If you are thinking about starting a new business in Illinois, you have probably asked yourself: “What type of entity should I organize as?” This is the first in a series of posts that offers insight into two common types of entity structures available to small business owners in Illinois – (1) the closed corporation and (2) the limited liability company (or LLC).
There are many factors that play into that decision and before selecting how to structure your business you should consult with an attorney and a certified public accountant, as there are legal and tax implications that differ for each entity type. In addition, alternative entity structures are available other than closed corporations and LLCs, such as a partnership, joint venture and limited liability partnerships, which may be better suited to your business or financial situation.
Below is a sampling of some similarities and distinctions between corporations and LLCs in Illinois:
• Both a corporation and an LLC can be formed for almost any business purpose and can have perpetual life.
• Corporations can have one or more owners (called shareholders). Likewise, LLCs can have one or more owners (called members).
• There is no limit on the number or character of members of an LLC (in other words, members can be other corporations and/or limited liability companies).
• Although there is no limit on the number or character of shareholders of a corporation, if the corporation elects subchapter S status (which will be discussed in more detail in a future post), the corporation can have no more than 100 qualifying shareholders. Qualifying shareholders include individuals who are U.S. citizens or residents and certain estates, trusts, and exempt organizations.
• A corporation is formally recognized by filing articles of incorporation with the Illinois Secretary of State’s office and paying a filing fee (currently $150.00). An LLC, on the other hand, is started by filing articles of organization and paying a $500 filing fee.
• A corporation must file an annual report along with an annual filing fee (currently $75). An LLC must file an annual report with a $250 annual filing fee.
• Although the LLC’s annual filing fee is higher, a corporation may be slightly more expensive to start because it must pay an initial franchise tax of 0.15 percent of the amount of paid-in capital (e.g., if paid in capital was $100,000, then the franchise tax would be $150). An LLC pays no franchise tax.
• Tax considerations and other issues will be discussed in more detail in the second part of this series.
DISCLAIMER: DeBlasio Law Group, LLC is not an accounting firm and none of our lawyers are certified public accountants. None of the information in this post should be relied upon for tax advice and it is not our intention to offer any reader tax advice of any kind. There are many factors that play into selecting how to structure a business and readers should consult with a certified public accountant for tax advice.
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