How to File an LLC in Puerto Rico

Starting a new business is a decisive moment in every entrepreneur’s life. 

LLC, an abbreviation for a limited liability company, is a type of business structure that offers personal liability protection and flexible tax status to small business owners. Even though you can form other business entities, such as an S Corp or a C Corp, LLCs are typically easier to manage. 

Many entrepreneurs decide to form an LLC in Puerto Rico because of its business-friendly policies, favorable foreign tax structure, and bilingual workforce. However, incorporating a Puerto Rico LLC can seem daunting at first. 

In this article, we’ll walk you through the filing process step-by-step so you can quickly and swiftly get your Puerto Rico business up and running. 

Key Takeaways:

• LLC is a flexible business structure that provides personal liability protection 

• To form a Puerto Rico LLC, you need to file a Certificate of Formation and appoint a registered agent 

• Puerto Rican LLCs are taxed as corporations by default, but you can opt for your LLC to be taxed as a partnership

What Is an LLC Formation?

A limited liability company (LLC) is a business structure that benefits business owners. It also provides significantly more flexibility in management and taxation than a Puerto Rico corporation. 

LLC Protects Your Personal Assets

Separating your personal assets from business assets gives many entrepreneurs the peace of mind needed to move their businesses forward. 

Once you go through the LLC formation process, your personal assets, such as your car or house, will be protected in case of lawsuits, debt collections, or other forms of litigation against your LLC. Personal liability protection ensures that no one can seize your personal assets.[1] 

Similarly, if you are personally facing litigation, your LLC assets are not on the line. 

LLC Owners Can Take Advantage of Pass-Through Taxation

Many entrepreneurs form LLCs for tax purposes. Tax laws define LLCs as “disregarded entities,” which means that LLC owners can choose how their business is taxed. 

By default, Puerto Rican LLCs are taxed as corporations. However, you can elect to be taxed as a pass-through entity. You must file a Classification Election with the Puerto Rico Department of the Treasury and a Federal Classification Election with the IRS. 

Pass-through taxation allows LLC owners to report their LLC earnings on their personal income tax returns, which helps them avoid what is known as “double taxation.” Double taxation often happens when you run a corporation. First, you’re taxed on your business income, and then you’re taxed again on your personal income. With an LLC, you can only be taxed once. 

Puerto Rico offers multiple tax incentives to LLCs, including a 4% income tax, no federal income tax on income from Puerto Rican sources, and tax exemptions from paying taxes on interest, dividends, and capital gains. 

LLCs Are Easy to Manage

You have total authority regarding how you want to manage your LLC. You can control your business operations yourself, in which case your LLC will be “member-managed.” You can also appoint a manager to run your daily operations. If you decide to do that, your LLC will be “manager-managed.” 

There’s not much you need to do to keep your Puerto Rico LLC compliant with the law. Typically, your only responsibility will be to submit your Annual Statement and a $150 annual filing fee every year to update the Department of State on your business details and contact information. 

Step-By-Step Guide to Starting Your Puerto Rico LLC

To form an LLC in Puerto Rico, you must file the necessary paperwork with the Department of State and cover a filing fee. You may also need to cover additional costs depending on the nature of your business. 

In the following sections, we’ll take you through the Puerto Rican filing process step-by-step so you can quickly form your LLC. 

Step 1: Choose a Business Name for Your Puerto Rico LLC

You must decide on your LLC name to prepare your business formation paperwork. 

Your LLC name must be unique and different from other business names currently used in Puerto Rico. To see which names are available, you can do a name search on Puerto Rico’s Department of State website. 

Your LLC name also must comply with the naming requirements established by Puerto Rican laws and contain one of the following:[2] 

• Limited Liability Company

• Compañía de Responsabilidad Limitada

• Abbreviations “LLC,” “CRL,” “L.L.C.,” or “C.R.L.” 

You can see additional information about LLC naming requirements in Puerto Rico here. 

Can I Reserve My LLC Name? 

Once you find an available LLC name that you want to use, you can reserve it for 120 days so no other business can claim it. To do that, you must submit an Application for Reservation of Corporate Name form and pay a $75 fee. 

Do I Need to Get My Business Domain? 

Although this is not a requirement during the LLC filing process, securing your business domain’s a bright idea so no other business can use it to publish a website. 

Do I Need to Trademark My LLC Name? 

You don’t need to trademark your LLC name to do business in Puerto Rico, but applying for a federal trademark can be a great way to protect your business assets. Trademarking your LLC name nationally means no one else can start a business using your name. 

However, it’s advisable first to incorporate your LLC and then consider applying for a trademark. 

Step 2: Fill Out Puerto Rico Certificate of Formation

A Certificate of Formation is a principal legal document establishing your LLC with the Puerto Rico Department of State. You must include the following information in your Certificate of Formation: 

• Your LLC name: the name must be available and comply with Puerto Rico law

• LLC address: this must be an actual street address in Puerto Rico

• LLC mailing address: this address can be a PO box 

• Registered agent: to receive essential notices on behalf of your business

• LLC purpose: an explication of why you’re registering your LLC

• LLC duration: set a specific dissolution date or choose “perpetual”/”indefinite” 

• Authorized person(s): the people who’re authorized to complete your Certificate of Formation 

• Effective date: when your LLC will become official 

• Administrator(s): who’ll be in charge of your LLC after incorporation

• Signature(s) of the organizers

You can file a Certificate of Formation online, by mail, or in person. This is also when you have to pay a $250 filing fee. Going forward, you must pay a $150 annual fee to keep your LLC active. Typically, the Department of State processes LLC applications in under a week. 

