There are several different types of business management structures that new or prospective business owners can choose from when forming their company. Importantly, the type of business management structure will dictate how a business will be taxed, as well as how the business will operate.
Less common structures can be found under specific state business laws, but examples of some of the most common types of business management structures include:
- Sole Proprietorships: Sole proprietorships are businesses that can be formed by a single owner.
- Importantly, sole proprietorships do not need to be registered with the state, and they are considerably simple to register, should the business owner choose to do so. The lack of paperwork and minimal procedural requirements are what make sole proprietorships a simple and inexpensive option.
- Further, as there is only one owner in a sole proprietorship business structure, that single owner is held responsible for all management aspects of the company.
- Sole proprietors will also be held liable for any risks or liabilities that are incurred by the business;
- Corporations: A corporation is a legal business entity that is regulated by state law, and is considered to be a separate entity from its shareholders.
- An advantage of a corporate structure is that only the corporation itself can be held liable for debts and liabilities.
- There are many different types of corporations, classified in accordance with specific factors such as their purpose, the number of corporate shareholders, the amount of corporate stock that is to be issued, and the overall tax structure of the corporation. Examples of standard forms of corporations include:
- C corporations;
- S corporations;
- Professional corporations;
- Foreign corporations;
- Non-profit corporations; and
- B corporations;
- General Partnerships: Although there are four different kinds of partnerships, a general partnership is the most common business structure of the four. A general partnership is commonly formed by two or more people who wish to be co-owners of a for-profit business. This means that as long as both parties intend to make money from a product or service that they offer, they are considered to have entered into a general partnership.
- As far as liability, general partners can be held both individually and jointly liable for any losses or debts that are incurred by the partnership.
- Additionally, general partners can also be held liable to the other partners if they breach their fiduciary duty to the business, as well as to third parties;
- Limited Partnerships: Alternatively, the limited partnership business structure has considerably stricter requirements than that of a general partnership. Limited partnerships are partnerships that have at least one general partner that oversees and manages the company, with at least one limited partner.
- Similar to general partnerships, the general partners involved in a limited partnership can be held both jointly and individually liable for company debts and risks. However, the limited partners will have less exposure and liability;
- Limited Liability Partnerships: Limited liability partnerships is a business structure that provides partners with the same obligations and financial rights as those included in general partnerships. However, with limited liability partnerships, the partners are required to first register the business with the state.
- While limited liability partnerships offer the benefit of being free from the debts and liabilities of other parties and the partnership itself, each individual partner will remain liable for their own actions, as well as any conduct that they personally supervise or demand to be performed; and
- Limited Liability Companies (“LLCs”): Limited liability companies combine all of the tax arrangements and management styles that are used in partnerships with the liability benefits that are found under a traditional corporation structure.
- As far as liability, members of a limited liability company cannot be held responsible for any debts that are incurred by the business.
- Additionally, LLCs permit members to choose how they wish to be taxed.
What Is A Limited Partnership?
As noted above, a partnership is a business association of two or more people that wish to carry on as co-owners of a business for profit. Thus, a partnership is considered to be formed when the parties to a business have the ability to share in the profits, and if they both have the right to control said business. The type of partnership that is chosen to be formed will largely determine the amount of liability that an individual partner may face as part of their participation in the partnership.
As mentioned above, a limited partnership is a specific type of business partnership that allows its limited partners to receive certain legal rights. These specific legal rights act as protection against individual liability claims for reasons such as debt, losses, and/or violations that are directly associated with the limited partnership’s operation.
Limited partnerships differ from that of a general partnership, as each partner in a general partnership is individually and jointly responsible for the losses that are incurred by the partnership. Being individually and jointly responsible for a partnership’s losses can sometimes put partners at a disadvantage, especially if they only play a minor role in the partnership overall.
For example, if one partner has contributed less funds to the business than compared to the other general partners, they may think that it is unfair for their assets to be at risk for any wrongful actions taken on behalf of the partnership. .
Although the business structure is called a limited partnership, each limited partnership requires at least one general partner to be named in order to be considered properly formed. Once again, the general partner will be the partner that is responsible for making management decisions on behalf of the limited partnership, as well as overseeing the partnership’s day to day operations.
In contrast to the general partner, a limited partner will only have limited powers over the partnership. As such, limited partners can only be held responsible to the extent of their investment in the limited partnership. Because of this, limited partners are largely only responsible for investment duties associated with the limited partnership, and not the operation of the partnership itself.
What Are the Requirements for a Limited Partnership in Idaho?
In Idaho, forming a limited partnership is actually a simple matter. First, in order to form a limited partnership, there must be at least one general partner and one limited partner. Additionally, if the partnership is to operate under an assumed name (i.e. something other than the partners’ surnames), then the assumed business name must then be registered with the Secretary of the State.
In addition to registering the business name, the name itself must designate its status as a limited partnership by putting either “L.P.,” ”LP,” or “Limited Partnership” after the name.
Finally, the partners must designate a registered agent with a physical address in Idaho for the LP. A registered agent is an individual or business entity who is authorized by the LP to accept important documents, such as lawsuit or tax paperwork.
What Paperwork Do I Need to Form a Limited Partnership?
The general steps to creating a limited partnership were outlined above. However, there is certain paperwork that must be completed and submitted in order to create a limited partnership. First, prospective or new business owners must file a Certificate of Limited Partnership with Idaho’s Secretary of State Office. This form may either be submitted by mail or in person.
The following information is required within the Certificate of Limited Partnership:
- The name of your partnership (including the LP, L.P. or Limited Partnership);
- The business’ physical address;
- The name and address of your registered agent.
- Once again the registered agent must have a physical address in Idaho;
- The names and addresses of all the general partners; and
- Whether or not the business provides professional services, such as accounting, architecture, law, or medicine.
- Professional limited partnerships will typically include the word “Professional” in front of their LP designation in their name.
In addition to the Certificate, there may be additional paperwork if the partnership plans on operating under an assumed name. Further, in addition to required state documents, all partnerships should consider drafting a partnership agreement.
A partnership agreement is a written agreement entered into by all partners that defines the rights and responsibilities of both general and limited partners. For example, a partnership agreement may set out the procedures for distributing profits, adding or removing partners, and resolving disputes between partners.
What Benefits Does Idaho Give to a Limited Partnership?
Limited partnerships in Idaho have specific benefits. The most advantageous benefit is that an LP does not have to file taxes. Instead, the profits for the partnership are passed to its partners who then submit individual tax returns to the IRS.
Additionally, limited partners in an LP are not personally liable for the partnership’s debts and other financial obligations. This means that a limited partner’s personal assets cannot be collected to satisfy an LP’s debts, or actions taken against the LP, such as a lawsuit. However, if the limited partner is actively managing or working for the partnership, their assets may be able to be accessed in some cases.
Do I Need a Lawyer for Help With Forming a Limited Partnership in Idaho?
Although completing the forms for a limited partnership and paying the required fees is a rather straightforward process, if you are considering forming a limited partnership, it is in your best interests to consult an experienced Idaho corporate lawyer.
An experienced corporate attorney can help guide you through the correct registration process, as well as help protect your limited partnership.
Additionally, an experienced attorney can also draft a working limited partnership agreement that outlines the responsibilities of each partner and how the partnership will operate.
Finally, should a legal issue arise that involves the courts, an attorney can also represent you as an individual partner or the overall partnership in that action.
