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Attorneys and Counselors at Law |
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Businesses & Corporations | |
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Assumed NameA corporation may legally operate under an assumed name as well as the name specified in its Article of Incorporation. In fact, a company could operate under several different names if they had various divisions or products or services. To do so legally, the corporation must file an Application to Adopt a Corporate Assumed Name. Unlike the legal name of the corporation, an assumed name does not need to include a corporate ending. As with corporate names generally, all Assumed Names must be approved by the State for use. It is advisable to check these names for availability before filing the Assumed Name application. Assumed Names must be renewed in five-year increments, and the State requires that all corporations renew its Assumed Names in any year ending in “ C Corporations (Closely Held Corporations)Most complex business enterprises in the United States are conducted in corporate form, but the nature of business corporations varies greatly. The shareholders of a closely held corporation generally have substantially different interests than shareholders of a publicly held company. As a rule, shareholders of a public corporation are unknown to one another and regard their stock solely as an investment, with market price and return being the criteria on whether the shareholder continues to hold his stock or sells it. If a shareholder of a public corporation is dissatisfied with corporate management, he will generally prefer to sell his marketable stock rather than to attempt to change or influence management. On the other hand, in the case of a closely held corporation, the shareholders are generally known to one another and are actively engaged in the management or conduct of the business as directors, officers, or employees. Their stock interest, which is not readily marketable, is frequently important in preserving the shareholders’ influence (both in protecting employment and controlling management). Also, because the stock often represents an important asset in the shareholder's estate and because various capital arrangements (including preferred stock and corporate debt) can be utilized in a closely held setting, the closely held corporate stock is often an important element in estate planning. Some shareholders may be solely investors of a closely held corporation, but, because of their interests as shareholder-employees or the relative size of their investments, they may desire to have some control over management decisions. These considerations require analysis and techniques in the organization and operation of the closely held corporation and the exercise of shareholder rights that are not usually appropriate or employed in a publicly held corporation. CorporationsA corporation is a construct of state law that provides for the existence of a legal entity that is separate from its owners. It is a distinct legal “person” that is capable of owning assets in its own name, of suing and being sued, and of having residency within a state for purposes of jurisdiction in litigation. The owners of a corporation are referred to as “shareholders” or “stockholders.” The corporate laws of every state, provide for the limited liability of the stockholders, free transferability of their interests, and centralized management and continued existence of the entity. In The liability of an individual stockholder for the obligations and liabilities of the corporation is limited to the assets that the stockholder contributed to the corporation in return for stock. The limited liability of the corporate stockholders may be lost if it is determined that the corporation was inadequately capitalized for the business conducted. In addition, the stockholders may lose their limited liability if the corporation fails to maintain the required legal formalities or if the corporation fails to maintain its activities as separate and distinct from those of its owners. Stockholders may be any persons or legal entities, including individuals, trusts, estates, any form of partnership, or any other form of legal entity. However, if a corporation seeks S corporation status for tax purposes, it may not have certain kinds of entities as stockholders. A corporation begins its existence by completing and filing a corporate charter, which in Illinois is referred to as the “Articles of Incorporation.” The state’s corporate law dictates the contents of the charter documents, and the charter may not contain provisions that are at odds with that law. The name of the entity must contain the word “Company,” “Corporation,” “Incorporated,” or “Limited” or the abbreviation of any of those words. In addition, the incorporator must pay the initial fees to the filing authority - often the state’s department of corporation, but in General Partnership If more than one person is involved in the operation of a business, the most common form employed is the general partnership. The owners of a business operated as a general partnership can be any combination of individuals, corporations, or other legal entities (trusts, estates, or other partnerships). The general partnership, like the sole proprietorship, is not a legal entity separate and distinct from its owners. As a result, each general partner, like a sole proprietor, is personally liable for all of the debts, liabilities, and other obligations of the business. However, unlike the sole proprietorship, the general partnership does have separate status for tax purposes. A general partnership is required to file a separate return to report its business operations (Form A general partnership is created whenever two or more individuals or legal entities operate a business with the intention of sharing its profits and losses. While no legal documents are required to commence operations, it is highly recommended that the parties negotiate and enter into a partnership agreement, because unlike the sole proprietorship, the general partnership is governed by statute. For more details please see Uniform Partnership Act or Uniform Partnership Act of 1997. Limited Liability Company (LLC)The limited liability company (LLC) is a new form of doing business that has come into use in the Although the LLC concept is relatively new, it is widely used. Moreover, the basic governing document, the operating agreement, must be crafted carefully and can be complex. Thus, in order to advise clients properly about alternative forms of doing business, attorneys will need to know about LLCs and become familiar with the applicable statutes, forms, and procedures. An