Idaho Business Law What Entity Should You Choose For Your Small Business
By Lane V. Erickson, Idaho Business Attorney
If you are reading this article it’s because you are considering starting a business of your own or you have already started one. You found this article because you’re concerned about whether you are starting your business out the right way. You may also be concerned about whether you should make a change in how your business is structured.
Being a small business owner is not an easy thing. There are so many things to do and so many questions to answer. Sometimes it’s hard to know where to start. This is especially true when it comes to structuring your business. There are many choices, and the choice you make will have an impact on how your business is operated. The purpose of this article is to answer some of your questions about what entity you should choose for your small business.
The attorneys on our premier Idaho business law team at the Racine law office Are qualified to answer this question. Our talented legal team includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of our attorneys is experienced, knowledgeable, and skilled, in helping business owners with their business needs. We answer questions and help business owners decide how to structure and operate their business. With our experience, we are confident that we have the ability to help you move your business forward by guiding you through and helping you with any of your business issues including deciding what entity you should choose for your small business.
There are several options available to a small business owner when it comes to structuring their business. This article will discuss the four most common entities or ways small business owners operate their businesses. Please keep in mind that this article is designed just as a summary. If you have concerns or questions about your business, we encourage you to contact us to discuss your specific questions and business situation.Limited Liability Company (LLC)
The first entity that we will discuss is the limited liability company which is more commonly known as an LLC. This business entity hasn’t been around for a very long time. In fact, this business option really has only existed for about the last 30 years in Idaho.
An LLC is a hybrid between a partnership and a corporation. It has the characteristics of a partnership in that the profits and losses pass through to the individual owners of the business. Additionally, the operation of the business is nimbler because it is controlled by an agreement between the owners rather than a rigid set of corporate documents.
As a hybrid, an LLC also has the characteristics of a corporation. Once it is properly created, there is a corporate shield in place that protects the individual owners of the business from the liabilities of the business. In other words, if the business has caused injury or harm to another business or person, or if the business is in debt, these liabilities stay with the business and go no further.
Like a corporation, certain corporate formalities need to be followed in order to maintain this corporate shield. However, these formalities are very simple when it comes to an LLC.
We started with discussing the LLC because it is the most common entity that is chosen by small business owners in Idaho. If you read through the many articles that are on this website, you will see why it is that we favor the LLC entity in most situations for small business owners.S Corporation
The next business entity type that many small-business owners choose to use is an S Corporation. This means the business is an actual corporation, and that it has made an election on how it will be taxed.
To set up an S corporation the business owner must follow more corporate formalities than are usually required for an LLC. However, with an S election, which is made through the IRS, the business owner has the ability to pass the profits and losses on to the business owners. This allows the business owners to avoid double taxation.
A regular corporation has to file its own tax returns and typically has to pay taxes on its profits. Then, any distributions or dividends that are paid to the owners of the business, are also taxed by the owners as individual income. By making an S election for the corporation, the owners have elected to pass all profits and losses on to the business owners individually.
Because it is a corporation, it enjoys the corporate shield protections for all the owners of the business. The structure of an S corporation is different than it is for an LLC. The documents that are filed, the documents that are maintained, and the controlling documents are all different. When it comes to an actual entity, this is the second most popular type of entity that small business owners actually create.Partnership
Partnerships are also very popular among small business owners. The reason for this is that it takes no effort to create a partnership. The definition of a partnership is simply two or more people who agree to carry on a business for profit as co-owners.
Most partnerships are informal and don’t have any type of written documents. However, some partnerships go to the step of actually creating a written agreement between the owners as to how the partnership will operate, and what roles each owner of the business will have. The formal partnership agreement can also indicate the percentages of distribution that will be made to each partner from the profits of the business.Sole Proprietor
The final business entity that is popular among small business owners is actually no entity at all. It’s similar to a partnership in that it takes no effort to create. However, it occurs when there is only one person who is owning and operating the business. In this instance, the business is the actual owner himself. In other words, there’s no separation between the owner and the business.
This is the most common type of business that is owned by small business owners who have not talked with an attorney. The reason for this is that a business attorney would strongly recommend that a business owner not be a sole proprietorship. The reason for this is that the attorney wants to protect a business owner. The easiest and best way to protect a business owner is to have an entity in place that can shield liability from the individual owner. If you are a small business owner operating your business, or a person who seeks to start a small business in Idaho, and you are wondering what type of entity you should use, we can help. We have assisted many individuals in creating a business entity to properly operate their small business and provide protection to both the business and to the individual owners. Because of our experience, we are confident that we can help you too.Enlist An Idaho Business Attorney To Help You
Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at firstname.lastname@example.org or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.