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LIMITED
LIABILITY COMPANY PRIMER There are over twenty different
forms of entity that can be organized to conduct of business in
Illinois. One of the newest and most flexible means of setting up a business is as
a Limited Liability Company under the Illinois Limited
Liability Company Act. THE ENTITY So why is there so much excitement over the LLC? The LLC is a
hybrid of other entity types. A multi-member LLC fuses of
the tax advantages of a partnership with the
liability protection of a corporation. STATE FEES
In
return for the
benefit of shielding an owner's personal assets, the state places
certain requirements on limited liability companies. First, the State
imposes fees
to establish and maintain the LLC. At the time of
incorporation,
the state charges an
initial fee to organize the company in the amount of
$500. Every year thereafter, in order to continue
operations, the company must file an annual report and pay the
state an annual report fee of $250. These costs are flat, fixed
fees and, unlike state corporation fees, do no vary based upon the
entity's paid in capital. FORMALITIES In
general, LLCs are not subject to the many
formalities corporations. However, in order to best limit
liability, certain formalities should be followed. While not required
by the Limited Liability Company Act, all
LLCs, even those with only a single member, should be governed by the
terms of an operating agreement. An operating agreement is
similar to a partnership agreement in that it embodies all of the terms
relating to ownership and control of the company. If
a company fails to execute an operating agreement or if the operating
agreement is silent in certain areas, a number of
entity governance terms are implied by the Illinois Limited Liability
Company Act. FLEXIBILITY
An LLC can have as many or as few members as the owners determine. Like a
corporation, the LLC provides a shield from personal liability for acts
undertaken by the company. Like a
partnership, the LLC need not allocate management control, profits or
losses in accordance with an owner's percentage ownership in the
company. Instead, the co-owners can agree amongst themselves
how
profits and losses are split and how the entity will be managed and
controlled.
An LLC
can be managed
by its members (owners) or a manager or managers (who could also be members) can
be elected to run the day to day operations of the company. The LLC makes this election from the outset and
the
duties and obligations of the members and managers are spelled out in
the operating agreement.
TAXATION
The LLC
is flexible
for tax purposes. A multi-member LLC may elect to be treated
as a
partnership (the default), an S corporation or a C corporation.
A
single member LLC may elect to be treated as a disregarded entity (ie.
the owner will still fill out a Schedule C on the owner's 1040 return)
or as an S corporation or a C corporation. This tax election
must
be made shortly after the entity is organized.
For some
entities, the
LLC flexibility may not be necessary and a corporation may serve all of
the owner's purposes. However, sometimes the
flexibility of
the LLC can be exactly what a single owner or a group of owners require
to provide adequate legal protection and provide the flexibility
necessary to allow a project to proceed.
SERVICES
AND FEES
Services
Provided
Search LLC
name availability with Secretary of State
Prepare and submit "Articles of Organization" to the state of Illinois
Provide company record book, company seal, and membership certificates
Procure Federal Employer Identification Number from IRS
Prepare membership certificates
Prepare documents necessary to complete company minute book,
including operating agreement
Prepare employee expense reimbursement agreements.
Fees
Special Internet Organization for Small
Entities (single member or two married members)
Flat $1200 - includes all costs
(company record book and state organization fees). We will also prepare the operating agreement, membership certificates
and other initial company record book items.
For
"EXPEDITED" ONE DAY SERVICE please add $195
Please note, these fees do not
include annual report fees payable to the Secretary of State of
Illinois or registered agent fees for subsequent
years. Registered agent services are provided on a yearly basis after
the first year for $225 plus costs.
Additional
Services
Also
note, for certain situations, additional steps, such as pre organization subscription
agreements, SEC and State Securities filings, noncompete,
nondisclosure and buy sell agreements may be necessary. These are
additional services.
HOW TO GET STARTED
The
first step to organization of your LLC is to contact us. We can discuss
the various issues involved in the organization process and
determine the best entity and structure for your new business. To get
this process started, please feel free to contact Richard Magnone or
any of our other attorneys at 773-399-1122.
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