Idaho Limited Liability Companies - General Overview
Limited liability companies ("LLCs") are great entities for all types of businesses. A limited liability company is a hybrid entity that provides the liability protection of a corporation and the flexibility and tax advantages of a partnership. The owners of an LLC are called "members." The members of an LLC can be one or more individuals, a corporation or other LLCs.
Advantages of an LLC
- Limited Liability. Members of an LLC are generally not liable for the actions of the LLC. In other words, if the LLC is sued for breach of contract or collection of a debt, the members personal assets usually can not be reached to pay any judgment or debt. That said, keep in mind that members are not necessarily exempt from wrongful acts of themselves or their agents or employees.
- Less Recordkeeping. An LLC generally has less record keeping requirements. This make it easier to operate.
- Sharing of Profits. Fewer restrictions on profit sharing within an LLC means that members can generally distribute profits the way they see fit. At start up and during the life of the LLC, the Members can contribute money or sweat equity to gain an ownership interest. The members decide how to split up the profits and losses.
Disadvantage of an LLC
- Self-Employment Taxes. Members have to pay self-employment taxes on the full amount of profits that are distributed to them. [However, there may be some steps that can reduce this tax impact as well].
Forming an LLC
An LLC is easy to form. The first step is to choose a business name. There are three basic rules when picking a name:
- The name must be unique. You can't use someone else's name or one that is likely to cause confusion.
- The name must state that it is a limited liability company. Most names include "LLC".
- The name can not infer that the LLC is affiliated with the government or that it is organized for an illegal purpose.
The second step is to file a Certificate of Organization. The Certificate of Organization create legitimizes the LLC. The Certificate of Organization must state:
- The name of the LLC.
- The street and mailing address of the LLC.
- The name and address of a registered agent.
- The name and mailing address of at least one member.
The third step is to create an operating agreement. State law does not require the members to have an operating agreement, but we recommend it for multi-member LLCs. The operating agreement will govern how the LLC operates, percentage of interests, allocation of profits and losses, member's rights and responsibilities and other provisions.
Idaho LLCs are governed by the Idaho Uniform Limited Liability Company Act. Title 30, Chapter 24, Idaho Code. This law governs the internal affairs of the LLC and the liability of its members for debts, obligations, and other liabilities.
If you have any questions about Idaho LLCs, please feel free to contact us.