If you are an Illinois entrepreneur, you know that making difficult decisions is part of being a business owner. However, you may not know that choosing the right business structure for your company can affect the way you conduct business and affect growth options. We often help small business owners select the legal structure that can help them achieve their goals best.
According to Southern Illinois University, factors that affect which business entity you choose include control, complexity, liability and taxes. Limited Liability Companies and S-Corporations are among the most common legal structures for entrepreneurs who desire limited liability and flexibility.
Both an LLC and S corporation provides flow-through tax treatment. However, Illinois typically taxes an LLC as a partnership under Subchapter K. The state taxes S corporations under Subchapter. Taxes pass through the entity to members and shareholders in each case, but the requirements are different.
Under Subchapter K, LLCs can make special allocations of deduction items and income. They can also distribute appreciated property without immediately increasing taxes and share specific deductions or income disproportionately.
S corporation shareholders must include income and loss on a proportionate basis. If your business only has a few owners, you may not need the flexibility of an LLC. For service providers, an S corporation can minimize their exposure to employment taxes. This structure is not a viable option for organizations with foreign investors.
If you hope to grow your business through investment, the LLC structure is not appropriate for you, as it does not allow for investors. Under an S corporation, investors must be domestic. It also limits the number of shareholders to no more than 100. One class of stock is available under this type of legal structure, which may or may not deter venture capital funds, but not individual investors.
Attorneys experienced in corporate law can help entrepreneurs throughout the organization’s lifecycle, from inception to exit strategies.