Why Start an LLC in Alaska?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements for forming an LLC varies slightly from state to state.
In this article, we will be looking at how to set up an LLC in the state of Alaska. With 3,000 new LLCs being launched each year, Alaska proudly showcases one of the fastest start-up growth in the nation. Its most populous city, Anchorage, has been rated as the single most tax-friendly city in the country.
How to start an LLC in Alaska in 2021?
STEP 1: Name of the LLC
First and foremost, you would have to pick a unique name for your LLC that complies with Alaska’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC”, “L.L.C.”, “Ltd. Liability Co.”, “Limited Liability Co.” or “Ltd Liability Company”.
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC. Additionally, the state emphasizes that though an LLC may be named after a city, borough or village, the actual words of “city”, “borough” and “village” are prohibited.
- The name must be unique, distinguishable from the names of pre-existing business entities in Alaska.
You may reserve the name you have envisioned for 120 days by filing a Business or Corporation Name Reservation Application to the Alaska Division of Corporations. The filing fee is $25 and it may be filed through the website where the form is found or through mailing the form to the Alaska Department of Commerce’s office.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “Trade Name” for your LLC in Alaska, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name in the Articles of Organization.
This is achieved by filing the necessary forms online or by mailing the filled out New Business Name Registration Form (AS 10.35) to the Alaska Department of Commerce’s office.
STEP 2: Appointment of Registered Agent
Prior to filing the Articles of Organization, you are required by Alaska’s state laws to nominate a designated Registered Agent for your LLC.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the LLC any tax forms, biennial report reminders and even legal documents from lawsuits. The Registered Agent also keeps the LLC afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in Alaska is that the agent must either be a resident of Alaska or a corporation present within the state with authorised Commercial Registered Agent services. The Registered Agent must have a physical street address within Alaska, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the Registered Agent must always be available during business hours to receive Service of Process when necessary.
Anyone within the LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the Registered Agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateur individual would make, avoiding the accumulation of even more expenses over time.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your Registered Agent via the Alaska Division of Corporation’s website while you are filing your formation documents or by mailing a physical copy of the Articles of Organization with your Registered Agent’s information to the Alaska Division of Corporations’ postal address.
It is also possible to change your nominated Registered Agent, simply complete the proper form provided by the Alaska Division of Corporations through mail or by being there in person. The fees shall be $25.
STEP 3: Filing the formation documents
An LLC in Alaska may be formed once the Articles of Organization is filed and mailed to the Alaska Division of Corporations.
Alternatively, you could also form your LLC in Alaska by opting for the more convenient route of filing the form online through the Alaska Division of Corporations website.
Regardless of the available routes chosen, the filing must include these necessary details of the LLC:
- Business Purpose;
- The Management Structure;
- Registered Agent Name;
- Registered Agent Address, and;
- The signature of an authorized representative.
The filing fee for the Articles of Organization shall be $250 for all routes. It is a non-refundable one-time fee.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 10 to 15 days if transacted by mail and instantaneously if transacted through the virtual route, you would receive a stamped and approved copy of the Articles of Organization and the LLC’s Certificate of Organization which could be either physical or digital depending on how you had filed the forms. For the digital copy, all you need to do is lookup for your LLC in this database.
STEP 4: Register the Business for Regulatory Requirements
Alaska is one of the rare states which mandate that all LLCs must possess a general business license. These licenses are administered by the Alaska Division of Corporations, and without them, your LLC in Alaska cannot even take off the ground. This license is the authority that permits you to conduct your business with your LLC.
You could register for the license through virtual means or by physically mailing a filled out Online Business License Application, “(Form 08-4181)”, to the office of the Alaska Division of Corporations. A reminder that you would need to have obtained the stamped and approved Articles of Organization before you could proceed with this application.
The filing fee for all routes is $50, additionally, an Alaska LLC must pay an additional amount of $50 every year to renew the business license.
