There are a variety of business entities which are available in the United States. Examples include corporations and partnerships.
If a lawsuit is filed against a corporation, and that lawsuit is successful, the corporation will be required to pay money out of the assets of the corporation. The assets of the individual members and owners are not used.
An LLC, or Limited Liability Company, is an incorporated business entity. LLCs are different from other types of businesses, such as:
The shareholders of an LLC are protected from being individually sued. In the majority of other types of business structures, a stakeholder may be sued individually when liability issues arise. This also applies to non-profit businesses.
The structure of an LLC protects the stakeholders’ individual wealth, assets, and property. Because of this, this type of business structure is gaining in popularity and is being used more and more often in the formation of businesses.
The owners of a corporation are not personally liable for the debts of the corporation or damages which may be awarded in a lawsuit. One disadvantage of a corporation is the so-called double taxation.
Double taxation refers to the fact that corporate profits are first taxed to the corporation as they are earned. Then, these profits are taxed to shareholders as capital gains income when the shareholders receive their dividends.
Limited liability companies offer the advantages of corporations because the assets of the individual owners are shielded from creditors as well as legal claims made against the LLC. Additionally, LLCs, similar to partnerships, are not taxed at the entity level.
In other words, unlike corporations, they do not pay taxes as an LLC. The only taxes which are paid are paid by the individual members of the LLC who have earned a profit.
On the other hand, there are some downsides to organizing a business as an LLC. In an LLC, the individual owners may be sued for their own negligence.
How is a Limited Liability Company Different from Other Business Forms?
An LLC is different from other types of business entities. Unlike the income of a corporation, the income of an LLC is only taxed once.
In other words, the income of the LLC passes through and is taxed only at the individual member level. Other types of businesses also have this tax structure, including:
The ownership structure of an LLC is also different from that of a corporation. An LLC is owned by individuals, whereas a corporation is owned by shareholders.
LLCs are also different from partnerships and sole proprietorships in terms of liability. The partners in partnerships are personally liable for debts which are incurred by the partnership.
These debts may include debts which were incurred by another partner. In other words, if a partnership owes money to a creditor, that creditor may come after the assets of the individuals in order to satisfy the debt of the partnership.
In general, LLC owners are not personally liable for any liabilities or debts which were incurred by the LLC. This allows the owner of an LLC to manage their business without worrying about losing their own assets.
Who Should Form a Limited Liability Company?
An individual who wants to own a small business should consider forming an LLC. By forming an LLC, an individual can protect their individual assets and limit their liability to the resources of the LLC.
An individual can also form a business with minimum paperwork and costs if they form an LLC. Forming an LLC requires filing articles of organization as well as paying a fee to the state.
The fee requirement is typically less than the fee requirement for forming a corporation. In addition, LLC formation usually requires less paperwork to be filed with the state.
It is also easier to keep track of income and expenses with an LLC because separate tax return filing is not required. The members and managers of the LLC report the income and expenses on their own tax returns.
It can also be easier to manage an LLC. An LLC that is made of two or more individuals can draft an operating agreement.
This operating agreement can include details regarding:
- How the LLC is governed;
- How profits will be allocated;
- What members’ votes are required for specific actions;
- How the LLC can be dissolved;
- How to resolve disputes among the LLC members; and
- What happens when a member of the LLC passes away or becomes incapacitated.
What are the Requirements for an LLC in Illinois?
There are certain requirements for LLC formation in Illinois. Typically, Illinois does not approve of the use of dashes in a business name.
In addition, the business name must meet certain requirements such as:
- Being unique;
- Being distinct; and
- Ending with LLC or the words “Limited Liability Company.”
If another company has an exclusive right to a name, that name cannot be used. If an individual wishes to use the terms “trust” or “bank” in their Illinois LLC business name, they will have to obtain approval from the Banks and Trusts Department.
An Illinois LLC is required to file an annual report as well as pay a filing fee within 60 days of the beginning date anniversary of the business. For example, if a company was founded on May 18, 2016, that business has a 60 days window from May 18, 2017 to file its annual report.
What Paperwork Do I Need to Form an LLC?
In order for an individual for form an LLC, there are certain requirements they must fulfill, including:
- Register an agent, or an individual in-state who is able to receive any important documents on behalf of the organization;
- File articles of organization, which is a document that has all of the information about the LLC;
- Create bylaws and/or an operating agreement, which includes information as to how the LLC will operate; and
- Obtain an EIN, or a federal tax identification number. A bank will require an EIN to open a business account. Any LLC that will have employees in Illinois is required to have an EIN number.
What Benefits Does Illinois Give to a LLC?
There are numerous benefits that Illinois provides to an LLC. The members and managers of an LLC can reside anywhere. In addition, there are no residence requirements for directors of LLCs in Illinois.
An LLC in Illinois must have at least one member or manager. An LLC in Illinois is not required to have multiple members or managers to form. In addition, there are no age restrictions regarding what individuals are permitted to form LLCs in Illinois.
What Disadvantages are there for LLCs in Illinois?
There are certain disadvantages for LLCs in Illinois. One is that an Illinois LLC dies when the owners die.
The LLC cannot outlive its stakeholders, unlike other corporations and businesses which can. Therefore, if a member of an LLC passes away, the other members are required to complete certain paperwork.
In addition to these issues, an LLC may present added complexities which may require additional staff or legal assistance in order to operate and run correctly. These additional required costs and time needed may be difficult for the small business to manage.
Where Can You Find the Right Lawyer?
If you are considering forming an LLC in Illinois or you already have, it is essential to consult with an Illinois corporate lawyer. Your lawyer will ensure that your forms are completely and property filled out and that your business incorporation is legal and comprehensive.
Even if you have already formed your LLC in Illinois, your attorney can assist you with managing your business and help ensure its success.
