This blog post series will define some of the most commonly used acronyms in business law. For our first post, we will define three basic business structures: the LLC, the PLLC, and the LP.
An “LLC” is a “Limited Liability Company.” An LLC provides liability protection for all members of the company, and provides flexibility in the management and taxation of the business.
Members are not held personally liable for the debts and obligations of the business. Each member can fully participate in management decisions—or alternatively, the business can appoint a manager or board of managers to make some or all of the business decisions.
The company can choose whether it would prefer to be taxed as a disregarded entity (depending on membership), partnership, S corporation, or C corporation. It is important to discuss this decision with your legal counsel and your accountant to determine which tax designation is best for your business.
To form an LLC in Idaho, a Certificate of Organization must be filed with the Idaho Secretary of State. If the company does not file the Certificate of Organization, the business will be treated as a general partnership, and all members will be subject to personal liability.
When forming an LLC, it is also important to prepare an Operating Agreement. This document describes how business decisions are made and what happens when certain events occur, such as the bankruptcy of a member or the sale of all the company’s assets.
A “PLLC” is a “Professional Limited Liability Company.” A PLLC generally operates like an LLC, but can only be formed by professional companies. The company must file a statement with the Idaho Secretary of State, setting forth the professional services for which the members are licensed. Idaho Code § 30-25-201.
An “LP” is a limited partnership. An LP consists of limited partners and general partners. Limited partners are generally investors—they have limited control over the business. General partners have the authority to manage and conduct business on behalf of the partnership. In an LP, the limited partners have limited liability, meaning they are not personally liable for the debts and obligations of the partnership. General partners remain personally liable.
In order to form an LP, a Certificate of Limited Partnership must be filed with the Idaho Secretary of State. Without the filing, the business will be treated as a general partnership. This means that the limited partners will not have limited liability.
If you have questions about which entity would be best for you or need assistance forming a company, please reach out to us. We have many attorneys ready and willing to assist you.