Securing and protecting what matters most to you
when you’re starting or growing your business.
BUSINESS FORMATION
It all starts with the entity in the view of a Chicago business formation lawyer.
“I’m a business owner, so I have a special connection with our clients who are taking a chance and going out on their own whether they’re opening a bar or a restaurant or any other type of business. I like to get them off to a strong start by establishing a sound legal and operational foundation because I understand the stakes.
The business structure you choose will determine a lot of what comes after. It influences everything from profit distribution to day to day operations. I’ll help you find the business structure that’s most advantageous to you and your company, one that keeps you compliant, helps you get loans or lines of credit, minimizes tax exposure and protects your personal assets from creditors and debts. That’s something you can build on.”
| Andrew Hays
“You can… stand back at the stern and enjoy the ride. That's what good legal help will get you.” Want to feel that?
Who needs a business formation attorney?
The simplest answer: any entrepreneur who wants to form a company and isn’t a business formation attorney. In the US, that’s a lot of people. More businesses are started in the US than anywhere else in the world.
After 2020, new business applications reached an all time high. In a country historically known for its entrepreneurial spirit, that’s impressive. Think of it: we’re a country of more than 342 million people and more than 34 million small businesses. That means that roughly 1 in 10 Americans is either self-employed or owns a small business! You could say it’s a tradition. People from all over the world have been coming here for generations to try their hand at working for themselves.
Starting your own business is risky enough. It’s essential that you control the things you can control. The legal structure of your business is one of the most fundamental and consequential business decisions you’ll make. Getting good legal advice is an investment in your future success. Don’t compromise on the legal foundation of your business.
Here’s who needs a business formation attorney: anyone who starts a company requiring licensing or compliance, or with associated risk, or more than one owner should speak with a business formation attorney to get it right from the start. The business formation lawyers at Staza Law have been structuring companies and getting them off to a great start for years. It’s their expertise and also their passion.
“We've used him every time since. I've recommended him to all my friends for their liquor license needs.”
What options will a business formation lawyer offer you?
Sole Proprietorship
The unincorporated business is owned by one person so it’s simple and straightforward to set up, and you’re taxed on your earnings as personal income.
The downside is that the simplicity of it can also hurt you because there is no legal distinction between your personal assets and your business assets; they’re all in one bucket. So if your business accumulates debt, your personal assets could be seized.
Partnership
Very similar to a sole proprietorship in that it’s unincorporated and legally simple to set up. A partnership is a business agreement between two people to share the responsibilities involved in a joint business in exchange for also sharing the profits. Partnership earnings are also taxed as personal income.
The downside of this business structure is the same as a sole proprietorship: there is no legal distinction between business and personal assets, therefore you have unlimited personal liability. In other words, if your business accumulates debt, or suffers a loss, or is sued, the partners are personally responsible for the debt or loss or outcome of the lawsuit, and your personal property – your car, home, bank account, etc. – is not protected.
Limited Liability Company (LLC)
As the name suggests, this business structure protects the business owners’ personal assets better than the first two options. In Illinois, ownership of an LLC is relatively unrestricted. Owners are called Members, and Members can be a single individual, a trust, an estate, another LLC, even certain types of corporations. Illinois LLCs are required to file articles of organization with the Secretary of State, appoint a registered agent with a physical address in Illinois (i.e. not a P.O. box), and file annual reports.
Taxation is less complicated for an LLC than for a corporation. An LLC does not file a corporate income tax return with the federal government because business income goes directly to the Members avoiding the kind of double taxation that (can) occur with corporations.
A corporation is its own legal business entity with assets and debts that are completely separate from its owners or shareholders. As such, it offers owners the limited liability that an LLC does. The only real risk to the owners is the loss of their investment in the corporation. The two most common forms of corporations are S corps and C corps.
S corporations are popular for avoiding double taxation by passing the corporation’s income, losses, and deductions directly to its owners or shareholders to be reported on their personal tax returns. S corps are often the legal entity of choice for family owned businesses or small privately held businesses who value avoiding double taxation. S corps are great for small businesses.
The downside is S corps are limited to 100 shareholders who must all be US citizens, and they can only issue one class of stock, common stock. In other words, corporate or institutional investors are not permitted.
C corporations First, the downside: C corporations are taxed at the corporate level, both federal and state income tax in Illinois, and also at the personal level as dividends are taxed on personal returns. That’s the bad news. C corps do have their advantages, however.
The number of shareholders is unlimited and can include foreign individuals or corporations, and they can issue multiple classes of stock. In other words, corporations and institutional investors are welcome, and venture capital firms that are prevented from investing in pass-through entities – such as S corps and LLCs – can invest in C corps. And by virtue of the way C corps are structured, it’s easier to go public or be acquired. C corps are ideal for companies that plan an IPO, companies with big plans to grow like start ups and venture capital firms, firms that seek with foreign and institutional investors.
“If you can choose to have a good feeling about your legal help, why wouldn't you do that?”
Thinking about doing it yourself without consulting an Illinois business formation lawyer?
Armed with what you’ve just read, you might be feeling confident enough to DIY. In a word: don’t. What we’ve outlined above is only the most general terms, but there are other considerations. Do it once and do it right!
“Highly recommend. Super helpful.” - Chicago Pizza and Oven Grinder Company
The Staza Law blog has answers.
