One of the most important decisions that business owners in Illinois and elsewhere have to consider is how to structure their companies. For some businesses, a limited liability company will be the most effective one. The LLC itself is a cross between a sole proprietorship and a corporation. It is considered its own entity separate from the owner of the business. However, it retains the benefits that can be derived from pass-through taxation.
With pass-through taxation, a company owner will account for any profits or losses on his or her personal tax return. Therefore, there is no need to file a corporate tax return and deal with the possibility of being taxed twice. Those who are not citizens or permanent residents of the United States may prefer the LLC structure as there are no residency requirements to own one.
There are some disadvantages of forming an LLC. For instance, it can be difficult to raise capital, and it can also be difficult to expand a company beyond the state where it was created. Owners may still be required to pay self-employment taxes on any net profit in a given year. As the LLC is a separate entity from its owners, it is a good idea to open a checking account in the company’s name.
When choosing a business structure, a business owner may have many variables to consider. For instance, it may be necessary to consider potential regulatory compliance issues that may arise. It may also be worth considering whether a given structure allows a business to bring on investors or offers any tax advantages. An attorney may be able to work with a business owner to discuss the pros and cons of various options. Legal counsel may also help draft required business formation documents.