How to Start an Illinois Limited Liability Company
Get your new LLC formed and ready to operate in less than one day.
A hybrid of the "S" Corporation and a partnership, an "LLC" combines the corporate characteristic of limited liability with the tax advantages and flexibility of partnerships. However, an LLC is 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.
Our business law attorneys at the Chicago firm of Bellas & Wachowski are available to help you with any questions you may have regarding Limited Liability Company Act.Who Should Consider Forming an LLC?
- Every existing general partnership.
- Everyone forming a new closely‑held business (including all joint ventures).
- Existing limited partnerships concerned about general partner liability or wanting limited partner participation.
- 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.
- Is an LLC the proper entity for my business?
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?
The internal affairs of an LLC are regulated by an operating agreement. 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. If you have any questions regarding the legal aspects of this type of agreement, contact the Chicago business lawyers at Bellas & Wachowski for further guidance.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 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.Transfer of a Membership Interest in an LLC
The interest of each member is assignable. Should a member elect to assign their interest, the remaining members must unanimously approve of the assignment. With the unanimous consent of members, the assignee enjoys the status of a substituted member. Without such approval, the assignee has no right to participate in the management of an LLC and is only entitled to share equally in the distributions or return of contributions that the company may elect to disburse.
Unless unanimously agreed upon by the members or provided for in the articles of organization, an LLC will be dissolved upon the death, retirement, resignation, bankruptcy, or court declaration of incompetence of a member. If, within 90 days after the event, there are at least two remaining members and all remaining members agree, the business of an LLC may continue. Judicial dissolution of an LLC occurs when it is no longer reasonably practical to carry on the business in conformity with the articles of organization or operating agreement or whenever the managers or members in control of an LLC have acted in a manner that is illegal, oppressive, fraudulent, or detrimental to an LLC or a member.Tax Treatment of an LLC
The IRS has issued several public rulings stating that a properly formed LLC is treated as a partnership for federal income tax purposes. The Illinois Department of Revenue has indicated that an LLC which is treated as a partnership under federal income tax laws will also be treated as a partnership under the Illinois Revenue Act.Review Your Needs with an Experienced Lawyer
This is only a brief discussion of the unique characteristics of an LLC. If you will be doing business or tax planning in the near future, 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. However, there are many other issues that should be considered. This is not a simple process and requires a great deal of attention to detail.
The lawyers at Bellas & Wachowski have the background and business experience 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. Significantly, we are aware of the costs associated with the formation of an LLC and have procedures in place to make this process as economical as possible. Contact our senior partner George Bellas at 847.823.9030 Ext: 219 or firstname.lastname@example.org to discuss the unique needs of your business enterprise.
Bellas & Wachowski
Attorneys at Law