Business Structure

business structure peoria il
business structure advice peoria il

Types of Legal Business Structures for Peoria Businesses

What is the first major tax decision you’ll make when starting your business?

When starting a business you have many decisions to make, and usually the last consideration is your selection of a Type of Business Structure. This can be the most expensive mistake you make! Most business owners do not fully understand the difference between the Business Structure Types:

Formation of a Sole Proprietorship

A Sole Proprietor, or Sole Proprietorship Businesses, are the most common and simplest form of business ownership. Paperwork requirements for the formation of a Sole Proprietorship are minimal, making it easy for owners to open quickly and relatively easy.

Advantages of a Sole Proprietorship:

  • Easiest and least expensive business entity to operate
  • You have complete control of your company
  • You can enter and exit a Sole Proprietor Business rather quickly
  • Minimal legal costs to forming the sole proprietorship
  • Less paperwork requirements than a corporation

Disadvantages of a Sole Proprietorship:

  • When operating a Sole Proprietorship, you are personally responsible for all debts and obligations of the company, meaning your personal assets are at stake
  • It is much more difficult to raise capital or attract investors for expansion or other needs
  • Can be harder to attract qualified people when the company grows

To find out if forming a Sole Proprietorship Business is right for you, contact us today!

Formation of an S Corporation in Illinois

In an S Corporation, or S Corp, corporate profits and losses flow through to the individual shareholders. The S Corporation itself pays no federal taxes but may pay state taxes.

Advantages of an S Corporation:

  • You have limited personal liability for the actions of the S Corp
  • Corporate losses pass through to the shareholder’s personal return, which means you may be able to deduct this against other income on your tax return
  • There is the possibilty of minimizing self-employment taxes when forming an S Corporation

Disadvantages of an S Corporation:

  • It’s a corporation and can be costly to setup and maintain
  • Receiving close scrutiny from the IRS – “reasonable compensation” issues
  • The S Corp has limited number and types of shareholders, as well as only one class of stock

To find out more about forming an Illinois S Corporation, contact us today!

Formation of a C Corporation in Illinois

A C Corporation, or C Corp, is a separate legal entity created under the authority of the state’s laws. C Corporations enter into contracts, pay taxes separately from shareholders, and conduct business under its identity.

You should always consult an attorney familiar with C Corporations in the initial formation.

Advantages of a C Corporation:

  • Limited Liability: Shareholders have limited liability for the corporation’s debts; personal assets are not at risk
  • Tax Treatment: The C Corp pay taxes on profits, not the shareholders
  • Attracting Capital: You can create different classes of stock to attract investors
  • Incentives: C Corporations can offer stock incentives to key employees
  • Perpetual existence: The C Corporation exists until shareholders decide to sell, dissolve, or merge with another business

 

Disadvantages of a C Corporation:

  • Expense: It’s expensive to form a corporation; you will have legal fees, state fees, and accountant’s feeds for the initial creation
  • Tax Consequences: A C Corp is subject to double taxation – taxed on profits and dividends are taxed to recipients
  • Paperwork: You will have increased paperwork with a C Corporation; corporate minutes and meetings, records of corporate actions, and timely filings of other state reports must be completed

To find out more about forming an Illinois S Corporation, contact us today!

Formation of an Illinois LLC

A Limited Liability Corporation, or LLC, offers much of the liability protection as partnerships.

Real estate investors commonly use this type of business entity for their holdings. LLC’s can be one of the following:

  • Single member LLC: If you a sole proprietor, consider a single member LLC; you will still report income and expenses the same as a sole proprietor but will also have the limited liability protection
  • Two or more member LLC: This defaults to a partnership entity for tax purposes
  • A Limited Liability Company can elect to be a corporation for tax purposes

To find out more about Illinois LLC and forming a Limited Liability Company, contact us today!

Formation of a Business Partnership

A Partnership involves two or more individuals or business entities that enter into an agreement for business purposes. The Business Partnership agreement is one key to ensuring your intentions are followed.

Advantages of a Partnership

  • It’s easier to attract investors as limited partners
  • Business Partnership agreements can generally be very flexible
  • Limited partners have limited liability
  • Ability to allocate profits and losses as they see fit regardless of specific equity of a partner

Disadvantages of a Partnership

  • General partners assume personal liability
  • Tax filings can be very complicated and costly
  • Thinking of a 50/50 partnership? Probably not a good idea . . . Who has final decision-making authority?

 

To find out more about Company Partnerships and whether a Partnership is right for your business, contact us today!

Our central Illinois CPA firm can help you:

  • Select a Business Structure that best fits your needs by evaluating current and proposed tax laws, legal exposure and ease of operation based on your specific industry.
  • Select the right accounting software by evaluating your needs.
  • Evaluate and prepare Cash Flow needs for your business. Cash flow is critical, and successful companies prepare for these needs.
  • Establish Billing & Collection procedures for your particular industry.
  • What is your exit strategy? Yes, we’ll discuss the proposed lifetime of your business. Selecting the wrong Business Structure can cost you plenty when you sell your business!

To learn more about what Types of Business Ownership best fits your business, contact us today!