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Prospective business owners must select
both a legal structure (business entity
form) and a name (DBA) for their new business.
You may want to consult with an attorney before choosing a legal structure,
particularly if more than one person will own the business. The legal
entity form you choose will affect the taxes you must pay and how you report them, so you may want to check with an accountant as well.
Business names are registered with the Idaho Secretary of State's
office before you begin conducting business activities. An Assumed Business Name
can be used for any type of business entity.
It costs $25 to permanently register a business name. The required form can be
downloaded from the Secretary of State's Web site at http://www.sos.idaho.gov/corp/corindex.htm.
If you will have employees or make
retail sales, you must also register your business with the State Tax
Commission, Idaho Industrial Commission, and Idaho Department of Labor by
filing Form IBR-1 found at https://labor.idaho.gov/applications/ibrs/ibr.aspx.
You must do this in addition to registering your business name and
legal structure.
Choosing a
Legal
Structure
Following are descriptions of the various legal structures (business entity forms)
recognized in Idaho. For
information about each type, click on the name.
Sole
Proprietorship
Partnership
Limited Liability Partnership (LLP)
Limited Partnership
Corporation
S Corporation
C Corporation
Non-Profit Corporation
Professional Service Corporation
Limited Liability Company (LLC)
Professional Limited Liability Company (PLLC)
Changing your registered information: After registering your business name and entity
type, you will need to inform the Secretary of State's office whenever
changes occur. If you change the
name, address, or ownership of your business, change the entity type, or close the business, you
will need to notify the Secretary of State. If you are a
corporation or an LLC you must file an annual report. For information on
each of these topics,
click on the following links:
Change of address, ownership, or registered agent
Canceling
or changing a business entity filing
Corporation/LLC annual reports
Registering
a Foreign Corporation in Idaho
Searching for a registered business name
Changing a registered business entity type
Business Entity Types
A Sole Proprietorship is the simplest
business structure to
organize, so many new businesses start this way. A sole proprietorship is owned by one
individual. That individual has complete control of the
business and is responsible for all business decisions and financial
obligations. Business revenue (income) is considered personal income of the
owner and is taxed at
the owner's personal tax rate. All liabilities (debts) created by the
business are personal liabilities of the owner.
A business organized as a sole proprietorship
automatically terminates upon the death or bankruptcy of the business owner. The property
used in the
business is disposed of according to the terms of the owner's will or a
court order, because it is considered the owner's personal property.
It is often more difficult to sell a business
organized as a sole proprietorship
than another form of business because the law does not recognize a sole
proprietorship as a separate legal entity apart from the owner.
All businesses are considered sole proprietorships
unless the owner specifically registers the business with the Secretary of State's
office as a corporation,
partnership, LLC, or non-profit entity. If you plan to operate your business as a sole proprietorship, you do not need to file any
additional paper work with the Secretary of State other than your certificate of Assumed Business
Name.
A Partnership involves two or more people
(including married couples) who are conducting a business
together. This business structure is fairly simple to establish, but
may have more costs than a sole proprietorship because each partner must
file a
separate tax return. A General Partnership form, found at http://www.sos.idaho.gov/corp/gn_partn.htm,
must be filed with the Secretary of State's office.
Caution: Under Idaho law, businesses that represent
themselves to the public as partnerships are treated as such, even if they have
not
filed General Partnership forms with the Secretary of State. A legally
binding partnership agreement may be created orally, in writing, or it
may be implied by the actions of the individuals. Creating an
unintentional partnership could have serious legal implications, so be
careful.
Each partner has the power to
act on behalf of the business,
including in financial matters, and to legally bind the other partners. This can create a potentially dangerous
situation if all partners are not informed and agree on issues. Therefore, it is strongly recommended that an
attorney prepare a written partnership
agreement to govern the business. The agreement establishes the rules by which the
partners will conduct business. This should include the responsibilities
and authority of each partner and how the business decisions, including
financial decisions, will be
made. The agreement should also contain an exit plan should one partner wish to leave the
business.
If a partner decides to exit the partnership, he/she
must file a form, Statement of Denial, with the Secretary of State's
office. The form can be found at http://www.sos.idaho.gov/corp/FORMS/pa_denial.pdf.
Filing the form gives public notice that the person is no longer a partner
in the business and is therefore no longer responsible for the activities
of the business, including financial obligations.
Partners share in the profits and losses of the business according to
the terms of the partnership agreement and profits are taxed as personal income. While a
partnership is recognized as a separate legal entity from the individual partners,
the partners’ personal assets may be used to
satisfy the business's creditors, including debts incurred for the
business by only one partner.
