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:
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
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.
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
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. New lower IL LLC filing fee . . . Illinois reduced the LLC filing fee to $150 ($255.88 for online filing) effective January 1, 2018.
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.