important that all management documents are completed before taking any action on your filing with the state.
If your business is newer to Oregon, you may have to go through the process more quickly. If you can’t meet the requirements for operating within the state without hiring attorneys, you will have to pay a $200 fee for each document that needs to be submitted with the Secretary of State corporation.
Separate Your Personal and Business Assets
If you own a business that deals with consumers on a regular basis, you could be held responsible for any damages incurred by the consumer. This may mean that you owe money to the person who was affected by your actions, or it could mean that they are free to sue your personal assets for whatever amount they can get.
If this happens, you will have to make sure that your personal assets don’t overlap with your business’s assets. If you have an LLC, the following items that are part of your business will be considered personal assets and will not be liable for damages caused by your business:
- All of the money that you get from the business
- The profits from your LLC
- All money related to any debt that your LLC has incurred
- Any property that is included in your LLC’s registered agent status
If you are an individual, these same items would not be considered personal assets.
If you own a lot of property that is not used in any way for the operation of your business, it would be best to separate them out. For instance, if you have a mansion that you use as an office, you’ll want to make sure it’s on the deed as a separate asset to your business.
If you use your personal assets to pay for business expenses or debts incurred by your company, this is called fraudulent conveyance and is punishable by 16 months in prison.
If you have to make any type of payment from your business to your personal accounts, use a separate LLC bank account to handle this.
1. Opening a business checking account:
If you plan on starting an LLC, you need to make sure that there are no personal records stored in your company’s checking account. You should keep all of your personal and business transactions separate from each other.
Do this by opening a separate checking account for your LLC. This way:
- you can keep track of profits and losses from the beginning.
- use one of your LLC operating agreements to open an account for the company. After the account is opened, bring in copies of bank statements and register them with the Secretary of State’s Office.
- you can use business credit cards to buy items for your company if you are able to pay them back before the due date.
- get a merchant account to be able to accept credit or debit card payments for your business and never even have to bother with a check.
2. Getting a business credit card:
If your LLC is going to accept credit card payments, you may want to consider getting a business credit card. Most banks allow you to just attach your card and start accepting payments immediately.
Some banks require that you be open for at least 6 months before they allow you to use their credit cards for payment. If this is the case, it will help if you are ready to roll with those payments on day one.
To get a business credit card, start looking online for businesses that offer them. You can find a list of these and other options in your state at the Secretary of State’s website.
3. Hiring a business accountant:
If you don’t plan on doing your own bookkeeping, you may want to consider hiring a business accountant. This will depend on the type of business that you have.
A lot of businesses hire these accountants because they can help with setting up your system and teach you about what to do with your finances.
If you are going to hire an accountant, be sure that they know how to handle taxes for Oregon LLCs and corporations. If they don’t, find someone else who does.
The accountant will also be required to submit your taxes with the Oregon Secretary of State’s Office if your LLC is classified as an individual.
If you use a tax preparer to file taxes for you, make sure that they are familiar with the IRS requirements for filing taxes for an LLC or corporation.
If not, they could end up doing more harm than good by making mistakes and causing you more problems than you already have. It’s better to just learn how to do it yourself.
Get Business Insurance For Your Oregon LLC
If you want to protect your business and its assets, it’s important that you get business insurance. This will cover any type of lawsuit or claim made by a consumer against your business.
The process of getting this insurance can be a lot easier if you have properly registered your business with the state.
If you aren’t sure where to start, it’s best to start with basic business insurance. This will cover any type of liability claim that could happen while running your business. This includes things like:
- Property Damage
- Medical Malpractice
- Product Liability
- Advertising Injury/Defamation
- General Liability
Oregon Business Licenses and Permits
The following Oregon business permits and licenses are required if you are starting a business as an LLC, Corp., or S Corp. These include:
- Sales Tax Permit Number
- Federal Tax ID Number
- SWIFT Code
- EIN/Employment Identification Number
If you don’t have these numbers, they can be applied for once the business has been opened for 6 months or more.
