Business Entities
Selecting a particular form of business organization (business entity) may be a difficult step in starting a business. These short descriptions of each business entity will help you choose the most appropriate entity for your business.
Starting A Business?
This rough outline of business entities is not a substitute for legal advice. If you’re planning to start a business, consider seeking professional legal and tax advice before making a final decision on a type of business entity.Â
Assumed Business Name
An Assumed Business Name (ABN) is only used to inform anyone who inquires at the Secretary of State’s Office that the person(s) who filed the ABN operate a business under the Assumed Business Name filed in the Secretary of State’s database.
Filing an ABN does not create a distinct legal ‘person’ or any form of business entity or organization. ABN’s should not be construed as an ‘Idaho Business License’.
General Partnerships
Idaho Code §30-23-2, et seq. The general partnership is the oldest and simplest form of business organization. Individuals who engage in a common effort to make and share profits are legally considered partners whether the individuals have intended to enter into a partnership or not.
All partners in a general partnership share unlimited personal liability for the obligations of the partnership. The owners of a general partnership are generally taxed only once.
Partnerships may be formally organized in Idaho by the filing of a statement of partnership authority. An existing general partnership may be converted into a Limited Liability Partnership if so desired.
Limited Partnerships
Idaho Code § 30-24, et seq. Limited partnerships must have one or more general partners and one or more limited partners. The organizational documents filed with the Secretary of State’s Office are not required to identify the limited partners.
Limited partners are not normally personally liable for the debts of the limited partnership and, generally, can only lose the amounts they have invested into the partnership. Beyond that, limited partners cannot normally be subjected to personal liability for the debts of the limited partnership unless they are actively engaged in the management of the partnership.
Limited Liability Partnerships
Idaho Code §30-23-9, et seq. All of the partners benefit from some liability protection. LLP’s were created to shield general partners from personal liability. In the absence of the partner’s own negligence, misconduct, or wrongful act, a partner in an LLP can be shielded from being personally liable for acts caused by the partnership and other partners within the partnership. LLP’s are taxed like partnerships.
Limited Liability Companies
Idaho Code §30-25, et seq. The Limited Liability Company (LLC) has some of the characteristics of a sole proprietorship, some of a partnership, and some of a corporation. An LLC may, for tax purposes, be disregarded, be taxed like a partnership or taxed like a corporation (Idaho Code §63-3006A).
The LLC has members rather than shareholders. Managers or members may exercise day to day management. The LLC is a business organization that operates under a contract (called an operating agreement) between the owners, much like a general partnership.
In order to have a legal existence, the LLC must file a Certificate of Organization with the Secretary of State. The members are protected from personal liability for the acts of the LLC in much the same manner as corporate shareholders. Unlike limited partnerships, LLC’s do not impose personal liability on members for participating in management.
Corporations
Idaho Code §30-29, et seq. The corporation is the original structure for providing personal liability protection to the owners of a business. Although a corporation is now easier to organize, it may not be the best entity choice for starting up a business. A corporation must have a board of directors. The board may consist of a single individual. A corporation must also maintain certain books and records and hold annual shareholder meetings. In small, closely held corporations, the documentation of these activities may be more onerous than is warranted.
Unless qualified as an ‘S’ Corporation pursuant to extensive IRS rules, a corporation is subject to double taxation, i.e.; income is taxed once at the corporate level and then taxed once more when income it is distributed to shareholders as a dividend.
Photo: Downtown Coeur d’Alene, Idaho.