Deciding which business structure is best for your organization can depend on several factors, from the number of owners to the industry being served to the business location. Regardless, choosing the right business structure will usually determine how your business is governed and taxed and assign liability towards personal property and company assets.
The most important thing to know – especially for small businesses – is what options are available for your business. Once you know this information, the next step will be to consult with a knowledgeable business professional for guidance in finding the right structure and properly filing the business requests.
Business Structures in Illinois
According to the Illinois Department of Commerce and Economic Opportunity, these are the available business structures in the state and what to know about each business type:
Sole Proprietorship and General Partnership
Any business that holds a different name than that of the owner, or owners, legal name(s), the Illinois Assumed Name Act requires sole proprietorships and general partnerships to register with their local county clerk’s office for registration under the Assumed Name Act. Sole proprietors must have a Federal Employer Identification Number if they pay wages to one or more employees or file any pension or excise tax returns including those of alcohol, tobacco or firearms.
A Limited Partnership is an organization made up of a general partner (who manages the entity) and limited partners (who invest money but have limited liability). Typically limited partnerships are in real estate, oil and gas, equipment leasing and family partnerships.
Limited Liability Company (LLC)
An LLC is a non-corporate business that gives owners limited liability, flow-through tax treatment and operating flexibility. The LLC is a well-suited structure for almost any business venture (except banking and insurance). From retail to automotive sales, health services to accounting, LLCs are recommended for a wide variety of business entities.
Limited Liability Partnership (LLP)
Businesses organized as LLPs – under a specific section of the General Partnership Act – are not liable for the debts, obligations, and liabilities of, or chargeable to the partnership arising from, negligence, wrongful acts, omissions, misconduct or malpractice committed while the partnership remains an LLP.
A corporation is a distinct legal entity and the most complex business structure. A corporation may sell shares of stock, which are certificates indicating ownership, to as many people as is desirable. The shareholders then elect a board of directors, who elect a president and other officers to run the company. Among the advantages of corporate formation is a limited liability of the shareholder and ease of transferring ownership.
S Corporation status must be determined by the Internal Revenue Service (IRS) when starting a business. In general, an S Corporation passes income and expenses to its shareholders, who then report them on their own income tax returns. To qualify for this structure, a corporation must meet several requirements, including a limited number of shareholders.
Most Common Structures in the United States
According to the credit bureau, Experian, the majority of business owners initially decide to form either a sole proprietorship or a partnership. Both business structures are easy and inexpensive to establish and maintain. Either structure is appropriate for owners who can determine, more or less, the applicable tax laws and rates and who can predict and minimize their risks of litigation.
However, other business structures – especially limited liability corporations (LLCs) and corporations – could be more beneficial in the long run. Although these business types take a bit more knowledge and investment, the end results present the most benefits, even for small business. For all LLCs or corporations who follow basic rules of organizational governance, the owners’ personal liability for business debts and court judgments is limited.
So Which Structure is the Best for Me?
As shown above, there are many reasons to choose one structure over another, but the most important factors to consider for your small business are ease of formation, liability and tax implications. Other factors may include the location of your business, the number of partners, your business goals, your online vs. brick-and-mortar presence and many other considerations.
In the end, the best way to choose the right business structure for your entity is to discuss it with a knowledgeable business attorney, especially one that has plenty of experience with local and federal business law.
To learn more about business structures, bylaws, and other business services, call us today at (847) 729-3939 to schedule an appointment. James C. Provenza & Associates, PC, has 20 years of legal services experience, specializing in non-profit organization, estate planning, wills, probate and other legal services. Provenza Law could be your best bet in finding the right structure for your Illinois business.