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What Type OF Business Structure Should I Have?

By Lane V. Erickson, Idaho Business Attorney

We know that while it is exciting, starting a new business can be an overwhelming thing to do. There are so many choices that need to be considered, as well as laws and regulations that need to be followed based on those choices. We certainly don’t expect our business clients to be experts about these things. Rather, our clients rely on us so to help them through this process and make sure that they have met every legal requirement for their business to move forward successfully.

For more than 70 years we have assisted all of our business clients with each of their individualized business needs. In doing this, we have gained the knowledge, skill, and expertise necessary to help advise our clients about their legal rights and to help them move their businesses forward so that they can be more successful. We are confident that we have the ability to help you too.

The first decision that most people starting a business need to make is what type of business entity they are going to have. In other words, how are they going to structure their business so that it can move forward and accomplish what they want. There are a number of business entity choices available to a person starting a business. Each choice really depends on the type of business that they are creating as well as the individuals who will be involved. Below is a short summary of the different types of business entities that can exist that you can choose from as you begin your own business.

Sole Proprietorship

The first type of business entity that we will discuss, and the one that many people choose by default simply because they don’t know any better, is the sole proprietorship. In its simplest terms this type of business is owned by one person. This means that the owner is personally liable for any of the debts or liabilities of the business.

This person may use a business name, but the business is really just this person individually. For example, if a plumber named John Jones wanted to start a new business, he might call his business John’s Plumbing Services. He may have signs above his door, or on his vehicle, or even in advertisements that he sends out for his business. However, the business is just the owner himself individually which in this case is John Jones, regardless of the business name he uses. This is important because if this person enters into a contract, or is sued, or has other legal issues arise, the name that will be involved in all of those things will be John Jones rather than John’s Plumbing Services.

In Idaho, a person using a sole proprietorship as their business structure can reserve a business name by filing a Certificate of Assumed Business Name. Additionally, there is a fee of $25. When a person does this, the Idaho Secretary of State’s Office registers the business name and make sure that other businesses do not use the same name.

Partnership

The next type of Idaho business entity that exists as an option is a partnership. This could include a regular partnership or a limited partnership or any derivative thereof. Essentially, this is the same as a sole proprietorship, but it includes more than one person. In fact, the legal definition of a partnership is two or more people working together in a business with an agreement to share profits.

Like a sole proprietorship, a partnership can be easy to create and maintain. A partnership can use an assumed business name just like a sole proprietorship. This name can be registered as described above. In a partnership, all of the owners are jointly and personally liable for any of the debts or liabilities of the business. If it is a limited partnership, then the general partners are jointly and personally liable and the limited partner is not. This is all determined by a partnership agreement that is in writing and that is signed by all the partners.

Limited Liability Company

A limited liability company more commonly known as an LLC, is an actual business entity that is registered with the state of Idaho. There are fees for filing an LLC, Certificate of Organization. However, doing so reserves the business name that you have chosen so that no other person can choose or use that business name. An LLC is a unique business entity because it operates financially like a partnership but offers the protections of a corporation for the liability of the owners of the business. In other words, in most instances the individual owners of the LLC will not be personally liable for the debts and liabilities of the LLC.

For most small businesses, we recommend using an LLC. The reason for this is that it provides the best protection for the owners individually for any liability that arises within the operation of the business. Additionally, it is well suited for adding partners to the business anytime you choose. Additionally, it provides specific protections to the owners concerning what happens to ownership interests of each owner in the event one of the owners dies, is divorced, is disabled, goes into bankruptcy, or simply decides they want to sell their ownership interest in the business. Both the business itself, and the remaining owners have options on how to deal with these events without jeopardizing the ongoing operation of the business itself.

Corporation

The final option that a person can choose from when creating a business is a regular corporation. This would be the same type of corporation that is used by big companies such as Apple, Microsoft, Johnson & Johnson and so forth. This is a good business option if the business is going to grow into something very large. However, this is usually not the best choice for a small business because it is not well designed for how a small business usually operates.

The purpose of this article is to provide a simply summary showing the many options that exist when it comes to creating a new business. To provide you with more detail, we would be happy to sit down with you and go over your ideas for your business and talk with you about the different options that are available to you and how these options could help you with your specific business needs. We have helped numerous clients create and move forward with their businesses and we are confident that we can help you too!

Enlist an Idaho Business Attorney to Help You

Our team of Idaho 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 consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com 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.

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