Rhode Island Enacts Uniform LLC Act, Overhauling Business Tax and Governance Rules

PROVIDENCE, R.I. – Rhode Island’s governor has signed into law a comprehensive bill that will overhaul the state’s rules for limited liability companies, repealing the existing LLC Act and replacing it with the Uniform Limited Liability Company Act, effective January 1, 2028. The legislation also enacts significant and immediate tax-related provisions, including codifying an annual charge for LLCs that applies retroactively to tax years beginning on or after January 1, 2016.

While the full overhaul of the LLC Act is still several years away, the tax provisions in this new law have immediate and retroactive consequences that Rhode Island businesses cannot afford to ignore. The changes directly impact how LLCs are taxed based on their federal income tax classification, formalizing a structure that links state obligations directly to federal elections.

Under the new law, the annual charge for an LLC that has elected to be treated as a corporation for federal income tax purposes will be the state’s corporate income tax. For the majority of LLCs that are not treated as corporations—such as those taxed as partnerships or disregarded entities—the annual charge will be based on the state's minimum tax imposed on corporations, a practice many businesses already followed but which is now formally written into the statute.

This codification provides clarity but also underscores the importance of an LLC’s federal tax status. By default, the Internal Revenue Service treats multi-member LLCs as partnerships and single-member LLCs as disregarded entities. In both cases, the income, losses, deductions, and credits from the business “pass through” to the owners’ personal tax returns. This structure avoids the “double taxation” that can occur with traditional C-corporations, where the corporation pays tax on its earnings, and shareholders pay tax again on any dividends distributed from those earnings.

However, LLCs have the flexibility to elect to be taxed as either a C-corporation or an S-corporation. The new Rhode Island law solidifies the state-level tax consequences of that choice, making the annual state charge for an LLC electing corporate status equivalent to the full corporate income tax.

In our experience, the interplay between federal tax elections and state-level obligations is a frequent source of confusion and costly errors for small businesses. A company might elect to be taxed as an S-Corporation for federal benefits, for example, without fully grasping how that choice dictates its annual charge and filing requirements in Rhode Island. This new law codifies these links, making strategic entity choice more critical than ever. The retroactive nature of the annual charge, stretching back to 2016, could also create unexpected liabilities for companies that were not in compliance. Proactive planning is essential. For guidance on navigating these complex entity structuring and tax compliance issues, business owners can contact the business formation specialists at C&S Finance Group LLC at csfinancegroup.com.

The legislation also reinforces existing tax obligations for non-resident members of Rhode Island LLCs. State law requires that any non-resident member of an LLC taxed as a partnership must file a Rhode Island income tax return to pay taxes on their share of the company's income sourced from the state. The LLC is responsible for securing an agreement from each non-resident member to this effect and attaching it to the company's state tax return.

This requirement places a significant compliance burden on LLCs with owners located outside of Rhode Island. The alternatives, such as the LLC withholding taxes on behalf of non-resident members or making a pass-through entity (PTE) tax election at the entity level, add further layers of complexity that business owners must navigate.

The larger structural change—the full adoption of the Uniform Limited Liability Company Act in 2028—signals a move toward modernization and standardization of LLC governance. The Uniform Act, versions of which have been adopted by numerous other states, provides a more detailed and updated set of default rules for the operation of an LLC. These rules govern everything from fiduciary duties of members and managers to procedures for dissolution and dissociation.

We advise all of our Rhode Island LLC clients to begin reviewing their operating agreements well in advance of the 2028 deadline. The shift to the Uniform Act will change many of the default rules governing the company, and agreements drafted under the old law may have unintended consequences under the new one if they are not updated.

All current and future LLCs in Rhode Island, as well as foreign LLCs registered to do business in the state, will be affected by these changes. Business owners, particularly those with partners in other states, will need to review their tax strategies and governance documents to ensure compliance and prepare for the 2028 transition.

Moving forward, businesses and their advisors will be watching for guidance from the Rhode Island Division of Taxation on the implementation of the retroactive annual charge. As the 2028 deadline for the new governance act approaches, existing LLCs will need to conduct thorough reviews of their operating agreements to align them with the new statutory framework, preventing potential disputes among members down the line.