With so much information to share on the types of business entities to consider, this post will appear in two parts. The first will look at some of the more commonly recognized entities that business planning lawyers in Cook County help set up, and the second will delve a bit deeper.
Without the help of a Cook County business planning lawyer’s input, would you be able to list all of the business entity options available for entrepreneurs? Once you’ve considered that question, ask yourself if you really know which one is right for your business. Chances are pretty good that you answered “no” to one or both of these questions. Choosing the best entity may not be the most glamorous aspect of going into business, but it’s one that can have a significant impact on your success, as well as your stress level. By working with a business planning lawyer, you can affect the taxes you pay, the amount of personal liability you take on, and even the way your business is operated on a daily basis.
Cook County business planning lawyers will be well-versed on all of the different business entities, and by learning more about your business, they can assist in understanding the advantages and drawbacks of each.
- Sole Proprietorship: The simplest business entity, there is little documentation needed, and the individual can easily transfer business and personal assets back and forth. However, this also means that the individual can be liable for the business’ obligations and debts. Taxes are filed on the individual’s tax 1040 tax form.
- General Partnership: Also very simple to form, this is when two or more individuals conduct business together for profit. Even if specific documentation isn’t needed to form a partnership, any good business planning lawyer will urge partners to create legal agreements among one another. General partners share liability for business debts and obligations. Taxes are completed on a separate form, but profits and losses are reported by each individual according to the partnership agreement.
- Limited Partnerships and Limited Liability Partnership: Unlike a general partnership, a LP or LLP must register with the state. This provides legal documentation that limits each partners’ liability for the behavior of the others. Taxes are completed in a manner similar to that of a general partnership.
- Limited Liability Company: One of the most common forms of business entity, the LLC is a company that is made of members rather than shareholders. The members are protected from liability, although there are specific laws and regulations that must be followed that are more cumbersome than for a partnership. On the other hand, the regulations are fewer and simpler than for corporations. When it comes to taxes, the LLC offers a variety of options that allow members to file in the same manner as a partnership, as a corporation, or as an S corporation.
- C Corporation: This entity is used when the business is owned by shareholders and guided by a Board of Directors whom they elect. Shareholders can vote on policy issues while the Directors have the final say. Individual shareholders generally have no liability, and the actual business operations are directed by the corporation’s CEO and other officers. The corporation files its own taxes, although shareholders are also taxed on their dividends and distributions.
- S Corporation: Cook County business planning lawyers will tell you that this is a fairly simple business entity to choose. While an S corporation is a corporation at the Illinois state level (like a C corporation), it is taxed differently than a C corporation for Federal tax purposes. Taxes are completed on a separate form, but profits and losses “flow through” to each individual’s personal return through the issuance of a K-1.
For more information on legal entities and how to choose the right structure for your business, we invite you to call our Cook County law firm at 630-908-2752 to schedule a consultation.