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Which Business Entity Should You Use For Your Illinois Business?

If you start a business in Illinois, one of the first decisions you have to make is what type of business entity to use. The right choice will be different for every business owner, as there are pros and cons to all business structures. The key is to understand what options you have and how to set them up correctly.

Here at Cowlin, Naughton, Curran, Cuda & Hanzel, we have over 200 years of combined experience. Our attorneys can provide advice, guidance and legal assistance. We have a track record of favorable outcomes and close client relationships. When you need a Crystal Lake entity formation lawyer, our team is here to help.

Benefits And Drawbacks Of Each Business Entity Type

Our attorneys can help you consider the unique factors of your new company, but the following business structure comparison in Illinois gives you an overview of business entity types and shows some of the main advantages and disadvantages:

  • LLCs: A limited liability company does come with some additional fees and the need to pay self-employment taxes, but it also protects you from personal liability for the business’s debts.
  • Sole proprietorships: A sole proprietorship has lower fees and provides a simple structure, but you may be responsible for the business’s financial debts, putting personal assets at risk.
  • Partnerships: A partnership is valuable because multiple partners can bring complementary skills and abilities to the business, but it can be complex to draft a partnership agreement, make ownership changes and resolve disputes.
  • Corporations: A corporation, like an S-corp or a C-corp, also provides some liability protection, and both qualify as separate entities for tax purposes. A C-corp pays taxes directly, while an S-corp has pass-through status.

It is also possible to change the type of business entity in the future, perhaps as the business grows, and our Crystal Lake entity formation team can help you determine exactly what steps to take.

Steps To Form A Business Entity In Illinois

If you are wondering how to start a business in Illinois, here are a few of the main steps to take:

  1. Choose the business entity you want to use. The main types are listed above, but you may also want to form a nonprofit or a not-for-profit corporation.
  2. Register your business name. The Illinois entity registration process starts with filing an application for Reservation of Name at the Illinois Secretary of State, which will hold that name for the next 90 days. The form that you need depends on the type of business you are starting. For instance, it is a BCA-4.10 if you are starting a corporation or an LLC-1.15 if you are starting a limited liability company.
  3. Apply for necessary IP protection. For instance, you may need to apply for a trademark or a service mark by filing the correct application after ensuring that your business name is unique.
  4. Register your business. If you are starting a partnership, you need to file paperwork such as a Statement of Qualification with the Secretary of State. You may also need to get an Employer Identification Number (EIN). If you are starting a corporation, then you need to file the articles of incorporation with the Secretary of State, and you may need to file paperwork with the IRS.
  5. Set up your business taxes. You can use Form REG-1, which is an Illinois business registration application. You will also need a federal EIN at this time.

Our team can help you move through each one of these steps successfully.

Common Mistakes In Illinois Entity Formation

It is important to avoid mistakes, and you must be familiar with the Illinois business compliance guidelines. You need to file annual reports, pay business taxes based on the structure you use, and properly classify your employees. One of the main mistakes is simply choosing the wrong structure, like using a C-corp if you do not plan an IPO, or setting up an LLC with a name that violates another company’s existing IP. To get the details right and avoid these pitfalls, it is crucial to work with an entity formation attorney.

Call Now For A Consultation To Choose The Right Business Entity

Our business law offices are in Crystal Lake, but we serve clients in McHenry County, Lake County, and King County. Call 815-435-0626 or use the online contact form to schedule your consultation with a McHenry County business entity formation attorney today.