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Idaho small businesses from microbrewers in Boise to potato farmers in the east should form an LLC to safeguard themselves against claims asserted against their business.
FORMING AN IDAHO LLC FOR YOUR SMALL BUSINESS IN 4 STEPS
- 1. Name Your LLC
In Idaho, all LLC names must be differentiable from the names of all other business entities either formed in Idaho or allowed to do business in Idaho. They must also include a LLC designator, which can be “limited liability company,” “limited company,” “L.L.C.,” “L.C.,” “LLC,” or “LC.” Finally, the name cannot imply that the LLC is affiliated with any government organization.
- 2. File Your LLC
To exist as an LLC on the Secretary of State’s records, an Idaho LLC must file a certificate of organization with a $100 filing fee. This certificate of organization must set forth the name of the LLC, the address of the designated office, the name and address of the registered agent, and the name and address of at least one member or manager.
- 3. Execute an Operating Agreement
The internal affairs and membership relations of an Idaho LLC are governed by an operating agreement. This is either written, verbal, or implied, and does not have to be specifically referenced as any sort of an agreement for it to be binding on the LLC. To remove uncertainty, we recommend writing your operating agreement and having all members sign it.
- 4. Maintain Your LLC
EIN: If your Idaho LLC has employees or more than one member, it will need an Employer Identification Number, obtained either directly from the I.R.S. or through an incorporation service.
Annual Report: Every Idaho LLC must file an annual report every year. This annual report must contain the LLC name, the name and address of the registered agent, the address of the designated office and principal office, and the name and address of at least one member or manager.
WHY FORM AN LLC IN IDAHO?
The Benefits and Advantages of Creating an Idaho LLC
Idaho Has a Growing Economy
Each year, Idaho forms over 10,000 new LLCs. Idaho has over 41,000 active LLCs. The U.S. Chamber of Commerce ranks Idaho fourth for gross state product growth, eighth for cost of living, ninth for entrepreneurial activity, and ninth for long-term job growth.
- Advantages of Forming an Idaho LLC
The Idaho LLC Act provides for an LLC’s unlimited life. Section 30-6-104 states an LLC has a perpetual duration. An LLC’s existence can therefore outlive its members’ lifetimes.
A “person” may organize an LLC by filing its certificate of organization with the Idaho Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s certificate of organization.
Dealing with Business Partners
The Idaho LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Sections 30-6-110 and 30-6-409 provide default rules that members and managers owe limited fiduciary duties of care and loyalty. The duty of care requires members and managers to “act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company.” The duty of loyalty requires members and managers to not compete with the LLC, use the LLC’s property for personal use, deal with the LLC on behalf of people with interests that are adverse to the LLC, or usurp any of the LLC’s business opportunities.
But the Act gives members and managers contractual freedom to “opt out” of most of the default rules. Section 30-6-110 provides that although an LLC agreement may not completely eliminate the duty of loyalty or the duty of care, it may narrow them if not manifestly unreasonable. For example, an LLC agreement may (1) identify specific types or categories of activities that do not violate the duty of loyalty; (2) alter the duty of care, except to authorize intentional misconduct or knowing violation of law; or (3) alter any other fiduciary duty.
In addition, the Act contains a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers. It provides that an LLC agreement may “authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.”
The result is the Act protects both majority and minority members. It protects minority members because an LLC agreement may not completely eliminate fiduciary duties, even though it may alter them and identify activities that do not violate them. These provisions make minority interests safer investments and therefore more valuable.
The Act protects majority members because it provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its managers or members, or an entity in which they own an interest, if the contracts or transactions meet minimum disclosure, approval, or fairness requirements. These rules give majority members and the LLC certainty in business planning and the ability to take advantage of mutually beneficial opportunities.
Preventing Unwanted Business Partners
The Idaho LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from transferring their membership interests. But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to participate in management or to become a member. Instead, the transferee may receive only the distributions to which the transferor would have been entitled, and the non-transferring members must consent to the transferee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 30-6-503 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the charging order is only a lien on the membership interest. The judgment creditor has only the right to receive distributions which would otherwise be paid to the member. A court may foreclose on the lien and order the member’s transferable interest to be sold, but a purchaser at the foreclosure sale obtains only the transferable interest and does not become a member. Section 30-6-503 is the judgment creditor’s exclusive remedy.
Furthermore, section 30-6-602 states that a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors; becomes a debtor in bankruptcy; or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property. These events are considered “events of dissociation.”
- Idaho Registered Agent
An Idaho LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as an Idaho registered agent.
Because of the advantages of forming an LLC in Idaho, over 10,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Idaho. What are the advantages of a Delaware LLC? (Delaware LLC) We can then help you file an application for a certificate of authority to do business in Idaho with your Delaware LLC.
- Idaho LLC Act Statutory References
§ 30-6-102 “Definitions” § 30-6-104 “Nature, Purpose and Duration of Limited Liability Company” § 30-6-110 “Operating Agreement—Scope, Function and Limitations” § 30-6-113 “Designated Office and Registered Agent” § 30-6-201 “Formation—Certificate of Organization and Other Filings” § 30-6-209 “Annual Report for Secretary of State” § 30-6-401 “Becoming a Member” § 30-6-404 “Sharing of and Right to Distributions Before Dissolution” § 30-6-407 “Management of Limited Liability Company” § 30-6-409 “Standards of Conduct for Members and Managers” § 30-6-502 “Transfer of Transferable Interest” § 30-6-503 “Charging Order” § 30-6-602 “Events Causing Dissociation” § 30-6-802 “Application for Certificate of Authority”
Idaho vs. Delaware LLC's: Which State Is Better?
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|
|Idaho||$100||At least 1||annual||None|