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Ranked as the best state in the nation for entrepreneurs by AdvisorSmith, Idaho has one of the highest rates of new business per capita. With relatively few regulations and taxes, Idaho offers aspiring business owners a low bar to entry. This step-by-step guide can help you navigate the Idaho LLC formation process.
How to start an Idaho LLC
- Name your Idaho LLC
- Create a business plan
- Get a federal employer identification number (EIN)
- File an Idaho Certificate of Organization
- Choose a registered agent in Idaho
- Obtain business licenses and permits
- Understand Idaho state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Idaho
- Understanding financial considerations
- Market your Idaho LLC
What is an LLC?
An LLC, or limited liability company, is a popular legal structure for small businesses. This business type can be formed by one person (in the case of single-owner LLCs) or multiple people. These owners are usually called “members,” but the State of Idaho refers to them as “governors.”
LLCs offer their governors personal liability protection from any debts or lawsuits the business takes on. In contrast, sole proprietorship creates no legal distinction between business and owner, so their personal assets could be at risk.
While LLC governors enjoy legal separation from their business for personal asset protection, they are still able to include the business’s income on their personal tax returns. This is because an LLC’s default tax status categorizes them as pass-through entities, meaning profits pass through the businesses themselves and land on the owners. This handy system not only saves paperwork, it avoids double taxation, which is when a corporation is taxed on its profits, and then shareholders are taxed on their dividends on top of that.
Is an LLC right for you?
LLCs combine some of the best qualities of sole proprietorships and corporations, making them a great choice for many small businesses in Idaho and across the country. But are they right for your next venture? Here are a few questions to consider:
- Do you have personal assets in need of protection? If your LLC defaults on loans or is part of a costly lawsuit, you will not be held personally responsible, and your personal assets will be safe. However, If you fail to keep your personal and business finances separate, then the “veil of protection” is considered to be pierced, and you could be held liable for the debts and obligations of your LLC.
- Are you looking to limit your tax liability? While corporations are subject to double taxation, LLCs skip the corporate tax altogether by passing profits on to governors to include on the personal tax filing.
- Are you looking to attract venture capitalists as investors? Pass-through entities (including LLCs) require their investors to pay through their personal tax returns. While some angel investors might be OK with this, you may have to change your tax structure to attract venture capitalists.
- How much flexibility do you need? LLCs aren’t required to follow many of the bureaucratic rules and regulations applied to corporations, including the creation of formal management structures and the mandate to hold annual shareholder meetings. LLCs do still require filing some paperwork—including a certificate of organization, an operating agreement, and annual reports (filed each year on the LLC’s anniversary month)—much of which is not required for sole proprietorships.
1. Name your Idaho LLC
As you brainstorm in pursuit of the perfect name for your business, ask yourself a few questions to vet your ideas.
- Is my business name unique? Idaho requires that your LLC name be distinguishable from other businesses in the state. To make sure your idea is up for grabs, you can search the state database on the Idaho Secretary of State Office’s website. You should also check the US Patent and Trademark Office’s site for federal trademarks.
- Is the domain name available? You can use a domain name generator to come up with a unique domain name. Once you find a unique domain, you can buy your desired name. If your first pick is not available, you can always consider a variation.
- Does it include the correct business identifiers? Idaho requires businesses to identify their type in the name. So when naming an LLC, you must include one of the following: Limited Liability Company, Limited Company, LLC, L.L.C., or L.C.
Decide whether to use an ABN
Idaho LLCs are not required have an ABN (assumed business name), also called a DBA (doing business as) in other states, but you have the option to use one if you ever want to operate your business under a different name than what’s listed on your Certificate of Organization (though you will continue to use the legal LLC name for tax purposes). You can even create multiple ABNs under a single LLC, which can be useful if your business has more than one location.
2. Create a business plan
Writing a business plan gives new business owners an opportunity to define their goals and map out a strategy to reach them. A written document outlining the purpose and plans of your business will also boost your credibility with potential investors and employees. To get started, it can be helpful to review a few examples or even begin working off of a template.
3. Get a federal employer identification number (EIN)
In order to file federal taxes, open a business bank account, your LLC will need a federal employer identification number (EIN), which functions similarly to your personal Social Security number. Fortunately, obtaining an EIN is free and easy: You only have to fill out a form on the Internal Revenue Service (IRS) website.
4. File an Idaho Certificate of Organization
The Idaho LLC formation process is relatively simple. Your Idaho limited liability company will be legally formed when you file a Certificate of Organization. You can find the form on the Idaho Secretary of State’s website. When you click on it, you will be prompted to create an account. Then, to fill out the form, you will need your LLC name, address of principal office, name and address of your registered agent, and names and addresses of governors. The filing fee is $100, plus $20 for processing.
If you run a foreign LLC (an LLC formed in another state), you can register to do business in Idaho by completing a Foreign Registration Statement. This is also subject to a $100 filing fee and a $20 processing fee.
5. Choose a registered agent in Idaho
An LLC’s registered agent is the designated person or entity authorized to receive tax and legal documents for your business. Any person over the age of 18 with a street address in the state can be an Idaho registered agent, including yourself, but they have to be available to receive documents during regular business hours. If you don’t have a residence or office that fits that description, you may hire a registered agent service.
