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Entrepreneurs have several different options when it comes to structuring their new business, including but not limited to sole proprietorships, limited liability partnerships (LLPs), and limited liability companies (LLCs). There are several benefits of selecting a limited liability company, such as minimizing the risk of personal liability in the event that someone sues your business. In the text below, we’ll answer how to start an LLC in Montana, covering everything you’ll need to know to officialize your business.
Let’s have a quick look at the six steps:
Now let’s dive in and examine each and every step.
Customers will know you by name, so it’s important to choose one you like and that best represents your brand when you start your new business. It should be easily distinguishable from the brand names of your competitors, because you run the risk of being sued for copyright or trademark infringement if your business name is too similar to a competitor’s. Additionally, your name needs to be recognizable enough that it stands out from the crowd and is easy to remember.
While it’s possible to change your business name later on, this may be difficult and costly to do. This is especially true if you’ve already had a lot of branded items made, set up financial accounts in the company’s name, or filed legal forms with your business moniker. You should be prepared to choose a name at the beginning of your entrepreneurship that will remain with your company long-term. Your name or slogan also needs to do a good enough job of describing the products or services the company offers and what you’re bringing to the table that no one else is.
Registering the name of your business with the state of Montana occurs when you legally form your business entity within the state. You can check if the name you want is available online with the Montana Secretary of State. After you choose your company name and structure, you’ll need to file business formation documents, also known as articles of organization, with the Secretary of State in Montana.
Montana has the following naming guidelines for businesses:
Like other states that have that has formal process for filing a DBA, Montana legally requires it if you plan to do business under a name other than your company’s legal name.
When an organization conducts business under a name that is different from the legal name of the company, this is known as “doing business as”. DBA name registrations are required in some jurisdictions to protect patrons when doing business with the organization. A DBA name is sometimes called an “assumed name,” a “fictitious name,” or a “trade name,” depending on your location. In some states, a fictitious name refers to out-of-state companies that are unable to use their legal name due to it not being accessible in the state. In Montana, the correct terminology is “assumed name.”
Montana requires entrepreneurs to file for an assumed name with the state, which may be done online using Montana’s official ePass system. You cannot register a Montana DBA name that distorts the nature of your organization or is one that is currently being used as a legal or assumed name by another company. It’s also worth noting that a DBA name is not a corporate entity type, but rather a legal alias or nickname for a company. As a result, DBAs don’t give companies the tax flexibility or liability protection of an LLC alone.
You can opt to file for a trademark for your company name and any related brand names after they are required, although this is not mandatory when forming a Montana LLC. Filing a trademark usually costs between $225 and $400, plus any legal expenses and a 10-year renewal charge.
While this expense may be prohibitive for a startup business or small company, it will provide federal trademark protection. This gives you legal precedence to bring a lawsuit against any competitors that may attempt to do business under a similar name. Small, local businesses may not need to file a trademark, while businesses that plan on expanding nationally should definitely opt for the protection of a trademark.
Articles of organization in Montana is a legal documentation that contains information about how the business will be structured and how it will operate. The documents must be approved by the Montana Secretary of State in order for the LLC to be formally recognized as a legal entity. When you file articles of organization for your company, it establishes the business as a separate legal entity from the business’s owner and legally registers the organization as a limited liability company with the state.
Four types of LLCs are recognized in the state of Montana:
For organizations that employ licensed professionals like lawyers, physicians, and architects, the PLLC designation may be required. Series LLCs are available in Montana to allow new LLCs to branch out from one parent LLC.
The cost to file articles of organization in Montana online is $70.
To complete the articles of organization, you must include the following information:
To file articles of organization in Montana, you must go online and visit the state’s ePass website, where you will create an ePass that you can use to file the documents for your new business as well as other transactions with the state.
A registered agent is a designated person who sends and receives legal paperwork on behalf of your Montana limited liability company. The name of your registered agent, their contact information, and the physical address of your company’s registered office must be included when you register a business.
Any Montana resident over the age of 18 can serve as your company’s registered agent. To qualify, your registered office must not be a P.O. box and must be a physical location. Your registered agent must be reasonably available at the registered office during typical business hours.
The owner of a business can serve as the company’s registered agent. To do this, you only need to use your own name and home or office address rather than the name and address of another individual. While this may seem straightforward, acting as a registered agent is time-consuming and could be problematic for emerging business owners who are undergoing rapid expansion. If you do not have a dedicated registered agent in Montana, you will be required to put your own name and home or office address down when you file your articles of organization.
When you employ the services of a professional registered agent, you will put the address of their business on your articles of organization. Because this identifying information is advertised together with your company name so that anybody servicing your firm may reach you, having a registered agent who is someone other than yourself is likely to be more beneficial for you and your business.
