Chicago Business Lawyer
I am a Chicago CPA and Chicago business lawyer. Business lawyers often form LLCs and corporations, help clients buy or sell companies, and dissolve LLCs and corporations. Business lawyers also help clients choose the right business entity. Sole proprietorship, general partnership, limited partnership, LLC, S corporation, or C corporation. Which is right for your business?
Are you looking for a Chicago business lawyer to form an Illinois LLC or Illinois corporation? The below information focuses on llinois LLCs and Illinois S corporations.
Please see my page on Illinois LLCs for details.
Illinois S Corporations
Cost to Form an Illinois Corporation
Chicago business lawyers typically charge $600-$1000 to form a corporation. However, some Chicago business lawyers charge hourly to form an S corporation with a complicated corporate structure or corporate bylaws. In addition, the Illinois Secretary of State charges $175 ($281 for expedited service) to file articles of incorporation for an Illinois corporation.
Benefits of Incorporation
First of all, business persons form corporations to get limited personal liability for corporate activities. Also, incorporators may be seeking certain tax advantages of electing S corporation status.
Forming an Illinois S Corporation
An Illinois S corporation is formed by filing articles of incorporation with the Illinois Secretary of State, requesting an Employer Id Number from the IRS, obtaining a state ID number from the Illinois Dept or Revenue, and electing S-corporation tax status.
However, the articles of incorporation do not address internal governance matters. Corporate bylaws address corporate governance matters.
S Corporation Restrictions
Most noteworthy, the limitations and restrictions regarding S corporations include:
- One hundred shareholders limit;
- Only qualified shareholders – an S corporation is permitted to have only certain types of shareholders including individuals who are US citizens or residents, estates, certain types of trusts, charitable organizations, pension plans, and individual retirement accounts.
- One class of stock – each share of the corporation’s stock must have the same rights to distributions and liquidation proceeds, although differences in voting rights among classes of stock do not constitute an impermissible second class of stock.
- Shareholder consent – all the shareholders must consent in writing to the election to be an S corporation.
- Qualified entities – restrictions limit the types of corporate entities that may elect S status (neither insurance companies nor financial institutions that use the reserve method of accounting for bad debts can be S corporations).
Most of the foregoing limitations and restrictions do not apply to LLCs. Consequently, an LLC may be a simpler and better business entity in some instances.
Taxation of S Corporations
Since S corporations are pass through entities, there is no income tax at the corporate level. Instead, they file an informational federal income tax return on IRS Form 1120S. The gains and losses pass through to the individual shareholders’ returns. On the other hand, C corporations pay taxes as a separate legal entity. In addition, the shareholders pay taxes on any dividends recevied. Thus, C corporations suffer from “double taxation.”
Corporate Allocations of Income and Loss
An S corporation is permitted only one class of stock. However, it may have both voting and nonvoting common stock. In addition, an S corporation must treat each share of stock the same with respect to allocations of income, loss and distributions. Therefore, an S corporation cannot provide a preferential allocation of income, loss or distribution to any shareholder.
Due Date for S Corporation Federal Income Tax Return
An S corporation must usually take a calendar year-end date unless the corporation can establish a reasonable business purpose for a different year-end date. For 2016 tax year and subsequent years, S corporation and LLC tax returns are due and taxes are payable on the 15th day of the third month after the end of the company’s fiscal year. Therefore, an S corporation or LLC with a fiscal year-end date of December 31 must file its tax return and pay taxes by March 15 of the following year.
S Corporation Income Tax Returns
What business and financial records do I need to provide to my CPA?
- Financial statements (Income Statement & Balance Sheet);
- Capital accounts – complete transaction history and summary statement of each shareholder’s capital account; and
- Shareholder information – shareholder name, address, and social security number.
Chicago business lawyer Brian J. Thompson will form your Illinois LLC or Illinois S corporation. For general information on Illinois small business law and formation, visit Illinois Department of Commerce Small Business Assistance .