Different types of business structures in Illinois: Sole Proprietor, Partnership, C Corp, S Corp, LLC
At MCK CPAs & Advisors, we often help clients determine the best business structure for their needs. In Illinois, there are several options to consider, including sole proprietorship, partnership, C corporation, S corporation, and limited liability company (LLC). Each type of business structure has its own benefits and drawbacks, and it’s important to choose the one that fits your business goals and objectives.
Sole Proprietorship
A sole proprietorship is the simplest and most common type of business structure. It’s owned and operated by a single person, who is also personally responsible for all debts and liabilities. This means that if the business incurs any debts or is sued, the owner’s personal assets (such as their home or savings) may be at risk. On the plus side, sole proprietorships are easy to set up and have relatively low operating costs. They also offer complete control and flexibility to the owner.
Partnership
A partnership is a business structure in which two or more people share ownership and operate the business together. There are two main types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners share equal responsibility for the business, including debts and liabilities. In a limited partnership, one or more partners are passive investors and do not actively participate in the management of the business. Partnerships offer a relatively simple and inexpensive way for multiple people to go into business together, but they also expose all partners to personal liability for the business’s debts and legal issues.
C Corporation
A C corporation (also known as a “regular” corporation) is a separate legal entity from its owners, which means that it can enter into contracts, borrow money, and own assets in its own name. C corporations offer liability protection to their owners, known as shareholders, who are not personally responsible for the corporation’s debts or legal issues. However, C corporations also have more complex tax and regulatory requirements, and they may be subject to double taxation (meaning that the corporation’s profits are taxed at the corporate level and again when they are distributed to shareholders as dividends).
S Corporation
An S corporation is a type of corporation that elects to be taxed as a “pass-through” entity, similar to a partnership. This means that the corporation’s profits and losses are passed through to its shareholders, who report them on their individual tax returns. S corporations offer liability protection to their shareholders and can potentially save on taxes by avoiding double taxation. However, they have stricter rules for ownership and are limited to 100 shareholders or fewer.
Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid business structure that combines the liability protection of a corporation with the tax benefits of a partnership. LLCs are owned by one or more members, who have limited personal liability for the business’s debts and legal issues. LLCs can be taxed as a partnership or an S-corporation, depending on the number and type of members. LLCs offer flexibility and simplicity, but they may have more complex tax and regulatory requirements than sole proprietorships or partnerships.
Choosing the right business structure in Illinois depends on your specific business needs and goals. It’s important to carefully consider the pros and cons of each option and seek advice from a qualified accountant or attorney. Contact MCK CPAs & Advisors today to learn more about options for your business structure.