This also protects your home address from becoming public information. It’s also helpful to hire a professional registered agent if you prefer to work unconventional hours. Registered agents are legally required to be available during business hours, and this often doesn’t work for new owners.
Once you’ve filed your articles of organization with the Montana Secretary of State, it’s recommended to draft an operating agreement for your Montana LLC. This is a critical document for your business that is used for multiple purposes, so it’s critical to make sure it’s carefully researched and written and then filed properly with the state before you begin conducting business.
An operating agreement serves as a sort of compass that helps you manage your company’s operations and fulfill the demands of your members. All LLC members must sign the operating agreement, and once this has been done, they are legally obligated to adhere to the contract’s terms and conditions. In most cases, an LLC member who no longer wishes to be a member can leave this type of contract only if the other members who also signed the agreement permit it.
Alternatively, a member can file a lawsuit wherein they show that the full operating agreement was unlawful or that their personal signature on it was illegitimate for some reason. If a member of the LLC was forced to sign the operating agreement or they did not possess the mental capacity to consent to the contract, for example, they may be allowed to use this evidence to exit the contract.
Operating agreements are used to insulate members of the LLC from personal responsibility for the company’s debt obligations to a certain degree. The members of your LLC and their obligations are outlined in the operating agreement, and if you don’t have one, your company may operate more like a partnership or sole proprietorship.
Verbal agreements are insufficient to provide effective protection to LLC members. All business agreements should be in writing so that if a dispute arises between two or more members of the LLC, you can refer to the operating agreement for clarification and guidance on how the matter ought to be handled in accordance with your company’s goals and objectives.
Without a properly established operating agreement, the state of Montana determines how your business operates and what laws, restrictions, and standards apply to the company. Because these default parameters are so broad, your company will have very little in the way of legal protection in the case of bankruptcy or insolvency.
Rather than allowing possibly reckless state officials to make judgments regarding your organization’s operation, you should protect your rights as a business owner by developing a comprehensive operating agreement that you can use to conduct business.
Montana state law does not require limited liability companies to have operating agreements on file. That said, this document is necessary for other critical parts of your business, such as obtaining a bank account specifically for business transactions and activity. An operating agreement “need not be in writing,” per MCA 35-8-109. A verbal agreement, on the other hand, won’t help your business much, largely because it means next to nothing in a court of law. A written operating agreement is an important part of starting your Montana LLC.
Here are some things you may want to add to your company’s written operating agreement:
If your business currently has workers or will have them in the future, you need to apply for an Employer Identification Number, or EIN. The only way to opt out of having an EIN is to operate a sole proprietorship in which the only employee is yourself and you use your own Social Security number instead of an Employer Identification Number. Here’s what to know about getting an EIN for your Montana LLC.
An EIN is a business-specific version of a Social Security number. The Internal Revenue Service of the United States (IRS) requires companies to have an Employer Identification Number (EIN), so they can easily identify a particular business. This number is nine digits long and appears like so: XX-XXXXXXX.
With sole proprietorships as the only exception (and single-member LLC without employees), you will need an EIN if you have or will have employees, if you will withhold taxes from non-wage earnings, or if you fulfill other specified conditions. You will be unable to legally submit your company’s taxes without an Employer Identification Number.
Montana LLCs can benefit from an EIN in many different ways. For example, it ensures that your company’s taxes and financial records are kept completely separate from any personal money you have. This is important, even for individuals operating a sole proprietorship.
Last, but not least, make sure your Montana LLC adheres to all relevant tax laws that apply to your business. If you don’t meet both your federal and state tax obligations, the best case scenario is that you will face a steep fine. Even though you have limited liability protection, you might end up facing criminal prosecution in some circumstances. It’s critical that you fully understand and follow applicable tax guidelines. Below are the different types of taxes that your business may need to pay and what to know about each.
To maintain compliance with the U.S. Internal Revenue Service, your Montana LLC should withhold and pay out multiple types of taxes. Standard taxes include federal, state, and local income taxes that you must pay on behalf of the employees who work for you. If your organization sells products within the state of Montana, you will need to apply Montana sales tax and any additional local sales tax imposed at the county or city level. Your business has the responsibility of accurately calculating your tax obligations and paying taxes quarterly. If you get this amount wrong, you may be fined and owe back taxes. Ideally, the amount you missed will be added to your next payment.
Your own earnings must come from the organization’s revenue, and you’ll have to pay the standard income tax rate on them, depending on which of the state tax brackets your total income falls into. Unfortunately, the tax rate in the state of Montana is extremely disproportionate to total income, and the highest tax bracket, at $18,800 per year, is still considered poverty wages. The median household income in the state is $56,539, and as many as 12.4% of its residents are in poverty.