Oregon LLC Tax Filing Requirements
If you have decided on starting your Oregon LLC as an individual, you may want to know about the taxes that you will have to pay. If you choose the standard filing method, it will take just a few days to file once your LLC is established.
Common taxes for an Oregon LLC:
- Income tax
- Sales tax
- Corporation Franchise tax
- Corporation Corporate income tax
- Corporation Corporate franchise tax
For business owners who would rather not deal with the added responsibility of running their own business, you can choose to hire an LLC accounting firm to help you with your taxes.
As long as your accountant provides you with all tax forms and includes 1099 for your future taxes, this will be fully compliant.
Sales tax is collected along with the state income taxes but is filed separately. If you are registered as an individual and work full time for your LLC, you will need to check to see if you have any sales tax liabilities.
- If you use customer services or provide a service or product that is sold, then yes, you will owe sales taxes for this
- Sales taxes can be collected both at the time of purchase and/or at the end of the year depending on what type of business plan you have
- If you want to collect the tax at the time of purchase, then you can add them to your prices and include them in your sales
- If you prefer not to charge sales tax, then you can still file for it regardless if you are registered as an individual.
This will be classified as a business expense that will be added to your income taxes.
Corporation Franchise Tax
State taxes are also a big part of running a corporation. This includes the Corporation Franchise Tax that is paid every year. Once again, it will be added to your state income taxes and will also be sent with your W2s at the end of the year if you are an employee.
Corporate Income Tax
The final major cost for business owners is the state corporate income tax. This is paid every four years and is collected by filing Form IT-400 with the Oregon Department of Revenue.
If you plan on becoming an S Corp, your corporation will not be required to pay this at the end of the year.
You will need to check with your state for the exact amount that you will need to pay. The income tax for corporations is usually around 5 percent.
This is collected separately from the sales and corporation franchise taxes and is submitted every three months by the corporation.
If you are an employee working for your LLC, you will not be exempt from state or federal taxes. The employer has to pay these so make sure that you understand which taxes you must actually pay.
There is also Social Security and Medicare for employees that provide a benefit to the company. The tax percentage varies by state but if it exceeds .9% of gross income, then the employer will be responsible for 100% of this amount.
As an employee, you will not be taxed unless your income falls at or more than $400 per week. Then you will be required to pay both state and federal tax.
You will have to check with your employer for what percentage will be taken out before you file your taxes.
As an employee, you are required to pay the federal and state corporate income tax. If you are a part of a Corporation, then you will receive an exemption. This allows the corporation to get rid of the tax liability that is being collected for them.
This is provided for employees who work full time with no more than 200 hours a year from their employer.
Just be sure to complete and file the tax forms on time so you can keep the exemption.
Income Tax Returns
If you are running a business in Oregon as an LLC, Corp., or S Corp., then you will need to file an income tax return. You may also be required to file if you have employees that are paid out of your company’s profits. The current filing deadline is April 15th each year and is similar to a federal return (federal form 1040).
Register for Oregon State Taxes
Before filing your state taxes, you will need to register with the Oregon Department of Revenue. You will have to complete and submit Form SAL-10, together with the appropriate filing fee.
If you choose this method as a business owner, then you can always file and pay for your Oregon Corporation Franchise Tax yourself instead of paying an accountant.
Federal LLC Tax Filing Requirements
There are some major differences when you file federal taxes for an LLC vs. a Corporation. The main difference is that you will not have to worry about state taxes since all LLCs are considered pass-through business entities.
Using the pass-through entity allows all income and/or losses to pass on directly to the owner or shareholders. They will then be taxed in accordance with their own tax bracket and based on what they report as their income level.
File Your Oregon LLC Annual Report
One of the requirements of an Oregon LLC is that they are required to file your annual report.
Depending on your business structure, this can be due at any time during the year. This is a simple form to fill out and can be located online or you can request one by mail.