Unless a legal partnership agreement has been
created,
partnerships end with the death, retirement, expulsion, incapacity, or
personal bankruptcy of one of the partners.
Partnerships must file a “Certificate
of Assumed Business Name” with the Secretary of State’s office. They may
also file a Statement
of Partnership Authority
with the
Secretary of State. This form provides legal notice indicating which
partner/partners have authority to make decisions concerning real
property owned by the
business.
A Limited Liability Partnership
(LLP) is often used by
professional businesses, such as doctors, lawyers, and CPA firms. It is strongly recommended that
an attorney create a written
partnership agreement between the partners. Individuals or an existing partnership may elect to
become an LLP by filing the application for registration found at http://www.sos.idaho.gov/corp/llpform.htm
with the
Secretary of State’s office.
In an LLP, the personal liability of each partner
is limited to exclude obligations
resulting from professional mistakes made by other partners or
malpractice actions against other partners. However, the partners continue
to share liabilities resulting from all other activities of the
partnership.
A Limited Partnership is
made up of two or more individuals who jointly own a business.
This partnership form allows for both general and limited
partners. Limited partners
are generally financially liable for debts only to the extent of their
investment in the business. They have
limited or no control over management of the company. The general partners manage the company and face the greatest
potential risk and reward from the business operations.
Limited partnerships must file a Certificate of
Limited Partnership with the Secretary of State's office using the
form found
at http://www.sos.idaho.gov/corp/lpform.htm.
A Corporation can be complex and expensive to organize. Legal
assistance is strongly advised because originals of
the corporation's Articles of Incorporation must be filed
with the Secretary of State's office and the corporation must create and
adopt Bylaws to address the management and regulation of the corporation's
affairs. Forms to establish a corporation can be found at http://www.sos.idaho.gov/corp/corpform.htm.
A corporation is a separate legal entity from
its owners. It may be privately or publicly held. The
corporation is controlled by its Board of Directors, which is in turn
controlled by the owners (shareholders) of the corporation. Most corporate profits are taxed twice – once as
income to the corporation and once as a dividend to the
owners (shareholders). Corporations must hold annual meetings,
keep minutes of
meetings, and file reports of their activities. Corporations are dissolved by a vote
of the shareholders or by court order.
Several types of corporations are recognized in
Idaho including
C, S, Non-profit, and Professional Service Corporations. The Secretary
of State's office can provide detailed information on each type.
A C Corporation is
the original form of a corporation. The
corporation files its own income tax returns and owners
(shareholders) are taxed only if dividends are paid to them. If a corporation
plans to issue stock to the public, it
must notify the Idaho Department of Finance using the forms found at http://finance.idaho.gov/Securities/SecuritiesForms.aspx
and the U.S. Securities and
Exchange Commission, http://www.sec.gov/.
An S Corporation offers the protection of a corporation with the
flexibility of a partnership. Profits and losses pass through to the
owners as if the
business were a partnership. The corporation must file Articles
of Incorporation, adopt Bylaws, and hold regular meetings. An S
Corp cannot be owned by more than 75 individuals and cannot be owned by
another corporation, partnership, or a non-U.S. resident.
An S Corp cannot issue stock.
To qualify as an S Corporation, in addition to
registering with the Idaho Secretary of State, the owners must
file Form 2553
with the Internal Revenue Service
indicating their tax status. For information and forms, visit http://www.irs.gov/businesses/small/article/0,,id=98263,00.html.
In Idaho, the same forms, obtained from the Secretary of State, are used to establish an S corporation and a C
corporation. If the S Corp ceases to exist, both the IRS and the
Idaho Secretary of State's office must
be notified.
A
Non-profit
Corporation exists to provide a community service.
Funding
often comes from donations and from grants given by corporations, foundations, and government
agencies that support the non-profit's special activities. Non-profit
corporations must first apply for and seek to retain tax-exempt status from
the Internal Revenue Service before registering as a non-profit with the state. Forms and information can
be found on the Internal Revenue Service's
Web site. If you intend to apply to the IRS for non-profit status,
your articles of incorporation must contain a required purpose clause and
a dissolution of assets provision. Information on tax reporting
requirements for non-profits can be found at http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html.
The application process to obtain
IRS approval is
time-consuming and expensive, so be certain your business qualifies
for non-profit status before applying. It is highly recommended that
you engage an attorney to assist in the application process. Donors
cannot receive a tax deduction for their donations until the IRS grants
non-profit status and issues a non-profit tax number.
