Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 8 MIN READ

Utah in February 2018: the $70 LLC in a 4.95% state

A Certificate of Organization that clears in days, a $20 renewal every anniversary, and a tax code flat enough that Silicon Slopes stopped apologizing for the address

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance, which is the cheap part
  3. The Silicon Slopes context
  4. Licensed professionals and the PLLC question
  5. Who Utah actually makes sense for
  6. Sources

Utah LLC costs $70 to form and $20 a year to keep. The income-tax rate is a flat 4.95%, the same for individuals and C-corps, and there is no franchise tax sitting on top of it.

Those are the numbers a founder in Lehi or Provo is actually choosing between when a California or Delaware default is on the table. This is a guide for forming one in February 2018, written for someone who already knows why Silicon Slopes is on the map and does not need the tour.

The mechanics

You file a Certificate of Organization with the Utah Division of Corporations and Commercial Code, the agency inside the Department of Commerce that handles entity filings. The form is short. It asks for the LLC's name, its principal office address, the name and Utah street address of its registered agent, whether the LLC is member-managed or manager-managed, and a signature from an organizer. You can file online through the Division's OneStop portal, on paper by mail, or in person at the Heber Wells Building in Salt Lake City.

The filing fee is $70. Online filings are typically processed within a few business days; paper filings take longer, on the order of one to two weeks in normal times. The Division does not sell the kind of expedited tiering Delaware does, but the baseline turnaround is already faster than most of the larger states.

Utah's LLC statute is the Utah Revised Uniform Limited Liability Company Act, codified at Utah Code Title 48, Chapter 3a. The legislature enacted it in 2013 to replace the 2001 Utah Revised LLC Act, and it was written from the Revised Uniform Limited Liability Company Act (RULLCA) model. New LLCs formed on or after January 1, 2014 came in under Chapter 3a; the statute became mandatory for all Utah LLCs on January 1, 2016. If you are forming this week, you are forming under the newer act, and any operating agreement you find online that predates 2014 should be checked against the current default rules before you sign it.

After the filing clears you need an EIN from the IRS, which arrives in the time it takes to fill out Form SS-4 online. You need an operating agreement, which Utah does not require you to file but which Chapter 3a repeatedly assumes you have. And you need to pick a federal tax classification: disregarded entity for a single member, partnership for multi-member, or an S-corp or C-corp election if the numbers support it. Most Utah founders let the default ride for the first year.

Maintenance, which is the cheap part

Utah does not charge a franchise tax and does not use the annual-report model you see in Illinois or Massachusetts. Instead it runs an annual renewal. Every LLC pays $20 a year, due on the anniversary of the formation date, filed through the same Division portal. The Division sends a renewal notice to the registered agent roughly 60 days before the due date. Miss the anniversary and the LLC lapses into a delinquent status; the Division will administratively dissolve an LLC that stays delinquent long enough, after which a reinstatement filing and additional fees become the only path back.

The registered-agent requirement is in Utah Code § 48-3a-109. A registered agent must have a physical Utah street address, not a PO box, and must be available during business hours to accept service of process. You can serve as your own agent if you live in Utah. A commercial registered agent in the state typically charges between $50 and $150 a year, which is the range most founders in the Wasatch Front end up paying if they are working from a coworking space or a home office they do not want publicly listed.

The tax side is where Utah earns its reputation as a low-friction state. The individual income tax is a flat 4.95% on Utah taxable income, set by Utah Code § 59-10-104. The corporate franchise and income tax, governed by Utah Code § 59-7-104, runs at the same 4.95% rate on Utah-apportioned income, with a $100 minimum tax. For 2018 the legislature matched the two rates intentionally; the old structure had drifted apart over the 2000s and the flat 5% was dropped to 4.95% effective for tax years beginning on or after January 1, 2018, as part of the session's broader conformity response to the federal tax bill Congress passed in December.

For an LLC taxed as a partnership or disregarded entity, the income flows through and is taxed to the members on their individual returns at 4.95%. An LLC that elects S-corp treatment is still a pass-through for Utah purposes, with the owners taxed at 4.95% on the flow-through income. An LLC that elects C-corp treatment pays the 4.95% corporate rate at the entity level, subject to the $100 floor, and the owners pay again at 4.95% on distributions. There is no separate franchise, gross-receipts, or capital-stock tax layered on top.

