5 Reasons To Form A Business as an LLC - #3

Continuing the list of 5 reasons small companies should organize as an LLC in Illinois...

Reason #3. Flexibility.
LLCs are a relatively new form of entity, created as a hybrid between corporations and limited partnerships. Due to this history, LLCs can operate with a good means of flexibility. The ability to simply choose how the company will be taxed (as a corporation or as a partnership) is an example of this flexibility. Additionally, an LLC can be run by a “manager,” or by one or more “members.” It can have, but is not required to have, a board of directors and officers, similar to a corporation, or it can simply be run by its members or managers. Distributions and allocations of profits and losses can be structured in whatever means the owners want, and the the general operation of the business can be handled in a myriad of ways. In the absence of an operating agreement, the Illinois statute controls the way in which the business is legally operated. However, the statute authorizes the company to vary most of its obligations in an operating agreement.
For additional information on how to structure a company as an LLC, contact Ross Law Office for a free consultation.

5 Reasons To Form A Business as an LLC - #2

Generally speaking (all situations are different and an attorney should be consulted prior to forming a company), I believe the LLC form is the most advantageous for small businesses for several reasons. Here is the second benefit an LLC provides:

The administrative burdens are light. From a corporate governance standpoint, an LLC is not subject to nearly as many requirements as corporations. There is no requirement to have a board of directors and, therefore, resolutions and written consents are not necessary for action. Issues such as "piercing the corporate veil," which can allow creditors to get past the corporation and go after the owners of a corporation for debts owed are not nearly as prevalent in the LLC sphere as they are with corporations. Additionally, there are few filing requirements the state requires. The only major on-going requirement is that an annual report be filed with the Secretary of State each year. This is an important step, however as a failure to timely file the report can be grounds for administrative dissolution. Of course, permits, licenses and other local filings may be required in particular locations or industries. As always, please contact Ross Law Office for additional information.

5 Reasons To Form A Business as an LLC - Part 1

One of the first decisions to make when starting a business is what legal form it should take. In Illinois, businesses can be formed in a variety of manners, each with its own pros and cons. They can range from the simple sole proprietorship all the way up to very complicated publicly traded corporations. For small businesses just starting out Ross Law Office generally recommends forming as a limited liability company (“LLC”). Of course, all situations are different, and an attorney should be contacted to discuss the exact nature of the business being contemplated, but as a general matter, LLCs share many of the positives of other types of entities while limiting to a great extent their negatives. The next several posts will outline 5 reasons we think LLCs are beneficial for small businesses in Illinois:

Reason #1: Formation is quick and simple. While it is required to file Articles of Organization with the Illinois Secretary of State, the process is relatively painless. The owner of the business will need to have a number of questions answered prior to organizing, including who the registered agent will be, whether the business will be “member managed” or “manager managed,” and addresses for the agent, the organizer, and the members/managers. The cost is $500.00 and there is an additional $100.00 fee for expedited filing. It is highly recommended that, in LLCs with 2 or more members, an operating agreement is agreed to by all the members; furthermore, additional organizational paperwork is recommended, but the only step necessary to actually form the company is to file the Articles of Organization.

LLC Members to Have Additional Fiduciary Duties

The Illinois Limited Liability Company Act (this can be found in the Illinois Statutes at 805 ILCS 180) establishes the rules concerning formation, operation, and if necessary, dissolution of an LLC formed in Illinois. Many of the obligations set forth in the statute are "default" rules, meaning that they apply unless altered by an operating agreement stating something to the contrary. One of the benefits of the LLC form of organization is the flexibility the statute allows the company in its operations. In many instances, an LLC is free to operate as it sees fit, provided all the members agree in a signed agreement. There are, however, some rules in the Illinois statute that cannot be altered by an operating agreement.

Some of these rules relate to the duties members and managers owe the company and each other. Under the Illinois Statute, managers of an LLC owe fiduciary (and other) duties to the company. A fiduciary duty means that, because of the position of trust of the manager, he/she owes a particular standard of care in his/her dealings with and for the company. Basically, the manager must put the needs of the company ahead of his/her own needs.

The statute, as currently constituted, does not bestow the same fiduciary duties on members of LLCs that are managed by managers. However, Illinois Public Act 96-263 will extend these fiduciary duties to members, provided the member exercises some sort of managerial authority. This Act will become effective January 1, 2010.

For more information about fiduciary duties of members and managers of LLCs, or for other general business law questions, please contact the Ross Law Office to speak with an experienced business law attorney.

Choosing a Business Entity

A frequently asked question by individuals who want to start a business is what type of entity should they operate under. Choosing the right business entity can give the new business a solid foundation for growth and will have significant consequences as to the owner's liability, tax consequences and the means in which the company can operate. In choosing an entity, consider the nature of the business, the goals of the principals, and the risks involved. For many small businesses in Illinois, I recommend an LLC (limited liability company) formation, which combines some of the best aspects of other types of entities. Each situation is unique, however, and an LLC will not fit everyone's tastes. Other entity forms used in Illinois are corporations (there are various types all governed by different regulation), partnerships (general and limited) and sole proprietorships. For more specific information, contact Ross Law Office to speak with an experienced attorney about choosing the right entity for you.

Welcome

Welcome to the Illinois Business Law Blog. I set this blog up in conjunction with my law firm's website to speak to the legal issues small business owners and entrepreneurs in Illinois face. The Ross Law Office law firm in Naperville, Illinois, was established to serve these types of clients. If you are an entrepreneur or small business owner in Illinois with a specific legal question, please contact Ross Law Office for a free consultation.