Category Archives: Corporations and LLCs

Illinois LLCs – formation and taxation issues.

LLC Member Buyouts

LLC Member Buyouts

What are this risks in LLC member buyouts? Chicago business lawyer Brian J. Thompson cautions LLC members considering a membership interest buyout to consider the risks involved when the buyout agreement provides for money to be paid in the future.  Agreeing to accept payments in the future exposes the separating member of an LLC to several forms of counterparty risk.  This counterparty risk has 2 components:

1) Default risk – the counterparty simply chooses not to perform as agreed in the buyout or separation agreement; and

2) Credit risk/bankruptcy risk – the counterparty is unable to perform due to insolvency or bankruptcy.

Corporate shareholders take on the same risks noted above when they agree to accept payment at a later date.

Chicago business lawyer and CPA Brian J. Thompson strongly encourages those considering an LLC member buyout to consider the default risk and credit risk.  For these reasons, it is important to receive as much of the proceeds of the LLC buyout in cash at closing.

Chicago Business License

Chicago Business License

Where to I get a Chicago business license?  The City of Chicago’s Department of Business Affairs and Consumer Protection (BACP) issues Chicago business licenses.

Do You Need a Chicago Business License?

If you are starting a business in Chicago, you probably need a business license.  As a general rule, the City of Chicago requires a business license to conduct, engage in, maintain, operate, or manage any business in Chicago.  However, there is an exception to this rule for professions regulated by the Illinois Department of Financial and Professional Regulation.  The City of Chicago does not require a business license for such professions unless the business offers additional services not covered by the State of Illinois license.  Finally, check the City of Chicago’s Small Business Center if you require further details.

Also, consider whether to set up an LLC or corporation for your business.  Retain Chicago CPA and business lawyer Brian J. Thompson to set up your Illinois LLC. Brian@BrianThompsonLaw.com.

Resolving Partnership Disputes

Resolving Partnership Disputes

Resolving partnership disputes is often contentious and expensive. Sometimes disputes among limited liability company members arise which result in one or more of the LLC members wanting to exit the LLC.  If a member wants to exit the LLC by selling his interest but does not have a ready buyer of his membership interest, the LLC operating agreement may provide that the exiting member will assign his interest to the current members. Therefore, a value must be placed upon this membership interest before it is assigned.

What if the exiting member and the remaining members do not agree on a value?  First, carefully review your LLC operating agreement for provisions regarding the assignment and valuation of membership interests. The operating agreement often provides that a business valuation expert will appraise the value of the member’s interest. In addition, hire a corporate lawyer or business lawyer for advice. Furthermore, each LLC member should retain their own lawyer to advise them regarding the LLC’s operating agreement.

Chicago CPA and small business lawyer Brian J. Thompson can reach an affordable solution and resolve you partnership dispute via negotiated or litigated settlement.  Brian@BrianThompsonLaw.com

Free Business Logo Generator

Free Business Logo Generator

Free business logo generator for small business owners looking to stretch their marketing and advertising budget.  First of all, branding your small business can really help you stand out from your competition.  In addition, hiring a graphic designer is costly.  So, check out this logo generator article from Yahoo!’s small business advisor blog.

Governor Quinn Proposes Lowering Illinois LLC Filing Fee to $39

In what may be good news for those planning to start a small business in Chicago or Illinois generally, Gov. Pat Quinn said in his recent address to the State that he will introduce legislation to reduce the filing fee to create an Illinois limited liability company from $500 to $39:

http://www.wbez.org/news/gov-quinn-addresses-business-yearly-speech-109598

Which social network is best for your small business?

Small business owners who’ve recently launched a new business venture or are looking to raise their profile and find new customers often turn to social media, but which social network is best for your business?  Chicago small business lawyer and CPA Brian J. Thompson wants to direct your attention to this helpful article courtesy of CNNMoney:

http://money.cnn.com/gallery/smallbusiness/2013/10/30/social-media-network/index.html

Qualify Foreign Corporation

Qualify Foreign Corporation in Illinois

Qualify foreign corporation or LLC.  A corporation or LLC formed under the laws of another state or country is a foreign business entity.  A foreign corporation or LLC may do business in Illinois. However, such foreign corporations or LLCs must first qualify or register to do business in Illinois.

