Small business formation in Illinois

Armed with energy, knowledge and inspiration, an aspiring business owner in Illinois must carefully consider his options for his business structure. He must decide between sole proprietorship, three different forms of partnership, a company and two forms of corporation: sole proprietorship; general partnership, limited partnership or limited liability partnership; limited liability company; and "C" or "S corporation. Each of these types has different requirements and structures.

To comply with the Illinois Assumed Name Act, a sole proprietor and a general partnership must register with their local county clerk's office if the business name is different than the owner's full legal name. Additionally, sole proprietors must have a Federal Identification Number if they pay wages to any employees. In a limited partnership, the general partner manages the project while limited partners invest money in the project, but they have no day-to-day management roles and limited liability. Partners in a limited liability partnership are also not liable for debts, liabilities or obligations that emerge from malpractice, misconduct, negligence, omissions or wrongful acts.

A similar form of limited liability exists for the owners of a limited liability company with the flexibility of owners' participation in management and flow-through tax treatment. By statute, banking and insurance are prohibited from using a limited liability company structure. Corporations are the most complex business structures. They may sell shares in the company, and the shareholders elect a board of directors. This board then appoints a president and others to manage the day-to-day operations. In an "S" corporation, income and expenses are passed on to shareholders who must report them on their income taxes.

When considering business structure, one should seek help from professionals. An accountant or an attorney with experience in small business formation may be able to answer lingering questions and set an aspiring business owner on the right path.

Source: Illinois Department of Commerce and Economic Opportunity, "Step by Step Guide to starting a Business in Illinois ", September 08, 2014

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