Selecting a particular form of business organization (business entity) may be a difficult step in starting a business. Each type of entity raises different considerations relating to, among other things operations, personal liability, and tax status. Idaho’s business entities include: general partnerships, limited partnerships (LP), limited liability partnerships (LLP), limited liability companies (LLC), and corporations. Currently, these are the only business entities authorized by statute in Idaho. (An individual may always begin a business under his or her own name as a sole proprietor, but doing so essentially subject the individual to unlimited personal liability for any debts of the business.

The following descriptions are brief explanations of the above mentioned business entities.

It is hoped that these short descriptions of business entities will be useful tools to help the reader select the most appropriate type of entity for his or her business.

• Individuals planning to start a business should seriously consider seeking professional legal and tax advice before making a final decision as to the type of entity.
• This rough outline is not a substitute for such legal advice.
• Some of the relevant statutory provisions that govern each type of organization are cited for your information. These citations do not encompass the entire scope of the law on these subjects, and are only means to serve as a point of reference for the user.

Assumed Business Names are discussed in a note below.

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.

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.

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.

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.

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.

Idaho Code § 30-21-8, et seq.The filing of an Assumed Business Name (ABN) in the Secretary of State’s Office has only one purpose – to give notice to anyone who inquires at the Secretary of State’s Office that the person(s) who filed the ABN is doing business under the name which has been filed in the Secretary of State’s database. The filing of an ABN does not create a distinct legal ‘person’ or any form of business organization. ABN’s should not be construed as an ‘Idaho Business License’.

Taxation and personal liability, are only a few of the factors to consider when deciding the type of entity that is best for your business. Other important factors may include:

• The perceived needs for a given management structure
• The need for ease in transferring all or part of business ownership
• The need for withdrawing the investment in the future
• The need to conduct the business in more than one state, either initially or in the future