Furthermore, you may also be required to apply for additional licenses if the business nature of your LLC would demand so under Alaska’s purview which varies from city to city and industry to industry. In order to ascertain if there are any additional licenses or permits that your LLC must be shielded under, you could contact the Alaska Division of Corporations here and ask away.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of Alaska in order for an LLC to function, it still highly suggested that you prepare one for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and member terms. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. Alaska’s LLC Law would only affect the internal affairs of the LLC in the absence of an Operating Agreement.
The Alaska LLC Act provides that members and potential managers have the contractual freedom to alter the duties they owe to one another and to the company by modifying the Operating Agreement. They could choose to either increase their duties and therefore, their presence in the LLC or simply opt-out of certain duties by including provisions that give such effects in the Operating Agreement.
Amongst the most important structural support it provides to an LLC that you should have within your own Operating Agreement are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes. The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN.
STEP 7: Biennial Report for Biennial Renewal
Finally, once you have done all the groundworks to set up an LLC, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
You need to first file a preliminary “Initial Report” to the Alaska Department of Corporations’ website or by postal mail to the department’s office address.
This initial report must be filed before 6 months have passed since the formation date of the LLC. There would be no filing fees for this one-off report.
Subsequently, you are compelled to file the Biennial Report every two years, this report is due on January 2nd of the filing year. The necessary forms that are to be filled out are found here. Like the “Initial Report”, the Biennial Report may be filed to the Alaska Department of Corporations’ website or postal address. The biennial filing fee shall be $100.
A handy tip to remember when you have to file this crucial report is by keeping note of whether your LLC was formed during an even-numbered or an odd-numbered year. The filing year will always reflect that.
The content of the Initial Report and the Biennial Report must include these necessary details:
- The name and address of the LLC;
- The address of the principal office if the LLC is a foreign entity;
- The name and address of the registered agent;
- The name and addresses of either the managing members or the managers, whichever the case may be; and
- The name and addresses of any person who owns at least a 5% interest in the LLC, and subsequently the exact percentage of the interests that are owned as well.
Failure to file the Initial Report would equate to the non-compliance of your LLC with state laws and as such, there is a valid reason to dissolve your LLC. If you have missed the deadline for the Biennial Reports you would be charged a penalty of $37, if you went on to miss the subsequent deadlines your LLC may be dissolved by the state.
Additional Information on Starting an LLC in Alaska
With all the above carried out, your LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As an LLC you could choose to be taxed as a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure. If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
Alaska Division of Corporations’ Mailing Address:
State of Alaska
Department of Commerce, Community, and Economic Development
Division of Corporations, Business and Professional Licensing
PO Box 110806
Juneau, AK 99811
Internal Revenue Service’s Postal Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
There are no filing fees necessitated for obtaining an EIN.
Frequently Asked Questions
How much does it cost to form an LLC in Alaska?
In order to first form your LLC, you would have to fork out $200 to acquire the all so necessary Articles of Organization, without it, your LLC cannot be formed. Furthermore, you are also mandated to pay for its upkeep, a $100 fee every two years so as to keep the LLC compliant with state laws. Without these payments, your LLC would not be allowed to operate.
Can a foreign LLC conduct its business in Alaska?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the Alaska Division of Corporations prior to doing so. The registration could be done through filing a Certificate of Registration of Foreign Limited Liability Company through its website or by mailing it to the postal address. Do keep in mind that you would also need a Registered Agent present within the state of Alaska itself and that you must obtain a general business license for your LLC.
What is the minimum wage for workers in Alaska and are there any regulations on how often I would have to pay them?
The minimum wage in Alaska is $10.34 per hour and state laws dictate that you must pay your employees on a monthly or semi-monthly basis.
How do I dissolve my LLC in Alaska?
You would need to submit an Articles of Dissolution form to the Alaska Division of Corporations. This could be done through filing it online or by physically mailing the form to its postal address. The reason for the dissolution shall be required when you are filling out the form. Once it is deemed satisfactory, your LLC shall be dissolved. The filing fee would be $25.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.