You may come to our office first to develop your estate plan, but our experience can also readily assist you with many business matters from formation to liquidation, from acquisition to sale, and from succession planning to owner transactions. We can act as general counsel for your business to coordinate your many legal, financial and business advisors and issues. We pride ourselves on knowing our client's business and industry and being available to advise you on your business needs. If our office can't handle the matter, we know who can and will facilitate hiring the appropriate attorney or advisor.
Overview of Business Structures
A C corporation is formed by filing articles of incorporation with the Secretary of State by incorporators wherein the corporate structure is outlined. A corporation is technically in existence at the time the Secretary of State issues a certificate of incorporation for the entity. All shareholders of a C corporation are protected from liability to third persons except to the extent of their capital contribution to the corporation. A C corporation is owned by its shareholders, who elect the board of directors. The board of directors, in turn, then elects the officers of the corporation. The board of directors is charged with the responsibility of acting on behalf of the corporation and may authorize the officers or employees of the corporation to carry out and perform certain tasks or responsibilities on behalf of the entity. In a C corporation the entity and shareholders are both potentially subject to two separate levels of taxation— one being at the corporate level, and one being at the shareholder level for distributions from the corporation.
The corporate characteristics of an S corporation are identical to that of a C corporation except for the major distinction of the tax status. An S corporation is created through an election with the Internal Revenue Service wherein the shareholders and the entity elect to be taxed as a corporation under Subchapter S of the Internal Revenue Code. Not all corporations can elect to be taxed as S corporations as there are limits on the number of shareholders, and a limitation on the nature of the persons who can be shareholders in an S corporation (generally only individuals and qualified Subchapter S trusts). Further, only one class of stock can be issued.
A general partnership is formed when one or more persons engage in a business for profit. No formal documents are filed with the Secretary of State or other entities to create a general partnership. All general partners are agents of the partnership and may act on behalf of and bind the other members of the partnership unless governed otherwise by a written partnership agreement. In addition, any limitation on the agency powers of a general partner will only be binding if the third person knew about the limitation on the partner's ability to bind the entity and proceeded with the transaction. Each general partner is jointly and severally liable for all debts and obligations of the partnership. The partnership is not subject to a separate level of taxation, but each item of income, loss, deduction, or credit is allocated to the partners based upon their capital accounts or upon agreement. The characteristic of being jointly and severally responsible for all debts of the entity is a great drawback for use of a general partnership in many circumstances.
A limited partnership is created with the same profit motive as a general partnership, but consists of general partners and limited partners. A limited partnership is formed by filing a certificate of limited partnership with the Secretary of State, which is merely a notice document. The general partners have responsibility to operate and manage the general partnership for the benefit of all partners. If a limited partner becomes too actively involved in the control of the business of the partnership, the limited partner risks loss of the limited liability protection that is otherwise available to limited partners. A general partner, on the other hand, is jointly and severally liable for all debts of the limited partnership to the same extent as if he or she were a general partner in a general partnership. The inability of all partners to manage and participate in the operation of the limited partnership makes this entity an unattractive choice for many ventures.
Limited Liability Company
An LLC is owned by the members and need not be organized for profit. If the LLC is member-managed, each member has authority to act on behalf of and bind the LLC unless provided otherwise in the operating agreement. An LLC can also be managed by managers, and the duties and responsibilities would be as determined in the operating agreement. Each member of a limited liability company enjoys the corporate characteristic of limited liability in that the member may only be liable for obligations of the LLC to the extent of his or her capital contribution. As with the corporation, the individual member may still be liable for personal torts and for personal guaranties and assurances. If correctly formed, an LLC and its members are taxed as a partnership. However, it is possible for an LLC to be taxed as a corporation for tax purposes if not correctly formed. An LLC combines the corporate characteristic of limited liability with the flexibility of management enjoyed by a general partnership. Because each member may participate in the management of the LLC without risking his or her limited liability, this entity has become an attractive choice of many ventures.
Limited Liability Partnerships
Effective July 1, 1995, the Idaho Legislature enacted new provisions in the general partnership code providing for the registration of limited liability partnerships. An LLP is a general partnership which protects the owners' personal assets. It was generally designed for use by professionals. The Idaho statute, like those in other states, is an amendment to the Uniform Partnership Act.
Generally, the LLP will be classified as a partnership for federal income tax purposes.