6. Obtain business licenses and permits
While no general state business license is needed in Idaho, you may need specific licenses or permits to do certain things. For example, if your LLC will manufacture, sell, house, distribute, or import alcoholic beverages, you will need a liquor license. To find out which business licenses apply to your LLC, fill out the questionnaire Idaho Secretary of State’s Office Business Wizard and receive a checklist. In addition, check for any state and local license and permit requirements on your city clerk’s and county clerk’s websites.
7. Understand Idaho state tax requirements
One of the benefits of forming an LLC in Idaho is that you avoid corporate taxes and double taxation. LLCs, including S corporations, qualify as pass-through entities, so you will pay state taxes on your personal filings. However, you might be subject to other types of state taxes, including:
- Sales tax. If your business makes retail sales, you will be subject to Idaho’s 6% state sales tax.
- Unemployment insurance tax. In Idaho, all new employers pay a standard unemployment insurance tax rate of 1% for the first six quarters. After that, the rate ranges from 1.2% to 5.4%.
To pay these taxes and purchase or declare workers’ compensation insurance, you must register with the Idaho State Tax Commission. For more state tax resources, visit Idaho’s State & Federal Resources for Business website, which lists common business taxes and the agencies that assess them.
8. Prepare an operating agreement
All LLCs, whether formed by one or multiple people, need an operating agreement to govern the business’s internal operations. While you are not required to file your Idaho LLC Operating Agreement with the state, you should keep a copy on hand. In the case that an LLC does not create an operating agreement, the business will legally be governed by the Idaho Uniform Limited Liability Company Act. When drafting your operating agreement, here are a few elements you may want to include:
- Basic company information, including legal name and address
- A description of each governor’s rights, powers, duties, liabilities, and obligations
- Documentation of initial investments
- Voting rules
- Plans for governor compensation
- Procedures for the departure or addition of governors
- Requirements for amending the agreement
9. Examine business insurance options in Idaho
Business insurance helps protect your LLC from lawsuits and financial risk. Understanding your insurance options and requirements is an important step in starting your business. Depending on how your LLC operates, you may need to purchase some type of insurance:
- Liability insurance. Whether general (for reputational harm, bodily injury, and property damage) or professional (for errors, omissions, and negligence), liability insurance protects your business against lawsuits.
- Workers’ compensation insurance. If you have employees, workers’ compensation insurance, administered by the Idaho Industrial Commission, is legally required in Idaho. It will cover an employee’s compensation in the event they sustain a workplace injury.
- Unemployment insurance tax. Technically a tax (not insurance) in Idaho, the unemployment insurance tax provides temporary income for employees who are laid off or let go through no fault of their own. Any business that employs workers in Idaho is required to contribute.
- Health insurance. If your business hires 50 or more employees, the Affordable Care Act requires you to provide health insurance.
- Property insurance. If your LLC has an office, storefront, or other physical space, property insurance can help cover damages due to theft, vandalism, and natural disasters.
10. Understanding financial considerations
Between hiring employees or professional consultants (you may want to have a lawyer help you with your operating agreement) and securing office space and inventory, starting a business is expensive.
It’s common for founders to use their own savings (or those of friends and family) when starting a business. Another option is crowdfunding; platforms like Kickstarter can be an effective way to raise money for startups, especially if you already have a following online. You will also likely want to search for investors, which can be private investors (like angel investors and venture capitalists), traditional small-business loans from a bank, or nontraditional small-business loans. Programs outside of the banking system can offer funding that is easier to obtain and allows for more flexibility in payment plans.
11. Market your Idaho LLC
After jumping through all these legal hoops, it’s time to start reaching out to potential customers. A good small business marketing strategy can make or break your LLC. Here are four effective strategies to consider:
- Use content marketing to build organic web traffic. Whether you create great videos for YouTube or service-oriented blog posts, content marketing is a great way to bring people to your website.
- Don’t underestimate word of mouth. According to Nielson, 92% of consumers trust recommendations from friends and family. So getting your early customers to recommend you to their networks—whether it be in person or via social media—can help generate interest in your business.
- Create a unified image for your brand. Whether you hire a consultant or make creative decisions internally, be intentional about the image you put out to potential customers. A cohesive logo, color scheme, font set, slogan, and voice can lend credibility to your new business and endear you to your target audience.
Starting an LLC in Idaho FAQ
How much does it cost to start an LLC in Idaho?
The Idaho LLC formation process requires a $100 filing fee and a $20 processing fee for a Certificate of Authorization.
What are the pros and cons of incorporating in Idaho?
Small business owners in Idaho enjoy low startup costs and relative freedom in the absence of more stringent rules, regulations, and taxes that exist in other states. On the other hand, Idaho has one of the lowest population densities in the country, meaning your local customer base may be smaller and less diverse than it would be in a more populated area.
Do you need a registered agent for your LLC in Idaho?
Yes, Idaho requires LLCs to list a registered agent to receive legal and tax documents. To be an Idaho registered agent, you must be an adult with a street address in the state.
How do state taxes work for LLCs in Idaho?
In Idaho, LLCs qualify as pass-through entities, so the business’s profits can be included in governors’ personal tax returns.