After obtaining IRS approval, the
non-profit can be registered in Idaho using the forms found at
http://www.sos.idaho.gov/corp/corpform.htm. To reserve a name while awaiting approval from the IRS, Application for Reservation of Legal
Entity Name can be filed by using the form found at http://www.sos.idaho.gov/corp/FORMS/name_reservation.pdf.
A
Professional Service Corporation consists
of individuals engaged in a limited number of professions, such as
medical, dental, legal, landscape architects, architects, or
veterinarians. A list of qualifying businesses can be obtained from the
Secretary of State's office. The forms needed to create a professional
service corporation can be found at http://www.sos.idaho.gov/corp/corpform.htm.
The name of the business must end with the words "chartered,"
"professional association," "professional
corporation," or with the abbreviations "PA,"
"PC," or "Chtd."
A
Foreign Corporation is one that is
registered to do business in another state and wants to conduct business
in Idaho. For information, see "Registering a Foreign Corporation in
Idaho" below.
A Limited Liability Company
(LLC) provides the liability
protection of a corporation and the federal tax benefits of a
partnership or sole proprietorship. An LLC is formed in a manner similar
to a corporation. The
name of the company must include the words “Limited Company”, “LLC,” or
“Limited Liability Company.” In an LLC, the individual members or managers are not
personally liable for debts, obligations, or liabilities of the company.
Articles of Organization must be filed with the Secretary of State’s
office using the forms found at
http://www.sos.idaho.gov/corp/llcform.htm. The Internal
Revenue
Service's Web site provides information on tax reporting options for LLCs at http://www.irs.gov/businesses/small/article/0,,id=158625,00.html.
A few business types, such
as banks, insurance companies, and nonprofit organizations, cannot usually be
organized as
LLCs, so check
with your attorney to be sure your business qualifies.
Even a one-person LLC should have a legal Operating
Agreement prepared by an attorney. If the
LLC fails to create a legal Operating Agreement, the business will be governed
by the Idaho
Limited Liability Company Act and that may not be in the best
interests of the business.
Registering a Foreign LLC - An LLC formed in
another state can register to do business in Idaho by completing Application
for Certificate of Authority for Foreign Limited Liability Company found at http://www.sos.idaho.gov/corp/llcform.htm.
If the name being used by the LLC is already in use in Idaho, the company
may need to register under a new name. Information can be found on the
application form.
Changing the Registered Address or Agent,
Dissolving an LLC -
To change the address or the registered agent of an LLC or to dissolve
the business, use the forms
found at http://www.sos.idaho.gov/corp/llcform.htm.
Note: As of January 1, 2009 single
member/single owner LLCs that have employees but have not elected to be
treated as corporations may be required to change the way they report
and pay federal employment taxes and wage payments and certain federal
excise taxes. The LLC will also need to obtain a Federal Tax
Identification Number (EIN) if it does not have one. For information,
visit http://www.irs.gov/businesses/small/article/0,,id=98011,00.html.
A Professional
Limited Liability Company (PLLC) is an LLC whose members
offer a professional service, such as legal, medical, or dental
services. The
name of the company must include the words “Professional Limited Company”, “PLLC,” or
“Professional Limited Liability Company.” The form needed to
establish a PLLC can be found at http://www.sos.idaho.gov/corp/FORMS/cert_org_pllc.pdf.
The forms needed to file any of
the entity types mentioned above can be downloaded from the Secretary of
State's Web site at
http://www.sos.idaho.gov/corp/corindex.htm.
The filing fee varies by the type of
application.
IMPORTANT - Effective July 1, 2008, the Idaho
Legislature made changes to the law governing LLCs and PLLCs. Among the changes are the
requirement to include "LLC," "PLLC," "Limited," Limited
Liability Company" or similar wording in the business name. New LLCs
will no longer be able to register a name similar to that of an existing
business of any legal type. For information on the various changes, visit http://www.sos.idaho.gov/corp/corindex.htm.
Changing the Address,
Ownership, or Registered Agent: Once you have registered your
business entity type you will need to notify the
Secretary of State's Office when changes occur. If you
change the business's mailing address, complete and file the form found at http://www.sos.idaho.gov/CORP/chg_addr.htm.
This form is also used to report the sale of a business.
If your
business is a sole proprietorship, you cannot use this form. Instead, you
will need to file an amended ABN using the form found at http://www.sos.idaho.gov/corp/ABNform.htm.
