The business structures that entrepreneurs and owners choose for their companies in Illinois and elsewhere have a significant impact on everything from how they operate, to their taxes, to their personal liability. To help them determine whether forming a limited liability company is the formation type best suited for their companies’ needs, entrepreneurs and business owners may benefit from considering the pros and cons of structuring as an LLC.
According to the Illinois Department of Revenue, LLCs do not have tax filing requirements in the state. Rather, the owners of LLCs report their companies’ income and deductions on their personal federal and state income tax returns. This is the case provided the company is not set up as a corporate LLC for federal income tax purposes.
According to the U.S. Small Business Administration, the responsibility for Medicare and Social Security tax contributions falls to LLC owners. Known as members, the owners of LLCs qualify as self-employed for tax purposes and therefore, must pay the necessary self-employment taxes.
For businesses that are medium- or high-risk, forming as an LLC protects members from personal liability. With few exceptions, a business bankruptcy or lawsuit would not potentially cost them personal assets, as it may with businesses that use other structure types.
Unless the LLC has made a prior agreement for the transference of ownership in such cases, companies structured as this formation type must be dissolved if a member leaves the company. This is also the case if the LLC is purchased or sold, or if a new member joins the ownership group. Such situations would require the LLC to re-form in order to continue operating.