LLCs & Series LLCs
Includes State Filing Fees, Corporate Kit & Free Consultation with an Experienced Illinois Attorney
The Limited Liability Company was designed to combine the liability benefits of a corporation with the flexibility of a partnership. The LLC offers much more flexibility in the operation of the business. However, there are many tax ramifications to take into account when choosing to form this type of entity. Please read over the information provided below and also visit the Comparison Page.
S Corporation vs. LLC
When comparing the S Corp vs. LLC you must consider your own personal situation. I highly recommend that you speak to an attorney before making your final decision since it can be a costly mistake not only in wasted filing fees but also in overpayment of taxes. You should also consider discussing your personal situation with an experienced CPA.
Both entities are pass through entities which means the income and expenses will get passed through the business to the individual owners’ tax returns. Therefore neither will pay any taxes on behalf of the business like a C Corporation would.
Typically an S Corporation is better for tax purposes. With an S Corporation you will pay yourself, the owner, as an employee of the corporation. You pay yourself a reasonable salary for the type of work you perform, usually about 50% of the profits. Therefore you will pay the Social Security/FICA taxes on that 50% rather than 100% as you would if you were self employed under an LLC or a sole proprietorship. This can be a great tax advantage since those taxes equal 15.3%. Therefore you’ll be paying 15.3% on 50% of the profits rather than 100% of the profits under an LLC.
Both the LLC and S Corporation have similar liability protection. Don’t be swayed just because the LLC is called a Limited Liability Company. Both limit the personal liability of the owners. In fact, the LLC was created to combine the liability benefits of a corporation but also to make it more flexible.
The LLC is better for some situations and again, it depends on your specific situation. For instance, if you don’t qualify for an S Corporation such as you are a foreign citizen or you are going to own property, then the LLC may be better suited to your needs. As mentioned above, the LLC can also be more flexible.
You must weigh what is most important to you. In most situations the S Corp is usually the best bet. It is cheaper to set up and maintain than an LLC (at least in Illinois, you would have to check on other states), it can save you more money on income taxes, and if you use an experienced law firm like AMC Legal, you won’t have to worry about how to set up the corporation and maintain it, we can do that for you so you can concentrate on building your business.
What is a Series LLC?
Illinois is one of few states that allows an LLC to be formed as a Series LLC. When a Series LLC is set up, a parent LLC is created along with one or more Series or subsidiary LLCs. Each Series can have its own members, managers, officers and operating agreements. The benefits of a Series LLC is that each Series will have its own ownership, management and best of all its own liability. The liability of each Series is kept separate from the other Series.
This type of arrangement is especially beneficial to those who own several pieces of real estate. The parent can be set up as the holding company and each property is owned by a different series. This way if a liability is created on one of the properties (say a renter is injured) only the assets held in that Series will be at risk. The other properties would be protected.
Keep in mind that if the parent holding company assumes any risk by placing property or doing business with that Parent company, it will trickle down to each Series, therefore, placing the assets in each Series at risk. However, the liability will not flow up to the parent LLC.
There are a few caveats to keep in mind. Naming the Series is not pretty. Each Series will bear the full name of the parent LLC plus the name of the Series LLC. DBAs are not allowed for Series LLCs. Therefore, if you have a tradename you want to protect you must keep this in mind.
An additional benefit of a Series LLC is the cost savings from setting up separate LLCs for each property. Instead of paying to incorporate each LLC separately you can add a Series LLC for a lower price. Also, instead of paying a full annual report fee of $250 for each separate LLC, you will pay $250 for the parent plus $50 for each Series.
How a Series LLC is taxed depends on how it is set up. The IRS has not yet made a determination on how to tax Series LLCs, therefore, it is recommended that you speak to a tax professional familiar with Series LLCs regarding this issue.
Learn More About the Illinois Series LLC here.
AMC LEGAL CAN HELP
If you are unsure of which entity to choose or still have questions after reading through the comparison please feel free to call for a free consultation.
When you’re starting a new business, the last thing you want to do is worry about legal paperwork. Let AMC Legal do it for you. We can get your business incorporated with all of the necessary paperwork and provide invaluable information and advice to get you started on the right foot. AMC Legal will be there for your throughout the life of your business, every step of the way.
If you have decided to form an LLC or a Series LLC you can see what’s included in the basic packages by clicking the link below. You can then read over the many other services that are offered by this Firm in the LLC Services Page as well. Please read the Services page carefully. It contains very important information regarding other filings that are required as well as information regarding liability protection and taxes.