Starting an Illinois Limited Liability Company
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A Limited Liability Company (“LLC”) combines the corporate advantage of limited liability for owners with the tax advantages and flexibility of partnerships. It is a hybrid of the "S" Corporation and a partnership.
If you will be doing business or tax planning, you are well advised to consider the benefits of this form of ownership. Any business owner who desires limited liability, flow-through tax treatment, and high levels of owner control should consider an LLC and consulting with experienced Chicago Business Lawyers is an excellent start to the process.Limited Liability Company - An Alternative Form of Business Ownership
LLC’s are not for every business and should be used only when warranted. The Illinois Limited Liability Company Act became effective in 1994 and offers an alternative form of business ownership that provides the tax advantages of partnerships with the limited liability of corporations. A Limited Liability Company (LLC) is believed to offer many advantages that other business entities, such as a general or limited partnership and a closely held or S corporation, cannot. It appears that an LLC offers the best of all worlds. An LLC may be created by one or more persons, including business entities, trusts, estates, associations, and governmental bodies, upon the filing of articles of organization with the Secretary of State. With few exceptions, an LLC may carry on any lawful business.
However, an LLC is not for every business and should be used only when warranted since the LLC organization is extremely complex. Because LLC’s are taxed like a partnership for tax purposes, the business must allocate income, expenses, and distributions.Who Should Consider Forming an LLC?
- Everyone forming a new business.
- Existing limited partnerships concerned about general partner liability or wanting limited partner participation.
- Every existing general partnership.
- Sole proprietors willing to add a second owner to get limited liability.
- Existing closely held C corporations with minimal tax cost to convert.
- Existing S corporations if the LLC's greater flexibility in numbers and types of owners and/or structuring of ownership interests would be advantageous.
- Everyone considering expansion of a closely held corporate business.
- Everyone considering putting property with appreciation potential into a corporation.
To help you determine whether an LLC is a business structure that you should consider, answer these key questions:
- Is this a new business?
- If an existing business, do the long run tax advantages of converting the business to an LLC offset any tax costs?
- Are you concerned with the personal liability of the owners for the liabilities of the business?
- Are you willing to provide in advance for the buyout in case of an owner's death or other departure from the business at such times?
- Do minority owners seem unlikely to cause trouble?
- Do major creditors seem unlikely to cause trouble?
- Do you want to have flexibility to change the way the returns of the business are divided among its owners?
- Do you expect to have only a few transfers of ownership?
- Do you expect owners to be actively involved?
- Are you and your accountant willing to deal with the partnership tax provisions?
- Are you, your partners and your accountant comfortable trying something new?
If there are more than one member of an LLC, an operating agreement is an absolute necessity. The internal affairs of an LLC are regulated by an operating agreement, which is where the rubber meets the road in the formation and structuring of the LLC. The operating agreement is intended to function much like a partnership agreement. Careful preparation of the operating agreement will be prudent given that there are some benefits under the Act that can only be secured in the agreement.Management of the LLC - Members or a Manager?
Those persons with an ownership interest in an LLC are known as "members." Each member is required to make a capital contribution in the form of cash, property, or services to an LLC. Management of an LLC is vested in its members. However, the articles of organization may provide that management be vested, in whole or part, in a manager(s). Members of an LLC are not personally liable for the acts and obligations of the company just like shareholders of a corporation are not liable. The people managing the LLC, whether they are members or managers, are not personally liable for the LLC’s debts and obligations.Get Started Now
The Chicago business lawyers of Bellas & Wachowski have the background and know-how to help you determine whether the LLC is a business structure that will benefit your new or existing company. We have a solid foundation and practical knowledge of business organizations and the issues that accompany the formation, operation, purchase, sale and termination of businesses.
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