Those in the Chicago area with an entrepreneurial spirit may want to start their own small business. If so, they will need to choose a business structure. The following is an overview of some options for structuring your small business.
A sole proprietorship is owned by one person. It is not a separate business entity, meaning that the business owner will be personally liable for any obligations, acts and debts of the business. It is the default structure if no other structure is registered. Those whose business is low risk, or they want to test the waters before entering into a more formal business may want to consider a sole proprietorship.
Partnerships come in two varieties: limited partnerships (LP) and limited liability partnerships (LLP). As the name suggests, these types of partnerships differ in their liability. Limited partnerships have a single general partner who has unlimited liability, and the remaining partners have limited liability and control over the business. In a limited liability partnership, all owners have limited liability meaning they are protected from being liable for the partnership’s debts and the actions of the other partners.
Limited liability companies (LLC)
LLCs create a separate business entity, meaning the owners will not be personally liable for the debts, obligations and actions of the business. Profits and losses are passed through the owner’s personal income and are not taxed as corporations. However, owners of an LLC have to pay self-employment taxes. Also, in the absence of a written agreement, if an owner joins or leaves the LLC in some states the LLC must be dissolved and a new LLC created to reflect the new members.
Seek assistance when forming a new business
As this shows, new business owners in Illinois have options when it comes to structuring their business. Business formation is complex. This post does not offer legal advice, so those in Illinois who need more information about forming a new business may want to consult with an attorney before moving forward.