If you change the registered agent (the primary
person
representing the business), you need to notify the Secretary of State's
Office using the form found at http://www.sos.idaho.gov/CORP/chgregagent.htm.
If you sell the business, both you and the new owner
will need to notify
the Internal Revenue Service (IRS) as well as the Secretary of
State's office. For
information visit http://www.irs.gov/businesses/small/article/0,,id=98692,00.html.
Canceling or Changing a Business Entity
Name: If you want to cancel
or change a business name, either
because you are closing the business or you are changing the name, you
need to notify the Secretary of State's Office using the form found at http://www.sos.idaho.gov/corp/forms/abn_amend.pdf.
You will also need to notify the Internal Revenue
Service (IRS) if you change the name of your business or close the
business to be certain that your tax payments are correctly attributed to
your business. For information, visit http://www.irs.gov/individuals/article/0,,id=148089,00.html
and http://www.irs.gov/businesses/small/article/0,,id=98761,00.html.
You may also need to contact the Idaho State Tax Commission to be certain your taxes are reported correctly.
Changing a Registered
Business Entity Type: If you decide to
change your business from one entity type to another (such as from a sole
proprietorship to an S Corp), you will need to contact the Secretary of
State's Office for information. If you change from a sole proprietorship
to another business form, the process is simple. But if you change from
another entity type, such as an LLC, the process takes more time and may
involve dissolving the existing entity and creating the new one.
You will also need to contact the Idaho State Tax
Commission and the Internal Revenue
Service (IRS) since your tax reporting method may change. For information,
visit http://www.irs.gov/businesses/small/article/0,,id=99903,00.html.
Registering
a Foreign Corporation in Idaho: Foreign corporations
desiring to apply for a Certificate of Authority to do business in Idaho
must submit an application and a Certificate of Existence to indicate that
their business is in good standing in another state. The Certificate of Existence
can be obtained from the office or agency in the state where the Articles of
Incorporation were filed. The application for a Certificate of
Authority to do business in Idaho can be found at http://www.sos.idaho.gov/corp/corpform.htm.
Annual Reports:
Corporations and Limited Liability Companies must
complete and return an annual report form to the Secretary of State's
office. Failure to return the form within the allotted time can result in the business being
administratively dissolved. The report form is mailed to the company at
the address of record by the
Secretary of State's office. The completed form can be mailed back or it
can be completed on-line at http://www.sos.idaho.gov/online/corpar/login.jsp.
Caution: Annual report forms cannot be forwarded by
the Post Office. Therefore, it is the business owner's responsibility to keep
all contact
information up to date with the Secretary of State's office or risk having the business administratively
dissolved. If your business is administratively dissolved, it will take
time and money to be reinstated.
Filing a DBA or
Business Name
Once you have decided on your legal
entity form and a name for your business, you must register them with the
Idaho Secretary of State's office. By filling out and returning your legal
entity form (articles of incorporation, limited liability company, etc.) with a name on it, you are in effect registering the business
name AND the legal status of the business. If you are
a sole
proprietorship, you need to register only your business name. No
additional forms are needed to create a sole proprietorship. The name
must be registered before you begin conducting business.
If you change the name of your business, the entity
type, or sell or close the
business, you need to contact the Secretary of State's office. See the
information above, Canceling
or Changing a Business Entity Filing and
Changing
a Registered Business Entity Type.
NOTE: Registering a business
name does NOT create any legal business entity form and it is NOT a business
license. Business licenses are issued by your local city or county clerk's office,
not by the state.
Name Search:
Before registering
your business name, you may want to do a search to determine whether another
business operating in Idaho is currently using the same name or a similar
one. (Recent changes to the Idaho Limited Liability Company
law require that anyone registering as an LLC or PLLC must have a unique
business name.) To do an on-line search to see if another business
is already using
the name you want to use (Assumed Business Name), visit: http://www.accessidaho.org/public/sos/corp/search.html?SearchFormstep=crit.
You may want to do an Internet search as well to
find businesses in other states that are using your desired name or a
similar one. Though you can register to use the same name as an existing
business in another state, your business may
be confused
with theirs, particularly if they are regionally or nationally known. This
can be a particular problem if the other business falls behind in their
financial obligations, encounters legal problems, or has a questionable
reputation. You will not want their problems to negatively reflect
on your business simply because you have a similar name. In addition to
checking for your proposed business name, look also for similar names
spelled differently, such as "Shoppe" or "Centre."
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