Idaho Business Law: Avoid These Mistakes When Setting up Your LLC

By Lane V. Erickson, Idaho Business Attorney

If you are reading this article you should be congratulated. This means you are either starting a new business or have a business you are considering setting up an LLC for. It also means you are conscientious, and you want to get things done the right way.

Using an LLC as part of your business structure is a fantastic idea for most small businesses. An LLC is usually easier to deal with on a tax basis when it comes to a small business that a regular corporation is. Additionally, using an LLC provides corporate protections that a simple partnership would not provide to the owners. So, like I said, for most small businesses usually the best choice for a business entity is setting up an LLC.

The Racine law office is the premier Idaho Business law firm that has more than 70 years of experience in assisting clients in creating a small business and setting up the proper LLC structure for their business. We take the time to learn from our clients what their business is all about so we can help them properly set everything up that needs to be done. Our team of Idaho business attorneys understand the importance of properly setting up LLC and in following all the requirements and laws in Idaho to make sure that the business will operate both legally and validly. Our team includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Our attorneys have decades of experience, knowledge, and skill in helping business clients deal with all of their business needs.

The problem is that for most people starting a new small business, setting up an LLC alone is not enough to ensure that their business will be protected and that the individuals can avoid the liabilities of the business. To make sure these are accomplished, most people need some help.

The purpose of this article is to provide you with a list of the main mistakes to avoid when setting up your LLC for your small business. This article provides just a summary. There’s no way that an exhaustive list of mistakes that need to be avoided can be provided in just a simple article. For this reason, we strongly suggest that you consult with a qualified business law attorney in Idaho to help you with all of your business needs. We would be happy to answer your questions. We have helped numerous small business owners that we are confident that we can help you too.

When I meet with business clients who are considering creating an LLC, one of the first questions they ask is which state should they create their LLC in. The reason this question comes up is because many of my business clients have read on the Internet or have talked with friends about the fact that Delaware or Nevada are the best states to create an LLC in. These individuals have read that Delaware offers flexible and pro-business statutes, and Nevada has low filing fees and no corporate income or personal income taxes. However, in most instances, my advice to my clients is that they do not incorporate in a foreign state.

Most small businesses that will be operating only in Idaho would be better off creating their LLC in Idaho than in any other state. The reason for this is that when you incorporate in a different state, you are required to have a registered agent located in that state’s boundaries for purposes of receiving legal notices. You are also required to register your out-of-state LLC as a foreign corporation with the state of Idaho. Essentially what this means is that you are doing the exact same thing twice with really no significant benefit.

On the other hand, if your LLC small business will be operating in many states, you may have a valid reason for looking to incorporate in a state different than Idaho. However, even in most of these situations, I usually advise my clients to stay in Idaho with their business registrations.

Although Idaho does require an annual report to be filed for each LLC, unlike many other states, Idaho does not require an annual filing fee. The only fee that is required is the initial filing fee to create your LLC and have it recognized by the state of Idaho in the first place. After that, there are no additional filing fees unless you are changing the structure or name of your LLC.

Another common, and fairly big mistake that many small-business owners make when they create an LLC is when they fail to have a written operating agreement signed by all the owners of the business.

The operating agreement acts as a contract between all of the owners of the LLC. As a contract, the operating agreement specifically states who the owners are, the percentages of ownership that they own, and how the LLC will be managed or governed. There are also many other protections in an LLC that are offered to the owners of the LLC. For example, a well-written operating agreement will have language in it that creates a system that will work if one of the owners dies, becomes divorced, becomes disabled, wants to sell their ownership interest to an outside party, or simply decides that they want to get out of the business.

If you do not have your own written operating agreement that is signed by all of the owners of your LLC, the statutes in Idaho create a default operating agreement for you. The terms of the default operating agreement or not necessarily all that beneficial to a small business. As a result, we always recommend that each LLC that we help create has its own written operating agreement.

The final big mistake that small business owners who operate an LLC should avoid is commingling accounts or money. What this means is that accounts owned by the LLC should not be used by the owner to pay for their own personal expenses. If monies are commingled in an inappropriate way, the law in Idaho says that the LLC will be treated as if it does not exist at all which means that all corporate protections will be lost.

This may not sound like a big deal but if there ever is any liability that arises, and there is a an attorney looking to find some way to get money out of you or your LLC, they will always look to see if they can pierce the corporate protections so they can get to you and your personal assets, as well as the assets of the LLC itself. The main reason that individuals set up an LLC is so they can protect their own individual assets from those that are owned by the business. In other words, the individual owners do not want to personally shoulder the liabilities of the business.

We’ve helped many business owners avoid these and other mistakes that are often made by individuals who have set up their own LLC. We are confident that we can answer your questions and help you too.

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 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.