Corp and Limited Liability Companies FAQ

CORPORATION AND LIMITED LIABILITY COMPANIES

I am starting a new business.  What type of entity should my business be?

We recommend either a corporation or a limited liability company.

Which is better?
 
There are advantages to each.  Depending upon your circumstances, a more comprehensive review would be best.  However, at the risk of simplification, we recommend that a corporation is less expensive and best for single owners and a limited liability company (“LLC”) is best where there will be multiple owners of the business. 

Why is that?

Currently, the Secretary of State of Illinois charges a higher filing fee as well as the annual and related fees for an LLC vs. a corporation.  Also, you will find that most law firms charge significantly more to establish an LLC vs. a corporation.  However, at Kuhn, Heap & Monson, the additional legal fees to establish an LLC are modest.  Where there are multiple owners, we feel that the LLC provides the opportunity for tremendous flexibility on issues such as management, control, division of profits and losses, and many other issues. 

Does each offer protection of our personal assets?  
 
Absolutely.  The LLC is a relatively new entity, which offers the tax benefits of a partnership, but at the same time, has the asset protection feature of a corporation.

How is an S Corporation different from a corporation?

All corporations are initially categorized as being taxed under Subchapter C of the Internal Revenue Code.  A “C Corporation” is taxed both at the corporate level as well as at the shareholder level.  Congress some time ago decided to give a break to small businesses and thus created “Subchapter S” of the Internal Revenue Code.  What this means is that a small company can file a simple election with the IRS and it can be treated like a partnership for income tax purposes, which is generally a good thing, depending on the circumstances.  Simply put, all profits and losses are passed directly through to the shareholders to be reported on the shareholder’s 1040 income tax return, thus avoiding the potential for double taxation of the C Corporation. 

If I choose an LLC, do I need to adopt an Operating Agreement?
 
While the law does not require this, we definitely recommend the creation of an Operating Agreement because if one is not adopted, the LLC law creates the rules which may not be in the best interest of the owners of the LLC.  For example, the members may want to limit fiduciary duties, they may wish to admit new members, and they may want to add indemnification provisions and the right to make additional capital calls.  These are just a few of the many issues, which we are prepared to discuss with you when you are ready to proceed.

What other services does KH&M offer in the area of business law?

We provide many other services involving business.  These include negotiation of employment agreements, severance agreements, vendor agreements, independent contractor agreements, leases, and most issues confronted by our business clients on a day-to-day basis.

I like what I am reading, but how can I get started?

Simply call 630-420-8228 and press 0 and tell our receptionist that you are interested in creating a new business entity or that you have interest in discussing a business-related legal issue.  You will be put in contact with the appropriate attorney to discuss your concerns and perhaps to set up your free initial consultation.