Are you someone on the lookout for avenues to introduce your novel business idea into the Idaho market? A Limited Liability Company (LLC) can be your ideal choice. It combines the structural benefits of both a corporation and a partnership.
Idaho is a good choice for your LLC. The State has a growing economy because of its good regulatory environment and comparably lower tax rates. You may, however, feel that the procedure to set up an LLC in the State is confusing and complicated. Consider this your friendly guide on how to set up your company in Idaho.
Name Your Idaho LLC
Rick Riordan has famously said that “names have power.” Picking a name for your LLC will be the first step in your journey to set up your business.
This name will appear on all your legal documents, bank accounts, and contracts. Therefore, ensure that you select a name that best represents your business and, simultaneously, helps attract customers.
While you do have the liberty to pick a name for your LLC, there are specific rules laid down by the State that you have to be mindful of.
The name of your LLC should include the phrase “limited liability company” or “limited company” or the abbreviation “L.L.C.,” “LLC,” “L.C.,” or “LC.” You can abbreviate “Limited” as “Ltd.” and “company” as “Co.”
For example, suppose you decide to name your business Dylan’s Chemicals. In that case, your business name can be Dylan’s Chemicals Limited Liability Company, or you may use any of the abbreviations mentioned above. The idea behind the rule is that other people do not confuse your company for another type of business, like a corporation or partnership.
The name you select for your LLC should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.” Some terms are restricted (e.g., bank, lawyer, university) and may need additional documentation and the inclusion of a licensed professional (like a doctor) in your LLC.
Finally, the name you choose for your LLC must be distinct. It must be distinguishable and unique from all other Idaho-registered entities. Remember, it cannot be similar to an existing entity’s name either.
For example, you cannot name your LLC Wildflowers when a company named Wild Flower already exists. Same with Sam’s Goods and Sam Goods.
Does Your Business Require a DBA?
A DBA (doing business as) enables you to operate your LLC under a different name. In the State of Idaho, a DBA is called an “Assumed Name.” An assumed name is best used for branding purposes.
After having formed your LLC, you may wish to diversify your business or enter a new market. Often, you may feel that the name you have chosen for your LLC does not suit the new product you have added to the portfolio. An assumed name can be of great help here. It helps you operate under a different name that you feel best represents your new business line.
The DBA name you select must follow the Idaho business name guidelines and should not be identical or similar to any name of an existing registered entity.
Option 1: Apply for a DBA OnlineApply Online – OR –
Option 2: Apply for a DBA by Mail or In-PersonDownload Form
Office of the Secretary of State
P.O. Box 83720
Boise, ID 83720-0080
Office of the Secretary of State
450 N. 4th Street
Boise ID 83702
Additional Fee (filing a hard copy by mail or in-person): $20
Doing a Name Search and Name Reservation
Before finalizing a name for your LLC, you must ensure that the name you selected is not similar to an existing business. For this purpose, you can conduct a name search on Idaho’s official website. You should properly check the name selected for your LLC to avoid rejection later on.
If you are not ready to incorporate your LLC immediately, you can reserve your chosen name. You can apply with the Secretary of the State in Idaho for this purpose. Once the Secretary of State has reviewed the application, the name shall be reserved, for four months, in the name of and for the applicant’s exclusive use.
Option 1: Reserve Your Name OnlineApply Online – OR –
Option 2: Reserve Your Name by MailDownload Form
Office of the Secretary of State
450 N 4th Street
P.O. Box 83720
Boise, ID 83720-0080
Fee: $20, (additional fee of $20 if filing by mail)
Registering Your Business Domain
The internet has changed the way businesses are done. People prefer to sit in the comfort of their homes and make purchases online. They also tend to prefer companies that have an online presence. Therefore, it is recommended that you have a website for your LLC.
The address of your website is how customers find you online. Your business’s website address needs to match your LLC’s name. So, before you select a name for your LLC, ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Resident Agent in Idaho
A registered agent can be an individual or another business entity. In Idaho, you must appoint a registered agent before you can get incorporated as an LLC.
