LLC AND S CORPORATIONS ATTORNEYS IN WILL COUNTY
One of the first significant decisions of a new business owner or an experienced business owner is to incorporate a business. Generally, a Limited Liability Corporation and a S corporation are the two most popular business entities utilized in the State of Illinois. A Limited Liability Corporation or otherwise known as an “LLC” is a hybrid between enterprise between a corporation and partnership.
Unlike a partnership, the business partners of the LLC have limited liability protection. This means that generally owners of an LLC are not held legally responsible for the debts of the LLC. In contrasts, partners of a business that lacks incorporation are generally legal responsible for their business and personal assets of the business. This means that two (2) partners may be legally liable for the business of the small business.
LEGAL LIABILITY BUSINESS ATTORNEYS IN JOLIET AND PLAINFIELD
S corporations and LLCs have similar legal liability protection in Illinois. I often hear that business owners believe that an LLC is advantageous over an S corporation due to a lack of a business meeting is required. In my experience, an LLC and S corporation have similar liability protection where owners of the LLC or S corporation are generally not liable for the debts of the LLC or S corporation if proper corporate formalities are followed.
Gateville Law Firm helps small to medium sized business owners such as Physicians and Medical Practices, Dentists Groups, Real Estate Investors and Construction Owners to incorporate their business enterprises. Typically incorporating your business enterprise means that your business will be registered through the Illinois Secretary of State.
S corporations vs. Limited Liability Corporations
Pass Through Entities
S corporations and Limited Liability Corporations are both pass through entities which mean that the Corporation or LLC does not pay double taxation. In contrast, a Corporation that is not properly designed as an S corporation pays “double taxation”. This means that the Corporation and the Shareholders pay taxes both.
Unlike an LLC and a S corporation, the S corporation and LLC are ignored for tax purposes. The S corporation and LLC are considered owned by the owners without regard to their S corporation or LLC. Simply put, this means that the business owners will pay their income taxes as though the corporation or LLC did not exist. Hence, the individual business owners will file their personal taxes and include a schedule on the 1040 Tax returns unlike the Corporation filing its’ own corporate tax return.
An S corporation and LLC does not file a corporation or business entity tax return. Generally, the S corporation and LLC only file an informational return and their profits and losses are broken down on the individual owner’s personal tax returns. Thus, an S corporation and LLC generally do not differ much when it comes to an owner’s personal income tax situation.
SKILLED PLAINFIELD LLC ATTORNEYS FOR YOUR INCORPORATION NEEDS
An LLC may differ from an S corporation because owners of an LLC unlike an S corporation may negotiate different profit and loss schedules which differ from their ownership stake in the small business. For example, if an LLC owner owns 10 percent of the Restaurant business, that business owner must share 10 percent of the profits on the income tax returns for an S corporation.
In contrasts, an owner of a restaurant that is an LLC may own 10 percent of the restaurant but may share 20 percent of the profits. Why is this necessary? For example, a restaurant owner that has a 5 percent interest in the Restaurant may be the managing partner because they are best able to manage money while the other owners own a greater share of the business ownership.
The practical reason for the deviation from the ownership stake is because it is a business necessity to award the managing partner with a greater percentage of business profits because of his or her value to the business. Thus, with an LLC, owners of an LLC may change the format of an LLC to match the business realities. This change is not possible with an S corporation. However, when it comes to sell the restaurant business, the managing partner can still only get five (5) percent of the sale’s profits unless there is a reason to change this scenario as well.
EXPERIENCED PLAINFIELD SMALL BUSINESS & PLAINFIELD INCORPORATION LAWYERS
In my experience, most small business owners will not utilize the advantages of an LLC versus a S corporation. Generally, the type of small business owners that should be take advantage of an LLC are businesses that require investors; employee owners; and high growth small businesses. This list is not exhaustive, but it gives an example of the type of small businesses that will benefit from the advantages of an LLC.
SKILLED AND EXPERIENCED PLAINFIELD INCORPORATION LAWYERS: CONTACT US TODAY AT 630-780-1034
Gateville Law Firm can assist small business owners with drafting of S Corporation Bylaws, LLC Operating Agreements, and Partnership Agreements. The purpose behind these agreements is to outline the roles of the business owners and prevent a partnership or business dispute later. In my experience, most LLC Operating Agreements and Partnership Agreements are impractical because they do not anticipate the business realities of the enterprise such as a difference in business philosophies, differences in business opinions, and other issues. Sean Robertson is an entrepreneur and a business attorney and understands the different conflicts that can occur and anticipates these issues when drafting an LLC Operating Agreement, S corporation Bylaws, and/or Written Partnership Agreements. Contact us at 630-780-1034 or via online contact form.