One of the most important decisions that must be made when an entrepreneur first decides to start a business is the choice of business entity. Illinois law allows a business owner to select from a variety of business entities, each with their own advantages and disadvantages. The most common forms of business entities in Illinois are corporations, limited liability companies (LLC), and limited liability partnerships (LLP).
At Bruckert, Gruenke & Long, P.C., we will personally discuss the advantages and disadvantages of each business structure for your particular business. Among those items will be the type of limited liability offered by each structure, as well as the tax effect offered by each structure. For example, a typical corporation offers limited liability for its shareholders for contract obligations of the corporation if the the necessary corporate formalities are followed, such as electing directors and officers and conducting annual meetings. However, an LLC offers its owner (members) limited liability for these obligations without the necessity to have the formal structure required in a corporation.
In addition to the decision on liability, tax consequences are a very important consideration when determining the type of business structure to utilize. A typical corporation (C-Corp) may have the unintended consequence of double taxation because the profits of the corporation are taxed at the corporate tax rate, and then taxed again as income to the shareholders when dividends are distributed. On the other hand, an LLC has “pass through” tax structure. With “pass through” tax structure, the profits (or losses) are divided equally among the owners for inclusion on each owners’ personal tax return. The profits for an LLC are not taxed at the company level.
At Bruckert, Gruenke & Long, P.C., we will discuss these items, as well as many others, with you prior to setting up the best business entity for your new business. We are happy to offer most business formations for a flat fee.