The Silicon Slopes context

Utah's cluster of software and infrastructure companies along the Interstate 15 corridor from Salt Lake City south through Lehi, American Fork, and Provo is real, and by 2018 it is the reason a non-trivial share of the state's new formations are venture-track. Qualtrics announced a $180 million Series B in April 2017 at a $2.5 billion valuation; Pluralsight filed its S-1 in January 2018 ahead of a planned spring listing; Domo went public in 2015 and remains a local anchor. Adobe's Lehi campus, built on the old Omniture footprint, is the visible monument to the last cycle. The state's Economic Development Corporation of Utah has been aggressive about relocation incentives, and the Governor's Office of Economic Development administers a post-performance tax credit program under Utah Code § 63N-2-104 that has routed real money to the firms with the biggest hiring commitments.

For a founder who expects to raise institutional capital, none of this changes the standard advice that the C-corp holding company goes in Delaware. A Utah LLC is still a good operating entity, and founders here routinely form the LLC in Utah, qualify it nowhere else, and take their Delaware incorporation step only when a term sheet is in hand. The 4.95% state tax on the operating income is a genuine advantage over California's 8.84% corporate rate and 1.5% S-corp-level tax; over a multi-year runway to exit, the difference compounds.

For a founder who is not on a venture track, the Utah LLC is the straightforward answer. It is $70 down, $20 a year, 4.95% on profit, no franchise tax, and a Division of Corporations that actually picks up the phone.

Licensed professionals and the PLLC question

Utah allows licensed professionals to form a Professional Limited Liability Company under the same Chapter 3a, with the additional requirements in Utah Code § 48-3a-1102 through § 48-3a-1109. The PLLC has to include "Professional Limited Liability Company," "PLLC," or "P.L.L.C." in its name, and every member has to be licensed in the profession the PLLC is organized to practice. A physician's PLLC cannot have a non-physician member; a law firm PLLC cannot have a non-lawyer partner. The state licensing board for the profession, not the Division of Corporations, gates the formation in practice: the Division will accept the paperwork, but the Division of Occupational and Professional Licensing (DOPL) expects the entity to carry the profession's license and to comply with the practice-act rules that apply to the underlying work.

The shield a PLLC provides is the ordinary LLC shield against the entity's commercial liabilities, and it does not cover the member's personal malpractice liability for her own professional work. That is the rule across the RULLCA states and Utah follows it; the member remains individually liable for the malpractice the member personally committed, but is not individually liable for a partner's malpractice absent direct supervision or participation. Malpractice insurance is still the operative risk-management tool, and the PLLC is the vehicle the state requires you to use to hold it.

Utah also recognizes a Limited Liability Partnership for professional firms, under Utah Code Title 48, Chapter 1d, which is the newer Partnership Act. An LLP is a general partnership that has filed a statement of qualification and obtained the partner-level shield against co-partner liability. For a multi-partner law or accounting firm the LLP is the older, more familiar form; for a solo or small practice the PLLC is typically simpler to administer.

Who Utah actually makes sense for

A Utah operating company that employs Utah residents belongs in Utah. The filing is cheap, the maintenance is cheap, the tax is flat, and the state agency is responsive. This is the common case and the case the statute is built for.

A Utah holding company that owns out-of-state operations is a harder call. The 4.95% rate only applies to Utah-apportioned income; the rest is taxed where the operations are, and forming the parent in Utah rather than Delaware or Wyoming surrenders Chancery's case law without gaining the privacy pitch Wyoming sells. If the holding company is going to raise outside money, it is going to end up in Delaware eventually; starting there saves a conversion. If it is not, Wyoming's $50-a-year renewal and no state income tax are cheaper still.

A non-resident forming a Utah LLC to run a remote software business is a third case, and the honest answer is that most of them should form in their home state instead. Forming in Utah from out of state requires a Utah registered agent, and operating the LLC from, say, Texas will almost always trigger a Texas foreign-qualification obligation and a Texas franchise-tax filing, at which point you are paying two states to house one business. The Utah formation is worth it only if you genuinely have Utah nexus: employees, an office, recurring customer relationships in the state. The 4.95% rate alone does not travel.

If you are in Utah this quarter and the business is operational, file the Certificate of Organization online, pay the $70, and put the anniversary date on a calendar. The $20 renewal is small enough to forget, which is how LLCs get administratively dissolved, and the reinstatement is more expensive than the original filing ever was.

Sources

Keep reading

More from the journal.