LLC is an unincorporated form of doing business that provides its owners (members) with limited liability. The LLC allows members flexibility to participate actively in managing the business or to delegate to managers some or all managerial power. Under the so-called “check-the-box” regulations adopted by the Internal Revenue Service, LLCs with at least two members are classified as partnerships for federal income tax purposes unless they choose different treatment. If an LLC is classified as a partnership, no entity-level tax is paid by the LLC; rather, tax is paid by the owners, at their individual rates, based on their shares of the LLC's earnings. Thus, the LLC is a “best of all worlds” concept, combining a corporation’s limited liability with a general or limited partnership’s flow-through taxation and a management structure that may be more flexible than is typical in a general partnership. One of the primary benefits of the LLC, and a key distinction between it and a limited or general partnership, is the LLC’s limited liability to all its members. While the extent to which the corporate concept of “piercing the veil” applies to the LLC is still unclear, members of an LLC, like shareholders in a corporation, are generally liable for the debts of the LLC only to the extent of their capital contributions to the LLC. In contrast, in a general partnership all partners are jointly and severally liable for the debts of the partnership, and in a limited partnership at least the general partner is liable for the debts of the partnership. An LLC may be managed by its members, or they may delegate various degrees of managerial authority to one or more managers. Managers may be, but are not required to be, members. If the LLC is managed by the members, that structure is different from that of a corporation since the owners are not relegated to the role of passive investors. Members are still the prime actors in the conduct of the business and, therefore, function in a manner similar to general partners in a general partnership. This management structure also differs significantly from that of the limited partnership. Indeed, a limited partner risks losing limited liability by becoming active in the management and control of the business. However, if substantially all of the managerial powers of an LLC are vested in managers, then that management structure is similar to that of a corporation. Alternatively, the members may delegate certain responsibilities to managers while retaining substantial managerial powers and authority. In that case, the management structure is a hybrid combining elements of the corporate form with that of the general partnership. For more information please see Limited Liability Company Act ( Limited Partnership A limited partnership is an entity that does not exist in common law. Its existence is permitted only by statute - in Illinois, by the Revised Uniform Limited Partnership Act (RULPA). A limited partnership is similar to a general partnership in most aspects, but there are several important departures. First, a limited partnership must have at least one “limited partner.” In addition, every limited partnership must have at least one “general partner.” Limited partners are very similar in status to corporate stockholders. A limited partner is a passive investor, precluded by law from participating in the day-to-day operations of the business. In addition, the liability of the limited partner for the obligations of the business is limited to the amount of that partner’s contribution to the entity. It is important to note that the participation of a limited partner in the operations of the business will result in the forfeiture of the limitation of liability. On the other hand, the general partner in a limited partnership does participate in the management of the business and has unlimited liability for the obligations of the partnership. As a result, the general partner of a limited partnership is often a corporation, and the liability is limited to the assets of the corporate general partner. Limited partnerships also file tax returns on Form Limited Liability PartnershipIn The rights and obligations of the partners to one another are determined, subject to a written agreement to the contrary, under the UPA. Medical CorporationsDefinition A medical corporation is one organized under the Medical Corporation Act solely for those individuals licensed pursuant to the Illinois Medical Practice Act. Owners and Officers ALL shareholders, directors and officers of the corporation must be duly licensed pursuant to the Medical Practice Act. No person who is not so licensed shall have any part in the ownership, management or control of the corporation, nor may any proxy to vote the shares of the corporation be given to any person not so licensed. Incorporation A medical corporation may be incorporated by one or more persons licensed pursuant to the Medical Practice Act or an Illinois attorney by filing Articles of Incorporation with the Department of Business Services and by following the procedure for incorporating businesses as described in this handbook. Corporate Name The name of the corporation must comply with all the requirements of the Business Corporation Act of If the true corporate name does not include the surname of any present or former shareholder, the corporation must record the true corporate name and the names of the shareholders with the Recorder of Deeds of the county in which the corporation is located or has its principal office. Medical corporations may adopt one or more Assumed Corporate Names, in accordance with the provisions of the Business Corporation Act of Share Provisions If not provided for in the by-laws, the Articles of Incorporation shall state a price or a method of determining a fixed price at which the corporation or its shareholders may purchase the shares of a deceased shareholder or a shareholder no longer qualified to own shares in the corporation. In the absence of such a provision in either the by-laws or the Articles, the provisions of the Medical Corporation Act shall determine the price. For more information please see Medical Corporation Act ( Not-for-Profit CorporationsDefinition A not-for-profit corporation is a corporation formed for purposes other than generating a profit and in which no part of the organization’s income is distributed to its directors or officers. Formation The first step is to file not-for-profit articles of incorporation with the Secretary of State. It is important that the articles contain the required clauses to make sure your articles will later on qualify for tax-exempt status under the IRS guidelines. Additionally, depending on the type of corporation, approval by the Department