As long as you file an annual report, you will not have to pay a late state fee or any penalty.
Hiring Employees in Oregon
If you are hiring employees then you will need to file a payroll tax return. This form (Form HR-180) can be completed by either the employer or the employee.
The employer will pay either:
- 15% federal unemployment tax or
- 3.8% state unemployment tax.
Payroll taxes can range anywhere from 7% to 15%. These taxes will be withheld from every paycheck and then paid directly to the Department of Revenue every month.
Do I need an Oregon BIN for my LLC?
Depending on the type of business you have, an Oregon BIN may or may not be required. Most banks and credit unions require Oregon BINs before they can open up a business account.
A BIN is a nine-number code that is used to identify businesses by the Federal Reserve. All major financial institutions are required to use this number for making payments, accepting checks, etc.
The first three characters will be either:
- A two-letter state abbreviation (such as OH for Ohio).
- The last three digits will be the Federal Reserve License number.
Almost every business can have their BIN code changed to another state that has the same three-digit number. However, this change will take a minimum of 60 days before it can be implemented into the system.
Be sure to also remember that all businesses must use their BIN code when filing their tax returns in Oregon or they will risk facing penalties for late payments.
What is a foreign LLC in Oregon?
A foreign Oregon LLC is a corporation that is owned by someone who lives somewhere other than Oregon. This also includes if the owners are non-residents and are residents of another state. There will be no need for a BIN when filing your federal taxes.
You can become an Oregon LLC without an Oregon BIN number.
Any profits made from this business will be taxed at either the federal or state level, depending on what is applicable to the business at the time.
How can I get an Oregon phone number for my LLC?
Once you have formed your LLC, there will be a phone number that you can use for business purposes. This can be any number that you want to give your business.
There is no need to register with the Oregon Secretary of State or Oregon Corporation Division in order to change the number that is being used for your business.
This is also true if you are changing the number over or deactivating your LLC.
How do I change or add members to an Oregon LLC?
Changing members on an Oregon LLC is easy. You can change all or part of your membership by submitting a new operating agreement.
You can also add or remove members by sending a written request to the Secretary of State to change the number of members. All requests must be submitted in writing.
The Secretary of State will not accept a written request that is less than a one-half page long.
Can I have multiple LLCs in Oregon?
Yes, you can have multiple LLCs within the state, but only if your LLC is classified as an individual, partnership, or S corporation. If your LLC is classified as an LLC, you will be able to have an unlimited number of LLCs.
How do I avoid being held responsible for business debts?
The only way to make sure that you don’t get sued or held responsible for money that is owed by your company is to have a properly prepared business plan. If you follow these rules, you should be protected against liability for business debts.
- Make sure that your LLC has the proper amount of money in the bank accounts.
- Ensure that you have the proper insurance coverage for your company’s assets.
- Put a plan together to pay all of your close liability debts before they go out and try to collect them from you personally.
- If you have any debts that are incurred by your company, make sure that they are paid out off in a timely manner.
- Have at least one member of your LLC who is a member in charge of all financial decisions.
- If you are suing someone for business damages, make sure that the person that is being sued is an officer or partner of the company.
Considering Using an LLC Formation Service?
In some cases, you will find that you can save yourself a lot of time and effort by hiring an LLC formation company for Oregon business. The reason why this will be advantageous is that they will already know the requirements that need to be followed in order to get the best benefits.
They will already have seen how other people have used this particular structure for their business and can help out accordingly.
After all, they understand the financial restrictions of each state and know what procedures need to be followed in order to make sure that justice is always served.
There are lots of different LLC formation companies that you can choose from. Many of them have existed for decades and have a very good track record. However, this is not a guarantee that they will be able to get the job done in the best possible way.
There is no way that we can guarantee that you will be able to have a successful long-term business by using an LLC formation service. If you work and put the necessary time in, then it is definitely something that you should give a shot.
LLC formation companies are very experienced at what they do, so it would only make sense to try and work with them.