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Starting a new business? Should it be LLC or corporation?
By Gardi, Haught, Fischer & Bhosale LTD
October 6, 2022
Starting a new business? Should it be LLC or corporation?
How company is registered with state depends on goals
By Paul Koontz
Starting any business can be nerve racking, especially if you don’t fully, or at all, understand the process and the legal ramifications that entails. There are two main business entities: the limited liability company (LLC) and the corporation. Which one is best for your goals is dependent on what those goals are.
A LLC is better for small businesses that do not wish to keep up with all the government reporting requirements needed for a corporation. To form an LLC, the Articles of Organization need to be filed with the Illinois secretary of state’s office. Once that is completed, the LLC has just been born and the owner will receive an employee identification number (EIN) from the IRS along with an operating agreement and can open a bank account.
The operating agreement is the list of rules and regulations, similar to bylaws in a corporation, on how the LLC is to be governed. This is an internal document, meaning, that it does not need to be recorded with the state of Illinois.
Once the LLC is formed, the EIN is issued, a bank account and an operating agreement, the LLC may start conducting business. I like to have those four items before business begins because if a liability issue arises and one of those four requirements are not met, it could expose the personal liability of the members and managers.
Illinois is also following a trend in what is called, a Series LLC. This form of LLC allows for a parent LLC to have Series, think subsidiaries and corporations, and each series shares the same liability protection as any other business entity. This is accomplished by electing to form a Series LLC when the articles of organizations are filed. However, the Number One thing to remember is that each series needs to have its own bank account. They could be at the same bank, but a separate account is needed. This is to prevent the commingling of funds, which could expose all series under an LLC to liability and, therefore, canceling the personal protection of a business entity.
A corporation, liken to the LLC that offers personal protection from corporate liabilities, must also be filed with the Illinois secretary of state with the articles of incorporation. You will need to know how many shares are to issue, the initial capital contribution of the shareholders along with the par value of the shares, if necessary. Bylaws are required as is a separate bank account for each corporation along with an EIN.
Both the LLC and a corporation may be taxed as an S-Corp, meaning pass through taxation where the only time you pay tax would be on your own personal income and not the company and you, double taxation.
What tax structure works best for your needs is something to discuss with your tax professional.
When it is all said and done, both entity types offer personal liability protection from the responsibilities of the LLC or corporation.
If you have questions about setting up a new business, contact the attorneys at Gardi Haught Fischer & Bhosale Ltd. for assistance by requesting a free case evaluation button below.
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