Illinois LLC Organizations
A 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
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 without complex organizational requirements)
Flat $1250 – includes all costs (company record book and state organization fees). We will also prepare the operating agreement, membership certificates and other initial company organizational paperwork.
For “EXPEDITED” ONE DAY SERVICE please add $250 (includes additional state fee)
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 $250 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. We are generally willing to have a short (5 to 15 minutes) initial discussion over the telephone to determine if we can assist in your situation and to determine if we might be an appropriate match to work with you. Face to face Initial consultations are by appointment only and a consultation fee is generally charged. To get this process started, please feel free to contact Richard Magnone via email or by phone at 773-399-1122.