Is it always better for a small business to incorporate?

Business owners in Illinois know that the laws governing their operations can be complicated and that it's not always clear whether the current business model is the optimal course of action. In some circumstances, it may be beneficial for the small business to incorporate itself and become an LLC, but the laws for creating and operating such an entity can be complex.

Although small businesses owners are under no legal obligation to incorporate, transitioning to other types of business entities, like an LLC, can have some benefits, such as liability protection. In general, it is advisable to incorporate in the state in which the business is run because many states have different laws for out-of-state business entities. In order to form an LLC, two documents are required: the Articles of Organization and the Operating Agreement.

If a business owner is running an LLC and wishes to move to another state, he or she will need to take into consideration the laws of both the new state and the originating one. In order to avoid the possible complications of registering as an out-of-state LLC, it may be best to liquid the old LLC before moving. On the other hand, it may be more beneficial to have the new LLC absorb the old one if it's possible to do so.

Given all the intricacies involved in whether or not to form an LLC, a small business owner considering such a move may wish to consult with an attorney beforehand. An attorney acting on a client's behalf may review their financial situation and help them develop a plan specific to their circumstances. In this way, it might be possible for someone to better facilitate the transition of their business and reduce the risk of sustaining financial damage.

Source: SBA.gov, "Top 10 Questions About Small Business Incorporation Answered", Caron Beesley, December 30, 2014

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