This means that in Montana even the poorest people are still paying the highest taxes. Montana has the following income tax rates:
Montana is one of only five states in the U.S. that has no sales tax. The sales tax rate in Montana is 0% and is considered one of the “havens” for product-centric businesses. Very few townships or localities charge sales tax; for example, Whitefish, MT, charges a nominal sales tax on hotels and lodging and already prepared foods, such as restaurant meals and convenience foods. The four other states that also do not charge sales tax are Alaska, Delaware, New Hampshire, and Oregon.
As a business owner, you will need to pay self-employment taxes at the state rate. In Montana, this is 15.3%, which is the same rate as in Kansas and Ohio. It’s important to note that self-employment taxes are taken from a business owner’s net earnings (after other taxes) and not gross earnings (before other taxes). The 15.3% self-employment tax is allocated as follows: 12.4% is distributed to Social Security, and 2.9% is distributed to Medicare. You should also understand that self-employment tax and income tax are separate taxes, and, in Montana, you need to pay both. This means you could be required to pay up to 22.2% of your income for just these two taxes.
Employers in Montana are required to deduct state income taxes from the paychecks of their employees. All Montana employers who pay wages to employees are required to deduct payroll taxes. Nonresident employers are required to deduct taxes on wages received for services rendered in Montana. Payments should be made to the Montana Department of Revenue every quarter on behalf of all employees of the company.
Employers often withhold federal taxes too, and the employer will pay both on behalf of their workers. Your Montana LLC is in charge of deciding the appropriate tax bracket for each employee based on their salaries, and you must also calculate, collect, and remit the correct amount of taxes to withhold. If you miscalculate payroll tax, this could open you up to legal problems with both your employees and the state of Montana.
Most other states in the U.S. assess additional taxes on businesses for operating within their boundaries. Montana also has a corporate income tax, which is a tax on the total amount of money your business earns. You must pay corporate income tax before you pay income tax and self-employment tax.
Unlike other states, Montana does not have tiered corporate tax brackets. The tax corporate tax rate is 6.75% of a company’s net income for both domestic corporations (businesses that were organized within the state of Montana) and foreign corporations (businesses that currently operate within the state of Montana but were organized in another state).
Congratulations! You’ve finished forming your Montana LLC, and you’re almost ready to start doing business. However, there are a few things left that you need to do, including setting up business financial accounts, taking out insurance policies, and obtaining any required licensure.
It’s imperative to ensure that you never mix the finances for your Montana LLC and your personal finances. This usually means a new business owner will have personal checking and savings accounts and a separate checking account for their organization. They may or may not have a dedicated business savings account. You don’t need to have a large sum of money to open a business bank account, and your LLC doesn’t need to be generating revenue yet. You can – and should – still open a bank account dedicated solely to business transactions.
The best time to do this is usually when you’ve completed the step of registering your business name with the state or, in Montana, filing your articles of organization. Make sure you or a designated person within your company keeps detailed and accurate records of every financial transaction that your business makes through your dedicated checking or savings accounts.
In Montana, you must file an annual report for your LLC by April 15, the same day that taxes are generally due. The cost of this report is only $15, so while pesky to keep up with, this fee is affordable. Your registered agent can help ensure this is filed on your behalf annually, so you don’t incur fines or other penalties for failure to report your LLC to the state every year.
Depending on the nature of your organization and the startup capital you have, you may or may not want to open a line of credit or take out a credit card in your company’s name. It may not be appropriate to open up lines of credit right away if you have a large amount of capital to fund your startup expenses. For example, you might have won a lawsuit or insurance settlement, received a sizable inheritance, or even won the lottery.
You can always take out a credit card or other type of business loan later if you decide you need the extra capital. Just be sure to make all the payments on time and pay the loan off as agreed. If you don’t, your company’s credit will be negatively impacted, which may make it difficult to obtain future lines of credit. If you have low startup capital, a business loan can provide you with the funds you need to pay employees and utility bills while your organization begins to generate revenue.
Once your Montana LLC has been created, and you’ve set up your bank account(s) and necessary lines of credit (if applicable), the final step is to file for any special certifications or licenses that your industry requires. The most common examples of these are cosmetology licenses, liquor licenses, and food service certifications.
A cosmetologist opening up their own salon in Montana would need to have a license to do so from the Montana Board of Barbers and Cosmetologists. A business selling alcohol, such as a liquor store, restaurant, or bar, must obtain either a distributor license, a connoisseur’s license, a distillery license, an off-premises retail sales license, an on-premises retail sales license, or a special permit.
Starting your own limited liability company in Montana is an exciting but intimidating endeavor for new business owners, and it’s easy to become overwhelmed by all the different steps needed to establish your LLC. But each step is critical for the success of your organization in the state of Montana. Opting to work with a registered agent and other professionals who can assist you with the creation of a Montana LLC can help ensure each step of the process goes as smoothly as possible.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.