The primary duty of a registered agent is to receive on behalf of the LLC any process, notice or demand about the company and forward it to the concerned person within the LLC. Idaho law mandates that your company have a registered agent.
Who can be a registered agent?
The State of Idaho provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident (above the age of 18 years) or
- Another business entity (other than an Assumed Business Name entity) that has obtained authorization to conduct business in the State.
The registered agent should have a physical street address in the State. They can’t use a street address that hasn’t been recognized in the United States Postal Service (“USPS”) database. A registered agent must be available during business hours on all working days.
You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service. Read Part 4 of Chapter 21 of the Idaho Uniform Business Organization Code to know more.
Individual v. Registered Agent Service
Appointing yourself or any other person in your LLC as the registered agent can help you save money. But it is not always advisable as hiring the services of a commercial registered agent has many advantages.
A registered agent has to be available at the address registered with the State on all working days during business hours. If you are the registered agent of your LLC, this significantly impacts your ability to travel freely and focus on matters needed to grow your business.
A commercial registered agent service, with expertise and experience, ensures that you never miss any critical communication and that you are reminded in time of any deadlines that are coming up.
Also, the registered agent’s address is made available in the public domain. Thus, having a registered agent service helps you protect your privacy.
Filing the Certificate of Organization with Idaho
A certificate of organization is a legal document needed to form and legally incorporate your LLC officially. Before incorporating the LLC, you need to decide on one or more persons to act in the capacity of organizers. Such organizers must prepare and submit the certificate of organization to the Secretary of State to incorporate the company.
A certificate of organization must contain information such as:
- The name you have chosen for your LLC
- The LLC’s street and mailing address
- Details of the registered agent of your LLC
- Name and mailing address of a minimum number of one governor for your LLC (The governor can be a member or a manager).
The final step is for you to file your Certificate of Organization with the office of Idaho’s Secretary of State. You can do it online or submit a copy of the duly filled form by mail. Your LLC will become incorporated once the certificate of organization becomes effective.
Option 1: File Your Certificate of Organization OnlineFile Online – OR –
Option 2: File Your Certificate of Organization by MailDownload Form
Office of the Secretary of State
450 N. 4th St.
P.O. Box 83720
Boise ID 83720-0080
Fee: $100 (Additional $20 processing fee for hard copy filings)
The usual processing time is anywhere between seven to ten days. However, there is an option for you to pay an additional expediting fee of $40 to get your application processed faster. For ‘same day’ processing, you will have to pay an additional $100.00 with your filing fee.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create the Operating Agreement for your Idaho LLC
The operating agreement is the bye-laws of your company. You can think of it as an agreement between the LLC members that binds them on various matters relating to the LLC. An operating agreement will govern matters relating to the rights and duties of members and managers, operation protocols for managing the affairs of the company, procedure for amending the agreement, etc.
Idaho statutes do not mandate an operating agreement. However, you should have one in place. Often, disputes arise between the various stakeholders of an LLC due to a lack of clarity on how to run the business. An operating agreement minimizes such misunderstandings by clearly defining the roles and responsibilities of each stakeholder.
There are no prescribed templates for an operating agreement in Idaho, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing the Operating Agreement Yourself v. Hiring a Service
If you are confident about what you want in your operating agreement, you may draft it yourself in consultation with other members of the LLC. You may also purchase available templates from the internet and modify them to suit your business.
The other option is for you to hire the services of an attorney. While this may prove to be expensive as opposed to purchasing a ready template, it can be beneficial as professionals such as attorneys are experts in the laws of the State. Many commercial registered agents also provide drafting services.
Limits of Operating Agreement:
There are some restrictions on the kind of provisions you can include in your operating agreement. The Idaho statute dictates that your operating agreement cannot contain provisions that remove duties of care between the members, restricts the rights of a person who is neither a member nor a manager, limits access to the LLC documents, etc. You can read Section 30-25-105 of the Idaho State Statue for more information.