In other states, a “Certificate of Formation” is typically called “Articles of Organization,” and you have to file it with the Secretary of State, which is a government agency similar to Puerto Rico’s Department of State. 

If you need to change your Certificate of Formation in the future, it’s possible to make amendments. 

Step 3: Hire a Puerto Rico Registered Agent

Your Puerto Rican LLC needs a registered agent to receive important notices and legal documents for your business. Examples of documents that your registered agent may be required to receive include IRS letters and service of process notices. 

You can serve as your own registered agent as long as you fulfill the following requirements: 

• You’re over 18 years of age

• You have a physical address in Puerto Rico (not a P.O. box) 

• You can be present at that address during business hours

Being your own Puerto Rico registered agent may sound straightforward, but it can turn out to be quite complicated. 

As your own registered agent, you have to be present at your business address Monday through Friday, from 9 am to 5 pm. You can’t step out to grab an afternoon coffee with a colleague or take a family vacation. In other words, the inflexibility of being your own registered agent can easily take the joy out of being your own boss. 

Moreover, being your own registered agent can raise privacy concerns for entrepreneurs who work from home. As your LLC’s registered agent, your address will become public record. If you run your business from your home office, everyone can find out where you live just by searching. 

For these reasons, many business owners decide to hire a registered agent service. Having a professional registered agent means you can leave your office whenever you want without worrying about essential documents falling through the cracks. 

Swyft Filings offers Puerto Rico registered agent services for maximum accuracy and legal compliance. You’ll get access to a secure online dashboard to view your official documents, and your privacy will be protected. 

Step 4: Create an LLC Operating Agreement

An operating agreement is a legal document that outlines standard rules of operation for your LLC. It provides guidelines for essential processes such as distributing profits and losses or accepting new LLC members into your business entity. 

Puerto Rico doesn’t require LLCs to have a written operating agreement in place.[3] However, creating one is highly recommended. If you don’t have an LLC operating agreement, your organization will be governed by default Puerto Rican laws in case of a dispute. Creating your own dispute resolution policies can be more beneficial for your LLC. 

Moreover, you’ll also likely need an LLC operating agreement to open a business bank account. 

Puerto Rico law doesn’t provide specific guidelines on what should be included in your operating agreement. This document is entirely customizable, and business owners can include information about: 

• Decision-making protocols and voting rights

• Rules for division of profits and losses 

• Rules for holding meetings and admitting new members 

• LLC member’s rights, shares, and responsibilities

• Protocols for LLC dissolution

• Steps for dispute resolution

This is not an extensive list. Give yourself enough time to create an operating agreement that serves your LLC and considers its uniqueness. 

Do I Need an Operating Agreement for a Single-Member LLC? 

Creating an operating agreement is essential even if you’re the only LLC owner. In the event of a lawsuit, it can help you maintain your limited liability status. Moreover, you’ll likely need to submit an operating agreement to open a bank account for your business. 

Step 5: File for an Employer Identification Number

The last step to making your new Puerto Rico business official is getting your employer identification number or EIN. Typically, you can take this final step once the Department of State has approved your Certificate of Formation. 

EIN is an internal revenue code that the IRS uses to identify your business for tax purposes. You’ll need it to open a business bank account, pay your employees, and file your tax return for federal tax, income tax, corporate tax, municipal license tax, and more.

You can get an EIN for free by applying on the IRS website. 

Let Us Handle Your LLC Paperwork

Forming a new LLC is exciting, but endless paperwork and bureaucracy can be overwhelming. As a busy entrepreneur, you have no time to waste on small mistakes and things falling through the cracks. 

This is why 300,000+ small business owners have trusted Swyft Filings to form their LLCs successfully. In just a few clicks, we can fill out your LLC documents and file them with the Department of State to get your Puerto Rico LLC up and running quickly. 

How Does the Filing Process Work? 

To get started on your filing, answer a few simple questions about your business on our secure online portal. We’ll use your answers to verify company name availability, prepare your documents, and file them with the Department of State. 

FAQs:

How much does it cost to set up an LLC in Puerto Rico?

At the very least, you can expect to pay the $250 filing fee when you file your Certificate of Formation. However, you may face additional fees if you want to reserve your LLC name, trademark it, or buy your domain name. 

After the incorporation, you must regularly submit an annual report and a $150 fee to keep your LLC active and in good standing with the law. 

How is an LLC taxed in Puerto Rico?

Puerto Rico LLCs are taxed as corporations by default. However, both single- and multi-member LLCs can choose to be taxed as a partnership instead to take advantage of pass-through taxation. 

If you receive income from Puerto Rican sources, you don’t need to pay federal taxes on that income. You are responsible for paying federal taxes on the income you receive from outside Puerto Rico. 

What are the benefits of a Puerto Rico LLC?

Puerto Rico is a great place to start an LLC because of multiple business and tax incentives. Some incentives include a 4% tax rate on income from Puerto Rico sources, up to 75% reduction of local property taxes, and no tax on interest, capital gains, crypto gains, and dividends. 

How do you dissolve an LLC in Puerto Rico?

To dissolve your Puerto Rico LLC, you must file a Certificate of Dissolution with the Government of Puerto Rico’s Registry of Corporations and Entities. You can submit the form online, by mail, or in person, and it must include a $80 filing fee. 

Bibliography:

1. U.S. Small Business Administration. Choose a Business Structure. Accessed April 24, 2023. 

2. Laws of Puerto Rico Unannotated. Title Fourteen. Accessed April 24, 2023. 

3. Laws of Puerto Rico Unannotated. Title Fourteen. Accessed April 24, 2023.