Types of Business Organizations in Illinois

Business Lawyers Serving Clients in Barrington, Inverness, Algonquin, and Northern Illinois

At Lucas Law, we advise clients on the various types of business organizations that they operate. The selection is ultimately based on evaluating numerous factors and circumstances relating to the company. Issues of common significance include tax implications, organizational structure, ownership arrangement, potential for liabilities, and other goals. If you are a new business getting started, or an existing entity considering transition, it is important to understand your options.

Sole Proprietorship

In this arrangement, the business is owned and operated by an individual, and thus is a simplistic type of business entity. Advantages include easy formation and minimal governmental restrictions. Paperwork requiring registration at the state level is insignificant because an independent entity is not created. Disadvantages include reduced access to economic resources and funding, and that owners subject their personal assets to liability.

General Partnership

Ownership is held by two or more individual taxpayers. It is highly recommended that owners seek assistance from an attorney in creating a partnership agreement outlining some of the following:

• Defined ownership interests
• How critical decisions are decided
• Contributions made by parties
• Defined compensation plans
• Requirements for a party to exit the partnership

Limited Partnership

The state requires that general partners are differentiated from limited partners. General partners may have unlimited liability, while limited partners have some degree of reduced liability and likely have minimal input in daily operations.

Limited Liability Partnership (LLP)

LLP's are structured to shield individual partners from liabilities from actions of other partners or employees beyond their control. Income generated is reported on individual tax returns. Differences in formation vary according to individual state law; IL recognizes the Uniform Partnership Act in regulating them.

Limited Liability Company (LLC)

Assistance from a business attorney or CPA is recommended in formation. This is a non-corporate structure capable of offering limitations on personal liability. Often the initial formation is complex and expensive); however, typically results in lower taxes then corporations. Articles of Organization are filed with the Secretary of State (SOS), including statements of purpose, and a designated agent and location; annual reports are filed with the SOS.

Low Profit Limited Liability Company (LPLLC)

In 2010, LPLLCs were defined as formed exclusively for charitable or educational purposes within IRS guidelines. They are not primarily intended to produce income, and may not support political or legislative purposes.

Corporation

Corporations are separate legal entities with potentially great complexity. Incorporation requires filing Articles of Incorporation with the SOS outlining their purposes and annual reporting. The entity's existence begins when recognized by the Department of Business Services. Corporations sell stock representing fractional shares of ownership. Shareholders may elect a board of directors for oversight who elects the company president and management. The structure effectively limits shareholder liability and allows easy shifting of ownership.

C Corporation

"C Corps" are taxed separately from their owners; funding potential is limitless through sales of stock, and they offer superior limitations of liability. The initial and ongoing costs are high and require annual officer and director meetings. They are subject to heightened government oversight and complex tax regulation.

S Corporation

In an "S Corp," there may be up to 100 shareholders who report their financials on their individual tax returns. A key advantage is that they avoid "double taxation," which occurs when corporate earnings are taxed as well as individual shareholder earnings.

For over 35 years, Lucas Law has been serving the legal needs of their business clients in Illinois. Those in need of assistance from an experienced business attorney should contact our office today at 847-381-8700 for a consultation.