Obtaining an EIN for your Idaho LLC
The Employer Identification Number (“EIN”) is a nine-digit number used by the Internal Revenue Service (“IRS”) to identify a company for taxation purposes. If your LLC is multi-membered, you must obtain an EIN.
On the other hand, if you are a single-membered LLC, EIN becomes mandatory if you plan to hire employees or treat your LLC as a corporation or sole proprietorship for taxation purposes. An EIN is also necessary to open a bank account, file tax returns, and hire employees.
Option 1: Request an EIN from the IRSApply online – OR –
Option 2: Apply for an EIN by Mail or FaxDownload form
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
File Annual Reports in Idaho
An annual report is a legal document that LLCs must file annually with the Secretary of State. However, the first report is due in the year immediately after the year of incorporation. You must provide updated details about your LLC, which the authorities use to keep records of all the business entities operating in the State.
In Idaho, you can file your annual report online with the office of the Secretary of State. The State does not charge any amount for filing your annual reports.
The due date for filing your annual report is by the end of the LLCs anniversary month. For instance, if your LLC was incorporated on August 3rd, 2020, you must file your report by the end of August every year.
Failure to file the document may result in your LLC getting penalized. The State provides you with a grace period of 60 days. If it is not filed even after the grace period, your company is at risk of being shut down by the authorities.
Tax Liability For Your Idaho LLC
There are four ways in which you can treat your LLC for taxation purposes:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
LLCs are ‘pass-through’ entities. You must pay taxes on the income you earn from the LLC, and the company itself is not required to pay any separate income tax.
You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions in the nature of business expenses. You are also liable to pay Federal Income Tax. The income tax you have to pay will vary depending on your income, filing status, deductions, etc.
However, if you treat your LLC as a corporation for tax purposes, federal corporate taxes must be paid. If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity.’ The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 form of each partner.
State Tax Liability
Idaho imposes income tax on members and employees of LLCs on income they earn from the LLC. You can refer to the Idaho State Tax Commission’s website to know more. If you choose to treat your LLC as a corporation for taxation purposes, then the LLC should file a separate tax return and pay taxes on corporate income.
If your LLC is engaged in selling certain products or specific services, you will be required to pay Sales Tax in Idaho. For this purpose, you must first obtain a seller’s permit from the State. The tax rate is 6%.
Sales taxes are applicable on specific tangible property and goods such as furniture, electronics, raw materials, etc. Certain services also come under the purview of sales tax. However, certain products such as medicines, pollution control equipment, and funeral services are exempted from sales tax. To know the details of exempted products and services, you may visit the ‘Exemption’ section of the Idaho State Tax Commission’s website.
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee’s Withholding Tax.
Permits and Licenses
An LLC operating in Idaho must comply with State and Federal regulations. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.
If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are
- Alcoholic beverages
- Firearms, Ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and radio and television broadcasting
- Transportation and logistics.
At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit online using Idaho’s Business Registration System portal.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Boise, certain professions are required to have a specific city license. To know more about local licensing requirements, get in touch with the office of your city or county administration.
For more information regarding;
Business Bank Account & Phone Number
Having a common bank account for your business and yourself means mixing up personal and business assets. It is never a good idea as your personal assets may be affected in case of insolvency or lawsuits. Ensure that you open a separate business bank account for your LLC after incorporation. It not only helps protect your personal assets but also makes tax filings much easier.
Also, apply for a business credit card. It helps you to separate business expenses from your personal spending and also helps you build a credit score for your business.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.
Setting up your business in Idaho has a lot of benefits. The State has comparatively lower tax rates and an excellent regulatory environment.
Depending on the type of business, LLCs in the State may be eligible for various tax benefits such as the Small Employer New Jobs Credit, Small Employer Capital Investment Credit, Investment tax credit, etc.
Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
If any of this feels complicated to you, or you just don’t want to be bothered by the legal formalities, you can always opt for an online service provider who will form your LLC for you for a very reasonable amount.