Forming a business partnership? There are several alternatives available, but the choice will be determined by the purpose and structure of the business venture.
Partnerships can take various forms and the laws regarding their formation are based on state law and the legal structure is usually overseen by the Illinois Secretary of State. The state laws are usually based on the state in which business is transacted or where the business has been registered to transact business.
There are a number of forms of partnerships, and the choice is determined by the purpose and taxation of the business.
General partnerships are those in which all of the partners are active in the operation of the business. In the absence of any formal structure or registration with the Secretary of State, partnerships are considered to be general partnerships. The organization, operation and management is usually governed by a written agreement between the partners. In the absence of a written agreement, courts will look to the history of how business was transacted and common law to determine the rights and interests of the partners. We generally do not recommend a general partnership as a form of doing business since all of the partners can have liability that attaches to their personal assets.
Limited partnerships – This form of business usually has silent investors (Limited Partners) who have invested in the business but have no active role in the business while the business is managed and run by one or more General Partners. The advantage is the liability of the limited partners is limited to the amount of their investment.
Limited Liability Company (LLC) is a blend between a partnership and a corporation and is a preferred form of partnership. The partners are “members” and members of the LLC have no personal liability while managing the business. And, it can have flow-through taxation as a Sub-Chapter S Election. This means the LLC does not pay corporation taxes and the income (and losses) flow thru to the members of the LLC. The limitation of personal liability associated with an LLC have made the use of LLCs widespread and have become the preferred form of business ownership for small businesses and other forms of business structures have fallen by the wayside.
There are other options such as Joint Ventures, C corporations, S corporations, and not-for-profit corporations. Each one may have certain advantages depending on the unique needs of your business. Generally, corporations may have different classes of shareholders, all of whom delegate management of the company to a Board of Directors, who in turn elect officers to handle the day-to-day operation of the business.
We have prepared a chart showing some of the main differences between the several options of business structure and the tax differences between the various business structures.
Which Business Structure is Best for Your Business?This is a question that can only be answered by experienced Chicago Business Lawyers. At the law firm of Bellas & Wachowski, we have been helping organize and advise small businesses for over 45 years and understand the differences between the various choices you might have in organizing your business and helping decide which corporate structure suits your business the most. Experience does matter in helping you form a business which will offer you the most protection and tax advantages. Contact Senior Partner George Bellas for more information.