Contact Chicago business lawyer and CPA Brian J. Thompson to qualify your corporation or LLC  to transact business in Illinois.

Brian@BrianThompsonLaw.com.

Starting Your Own Company? Officers, Directors and Controlling Shareholders Beware

Starting your own Limited Liability Company or corporation?  Chicago business lawyer Brian J. Thompson wants you to know that officers, directors and controlling shareholders who leave one corporation to start a competing enterprise need to beware of the corporate opportunity doctrine.   A corporate opportunity refers to any business opportunity that becomes known to an officer or director of a corporation due his position within the company.  The corporate opportunity doctrine holds that the directors, officers and controlling shareholders have a duty of loyalty to the corporation and cannot to take such opportunities for themselves without first disclosing the opportunity to the board of directors of the corporation and getting permission from the board of directors.  Failure to follow this procedure can be a violation of the duty of loyalty.  As a result, the corporation may be entitled to a constructive trust of all profits obtained from the violation of the corporate opportunity doctrine.   Contact Chicago business lawyer and CPA Brian J. Thompson for to form your Illniois LLC or Illinois S-Corporation.

Illinois S Corporations

Illinois S Corporations

What are the tax characteristics of Illinois S corporations?  First of all, single-member LLCs are disregarded entities for purposes of federal taxation unless the LLC makes an S election.  As a result, a single-member LLC’s income and loss are reported on Schedule C of the member’s IRS Form 1040.  Furthermore, all of the income is subject to federal employment taxes.  If your single-member LLC has income of several hundred thousand dollars, this can result in substantial FICA taxes as explained below.

Self-Employment Taxes

Social Security or FICA taxes include two separate taxes.  One is the Social Security tax and the other is Medicare tax.  The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total.  The current tax rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.  Only the social security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the social security tax for that year.   For 2013, this base was $113,700.  There is no wage base limit for Medicare tax.  Thus, the 2.9% Medicare tax applies to all wages without limit.

Additional Medicare Tax

Beginning January 1, 2013, an Additional Medicare Tax of 0.9% applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status.  Employers withhold the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year.  The Additional Medicare Tax applies only to the employee, to the employer.

When properly structured, S corporations can be useful in minimizing your social security taxes.   So, consider setting up an S corporation to pass through the S corporation’s income free of employment taxes.  If you are considering setting up an S corporation, contact Brian@BrianThompsonLaw.com.

Cost to form Illinois LLC?

Cost to Form Illinois LLC

How much does it cost to form Illinois LLC?  In Illinois, the Secretary of State charges $500 in fees ($614.10 for expedited service).  Illinois Secretary of State fees must be paid whether or not you use an attorney.

How much are attorney’s fees to form an Illinois LLC?   Attorneys’ fees to form an LLC vary.  Several online services advertise that they can form limited liability companies for as little as $99 to $359 + state fees.  If that is true, why should you nonetheless choose an attorney to form your LLC?

Your attorney can draft an operating agreement that fits your unique needs and situation. An operating agreement is the basic contract that governs the management of the LLC – who has the legal authority to make binding contracts and decisions, which members contribute capital and who can deduct losses.   Unlike the generic form template supplied by online services, an the attorney can tailor the operating agreement to the client’s actual needs after interviewing the client.

In addition, the newly formed LLC might benefit from other related contracts.  For example, your attorney can include a non-compete contract to prevent a key member or employee from leaving the new enterprise and starting his own competitor.  Similarly, a non-solicitation clause to keep a key member or employee from stealing your clients.  In addition, only an attorney will recognize if you may be violating the corporate opportunity doctrine by leaving your current employer and starting a competing business in the same or similar industry.  An online service will not ask the client the right questions and recognize these legal issues.