There are many issues with which entrepreneurs and new business owners must contend with before a new venture can be successfully launched. Determining the right organizational structure for a business is one of those issues. Illinois business people who want to get their companies off the ground smoothly should research the different options well before making their selections. Each model offers its own set of pros and cons which should be understood up front.
Four categories
The most common types of business structures are grouped into four main categories, according to Entrepreneur. These include a corporation, a partnership, a sole proprietorship and a limited liability company. The structure that is right for one company may not be right for another. Following are some details about each type:
- A corporation model has traditionally offered the best protection against personal liability to any of its officers. This is because the corporation becomes a separate legal entity unto itself and therefore any legal action is taken against the corporation rather than against any individuals. Businesses for which professional liability is a concern may wish to consider this type of organization. The biggest downside to a corporation is the extensive responsibilities for record keeping.
- A partnership eliminates the burdens of keeping records and expensive filings for companies with two or more involved parties. This organization type does not, however, provide any personal liability protection.
- A sole proprietorship is akin to a partnership but is for businesses with single owners. Sole proprietors enjoy maximum control over their operations but they also hold the largest single risk of liability.
- A limited liability company, also known as an LLC, gives businesses a bit of the best of both worlds by combining the liability protection of a corporation with the profit, loss and tax structures similar to a partnership. An LLC is not a separate entity; profits and losses are reported on the tax returns of the individuals involved.
The Illinois General Assembly indicates that businesses in some industries may not be legally able to operate under the limited liability company model. These include insurance, dentistry and medicine. Documentation requirements for LLCs include the articles of organization, all member data including the amount of money each person contributed to the business, tax returns and operating agreements.
Sometimes companies originally set up as partnerships or sole proprietorships may convert to corporation or LLC models after some time. Regardless of what type of operating model is selected, following all guidelines is an important way to get the maximum benefit the model has to offer. It is also important to discuss any questions with an attorney.
Should you have any questions about business law or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.