A Puerto Rico LLC is a legal way to structure your business. Limited Liability Companies (LLCs) offer the liability protection of corporations, while also maintaining the lack of formalities and the flexibility that is the hallmark of a sole proprietorship.
This guide on how to form an LLC in Puerto Rico will take you through the necessary steps in forming your own LLC. We’ll also touch on some of the necessary things to cover after you’re done forming your company.
So let’s get started!
1. Choosing A Name For Your PR LLC
The first step to forming an LLC in Puerto Rico is to find the right name for your company. Government of Puerto Rico wants the LLC names to be unique and distinguishable. This means your LLC name shouldn’t be the same as, or confusingly similar to, the name of existing business entities.
A quick way to check for name availability is to search the database on the PR Department of State website.
Puerto Rico LLC Name Designators
Every LLC in PR should end its name with a proper designator. Popularity of Spanish on the island is also visible in the available designators. For example, Compañía de Responsabilidad Limitada is an acceptable designator. The designators allowed for use are:
- Compañía de Responsabilidad Limitada
- Limited Liability Company
Name Reservation Requests (Optional)
Puerto Rico Registry of Corporations and Entities offers a very convenient and simple process for reserving a name for your LLC. You can simply go to the Name Reservation page on the website and proceed with checking availability and reserving the name.
When required, you can as easily convert the available reserved name ID and use it when filing the Certificate of Formation.
2. Appoint A Resident Agent
Before filing your LLC, you’ll have to appoint a registered agent. Puerto Rico calls this a resident agent, which is essentially similar to the registered agent nomenclature used in most US states.
A resident agent is a person or business entity that agrees to receive service of process on behalf of your LLC. This agent is also the primary point of contact between your business and the Government of PR.
Resident Agents must have a physical street address in Puerto Rico. If you choose a business entity for this role, they must be licensed to do business in PR and have an office in the state.
Business entities as resident agents usually refer to commercial resident agents. Most people choose to hire commercial resident agents for the convenience and professional service. However, it isn’t a necessity to hire an agent. You or your friends/family can take on the role if you qualify for the requirements of a resident agent.
3. File The PR LLC Certificate Of Formation
Filing the Puerto Rico Certificate of Formation is the key step in creating your LLC. The simplest way to achieve this is by filing the certificate online. You can do this on the Registry of Corporations and Entities page of the Department of State website.
You will be asked to create a free account when you start with filing the Certificate of Formation. This is a useful step, which also makes it easier to register and maintain the requirements of your Puerto Rico LLC.
Filing online is quick and you might receive the Certificate of Formation almost instantly.
4. Create An Operating Agreement
Puerto Rico doesn’t require companies to create an operating agreement. However, the step remains highly recommended and you should have an operating agreement for your LLC.
Creating an Operating Agreement allows you to lay the groundwork for the formation and operation of your company. This includes deciding the company policies and approach to various issues. Multi-member LLCs may also include details like the percentage of LLC owned by each member, their roles and responsibilities, voting rights, and more.
Single-member LLCs can have details relevant to the operation of the company. Operating Agreements are internal documents of the company and need not be filed with any government agency.
5. Get An EIN (Federal Tax ID)
The EIN (Employer Identification Number) is a 9-digit federal tax ID issued by the IRS. You should apply for an EIN only after the Puerto Rico LLC Certificate of Formation has been approved by the state.
There is no filing fee for getting an EIN. Filing online can get you the EIN instantly. In case online filing isn’t possible, you’ll have to download and fill Form SS-4. This form can be submitted to the IRS via fax or postal mail. Taking the route of fax is the better option, as the processing and approval is way faster than going through postal mail.
Having an EIN is useful not just for tax purposes, but also for several operational aspects of the LLC. For example, you might need the EIN to set up a separate business bank account.
6. Filing Annual Reports And Paying The Annual Fee
Puerto Rico doesn’t require LLCs to file an annual report. However, all LLCs must pay an annual fee of $150. The annual fee must be paid before April 15 every year. The fee can be paid online.
7. Taxes, Permits, And Licenses
Once you receive the EIN from the IRS, you will have to register with the Puerto Rico Department of Treasury. Registration is completed through the Uniform System of Internal Revenue portal, which is better known through the use of its Spanish acronym, SURI.
Commonwealth of Puerto Rico’s taxes and license requirements also apply. Puerto Rico municipalities will charge a Patente Municipal tax on LLCs. The exact tax can vary depending on the location and the municipality.
LLCs with physical locations will also require a Use Permit or Office of Management permit. It is a good idea to get in touch with the local government to ensure you have the requirements completed.
Since Puerto Rico isn’t a state, federal taxation can get complex. Generally speaking, domestic LLCs in PR pay federal tax only if the source of income is outside PR, the company is doing business with the US government, or if the company intends to send funds to the US.
Domestic companies in PR are generally treated as corporations for taxation purposes. However, you can file appropriate forms and have your LLC taxed as a partnership or disregarded entity.
Foreign LLCs in Puerto Rico get taxed as corporations by default (at the federal level). However, they can choose to be taxed as partnerships or corporations by Puerto Rico. The Commonwealth of Puerto Rico only taxes the income that was generated in PR.