LLCs and Corporations for Small Business

Many small business owners wonder what are the differences between LLCs and Corporations for small business owners. In this blog, we will discuss three main differences between LLCs and Corporations.

The first main difference is the LLC offers a lot more flexibility than a S corporation. A LLC is a limited liability corporation and is a hybrid between a partnership and a corporation. A LLC is a disregarded entity for tax purposes because partners or individuals pay taxes based upon their own tax situation. Thus, the corporation does not pay taxes but rather individuals file a 1040 return based upon their income, deductions, and losses if any. In contrasts, an S corporation is also a pass through entity, but one distinct difference is treatment of payroll taxes. With an S corporation, a business pays payroll taxes on reasonable salary and not on profitability. With an LLC, business owners pay taxes on the profits of the corporation whether they took a distribution or not.,

The second difference is flexibility. An LLC is flexible and has different types of ownership interest. An S corporation only has one type of ownership interest. Thus, an S corporation does not have the ability to give an investor preferential rights upon liquidation of the business like an LLC. For example, a LLC can offer non-voting and voting shares to shareholders/partners. Often times, accounting and law firms will have different classifications of partners or members. Basically, this different classification is equity and non-equity partners.

The third difference is costs. An LLC is generally more expensive to operate in terms of initial and annual operating costs. In Illinois, an LLC costs $500 to incorporate where as a corporation costs $175. An LLC also has $250 to $400 in annual reports costs compared to $125 to $200 for a Corporation. In my opinion, most small business owners benefit from the S corporation unless they are entreprenerial and expect to offer partnership and ownership opportunities to key employees. Then, the LLC generally is a much more beneficial business entity because of its' flexibility.

Sean Robertson is a business and asset protection attorney that concentrates in small to medium sized business law. Sean can be reached at (312) 498-6080 or Sean@RobertsonLawGroup.com. Sean is a entrepreneur and loves representing fellow small business owners and entrepreneurs.

Rod Blagojevich and Entrepreneurship

Today is the beginning of the Blago trial. As an attorney and a person that often gets people that say that "you look like Sam Adam, Jr. or are you Sam Adam, Sr or do you know who Sam Adam is?", this is an interesting legal case involving serious public trust issues. Sam Adam, Jr. is one of the defense attorneys for Blago.

I was explaining to my wife that I would love to witness one day of the trial involving the former Governor of Illinois. I love being self-employed in part because we work very hard but we have the flexibility to pursue hobbies and interests. My wife, Brenda, and I may go sit in at the Blago trial next week or the following week. My main point is entrepreneurship enables you and your family to work your passion, to help people, and provide you many rewarding experiences.

Over the years, I have witnessed different levels of entrepreneurs. First, many business owners are financially smart but fail to understand corporate formalities and the legal consequences of contracts. For example, I have two (2) clients lately that have signed contracts and been sued for breach of contract because they thought that they could simply stop paying their vendor when they felt that the vendor was not meeting the requirement under the contract.

Hence, it is important for business owners and entrepreneurs to understand that you simply cannot decide to ignore a contract. In many instances, entrepreneurs are correct in wanting a certain result, but they fail to read their obligations under the contract prior to breaching or stopping to perform the contract. With my two (2) clients, attorney's fees and costs would get awarded upon trial. Therefore, any legal settlement must be considered with this in mind. My basic advice is do not ignore the corporate and legal formalities required as a business owner. This failure may result in thousands of dollars in debt that must get repaid or it may be the difference in your business succeeding or failing.

In conclusion, entrepreneurship is awesome but it comes with responsibility. If you are not responsible and fail to properly plan and follow corporate and legal formalities, you will be working for somebody again. I love working for fellow entrepreneurs and given them business and legal advice.

At the Robertson law Group, LLC, we counsel business clients on how to resolve disputes with vendors and customers. Secondly, we counsel you and your partners on how to write good partnership agreements and how to utilize LLCs and S corporations to the best of your ability.

Sean Robertson is an Partner and Founder of Robertson Law Group, LLC. Sean can be reached at either (312) 498-6080 or (630) 364-2318. We have offices in Naperville and Chicago, Illinois. Our website is www.RobertsonLawGroup.com.