Capital and liability concerns in Illinois business formation

Prior to starting a business in Illinois, entrepreneurs must give some thought to what business structure best matches their goals and needs. The choice between several types of business entities can affect the ability to raise capital, costs of routine administration, the potential liability of the owners and the tax liabilities.

Procuring capital is typically an essential goal for the business start-up. The sources of capital and anticipated funding at a later date are limited under certain business formations. Corporations can seek equity funding by selling stock directly, and they may have an easier time receiving loans. A limmited liability company issues memberships rather than shares, and may not be an appropriate vehicle for outside equity financing. The cost of each is a more complex and expensive setup and administration process. A partnership or sole proprietorship, however, must source capital from owners, gifts and loans.

Business liability is often a driving concern in the choice. In a sole proprietorship or partnership, the owners assume personal liability even as they enjoy the advantage of reduced administrative needs. If insurance is unable to cover potential claims, an LLC or a corporation may be a better choice. These options shift liability entirely to the business, and damages can only be paid from business assets.

The choice of structure in business formation requires a balanced look at present needs, possible needs in the future and the owner's goals. State law determines the rights and responsibilities of the owners of corporations, limited liability companies and partnerships as well of those of the entity itself. Entrepreneurs often turn to an experienced attorney for help in understanding the advantages and costs of these types of structures in relation to the a particular business start-up. An early choice between types of business formation can mean the difference between long-term success and early failure.

Source: Entrepreneur, "Choose Your Business Structure", October 07, 2014

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