of Professional Regulations may be required beforehand. After the not-for-profit articles are filed, tax-exempt status must be applied for at both the federal and state levels. To apply at the federal level, a timely filing of form IRS classifications of not-for-profit Corporations To qualify for federal tax-exempt status under section The religious category refers to general types of religious organizations and more formal institutionalized churches. Charitable purpose is defined in section Scientific research that is carried on in the public interest qualifies for tax-exempt status; however, research incidental to commercial or industrial operations does not qualify. The literary purpose includes writing, publishing and distribution of books which are directed toward promoting the public interest rather than engaging in commercial book writing and selling. The educational purpose is a broad purpose that allows instruction for both self-development and the benefit of the community. For more information please see General Not For Profit Corporation Act of 1986 ( Professional CorporationsDefinition A professional service corporation is one organized under the Professional Service Corporation Act solely for the purpose of rendering one category of professional services or related services. Professional service is any personal service which requires as a condition precedent to the rendering thereof the obtaining of a license from a state agency, the U.S. Patent Office or the Internal Revenue Service of the U.S. Treasury Service. Related services which are permitted are a combination of two or more professions. Owners and Officers ALL shareholders, directors, officers, agents and employees (other than ancillary personnel or the corporate secretary) must be licensed to render the same professional service or related professional services for which the corporation is organized. If the corporation has only one shareholder, it need have only one director who shall be the shareholder and who may also serve as president, secretary and treasurer. If the corporation has only two shareholders, it need have only two directors who shall be the shareholders and they shall fill the offices of president, vice-president, secretary and treasurer between them. No shareholder shall enter into a voting trust agreement or any type of agreement vesting another person with the authority to exercise the voting powers of any of his or her stock. Incorporation A professional corporation may be incorporated by one or more persons licensed pursuant to the respective profession or an Illinois attorney by filing Articles of Incorporation with the Department of Business Services and by following the procedure for incorporation of businesses described in this handbook. Corporate Name The name of the corporation must comply with all requirements of the Business Corporation Act of Professional service corporations may adopt one or more assumed corporate names, in accordance with the provisions of the Business Corporation Act of S CorporationsThe technical requirements and restrictions that govern the eligibility, operation, and termination of S corporations, are both substantive and procedural in nature. A knowledge and understanding of these rules is critical in determining whether to make an S corporation election, not only as to the initial eligibility, but also with regard to whether the corporation will remain eligible and whether remaining eligible unreasonably limits the corporation's flexibility. Among the substantive restrictions of recurring importance in the business planning process are the following: a. There is a limit of b. The types of shareholders are limited to individuals, estates, and specified types of trusts. However, an S corporation can have another S corporation as its sole shareholder if the subsidiary corporation meets the definition of a “qualified subchapter S subsidiary” under the Code. c. There is a limit of one class of stock outstanding, thus preventing the use of preferred stock and various other creative capital structures. However, the Code provides a limited safe harbor for certain straight-debt instruments against reclassification as equity and also permits differences in voting rights among series of common stock. d. There is a requirement of unanimous election of Subchapter S status with restrictive procedural rules as to timing and form. e. There are possible limits on income from passive sources. f. There are restrictions limiting the types of corporate entities that may elect S status (e.g., insurance companies cannot be S corporations). Solo Proprietorship The sole proprietorship is the simplest form of operating a business - it is an individual doing business in his or her own name or under an assumed name (which may require filing and publication). Except for obtaining the requisite local licenses and permits, it requires no legal intervention to start or end the business, but it does have several drawbacks. Under the law, the sole proprietorship does not have a separate legal existence. Therefore, it requires no documentation to initiate business. However, because the sole proprietorship is not a distinct legal entity, this form of doing business provides the owner with no protection from personal liability for the obligations of the business. All of the personal wealth of the owner (house, car, bank accounts, etc.), even if wholly unrelated to the operation of the business, is at risk. The sole proprietorship operates completely as the owner chooses. No legal formalities, such as stockholder meetings, the election of directors, or the approval of actions by directors, are required since there is no statute that dictates the operation of a sole proprietorship. While the sole proprietorship should maintain separate books and records for tracking the income and expenses of the business, there is no separate tax return that must be filed by it. The sole proprietor merely reports the operations of the business on Schedule C of Form A sole proprietor may terminate the business at any time simply by ceasing to do business. However, the sole proprietor does remain personally liable for the unpaid obligations of the terminated business. A sole proprietor sells the business by selling the assets that comprise the business and must report that transaction on his or her personal tax return. Individuals who are starting a new business, especially if the business is a service business, does not require substantial capital, and is not generally susceptible to great personal risk, typically use a sole proprietorship. In addition, this form is also used if the business is intended to be part-time or for a short duration. |
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