Corporation Formation Attorneys

Corporations Are Created by Incorporating

The specific steps for incorporating a business vary between states. Generally, the process involves the following four steps:

1. Filing articles of incorporation with the relevant state government office. One or more of the shareholders file the articles of incorporation. The articles usually include information such as the corporation's primary purpose and shareholder structure.
2. Creating corporate bylaws. Typically created at the first shareholders' meeting, the bylaws establish the basic rules around how the corporation will operate and address things like regular and special meetings, voting rights, and corporate officers.
3. Issuing stock. Stock is issued to shareholders via stock certificates, formalizing their investment and stake in the company.
4. Electing a board of directors. The shareholders elect a board of directors at a general meeting. This election is crucial because board members play strategic roles in the corporation.

Before incorporating, you should weigh the pros and cons of the business structure to decide whether it's right for your enterprise. Engaging experienced legal counsel, such as our incorporation attorney in Chicago, can facilitate this decision-making process, ensuring compliance with all legal requirements and maximizing the benefits of incorporation.

Advantages of a Corporation

Corporations offer many advantages, some of which are listed below:

• Limited personal liability. As a corporation is a separate legal entity, shareholders are generally protected from the corporation's creditors. Any liability is limited to their individual investment in the business. This means that if a corporation is sued or goes bankrupt, shareholders' personal assets are protected.
• Easy transfer of ownership. Shares in a corporation can easily be transferred. While the corporate bylaws will set out the specific rules for buying and selling shares, a shareholder can leave a corporation simply by selling their shares. This flexibility of ownership ensures a business continues to operate through ownership changes.
• Quick capital raising. A publicly-traded corporation can swiftly raise additional capital by issuing more stock in the business.

These advantages should be balanced against the potential disadvantages of incorporation. Corporations may also foster an environment for growth, as the ability to issue stock can attract new investors, fueling expansion and innovation.

Disadvantages of a Corporation

The disadvantages of a corporation are fewer but can be significant:

• More costly and complex to set up and run. Incorporation incurs more costs and requires more time than setting up a sole proprietorship or partnership. Once established, a corporation is also subject to a stricter regulatory framework. This includes ongoing documentation and filing requirements, such as filing annual reports, keeping minutes at shareholder meetings, maintaining detailed financial records, and opening a separate corporate bank account.
• Potential double taxation. In some circumstances, the profits of a corporation are taxed twice, both at an entity level and at a shareholder level.

As you can see, these advantages and disadvantages may benefit or challenge you—it all depends on the business and your goals. Airdo Werwas, LLC can discuss these factors with you, helping you determine exactly what business structure will work best. 
Fortunately, when it comes to corporations, there are tax options available to meet your needs, allowing flexibility in managing how profits are distributed and taxed.

Tax Options for Corporations

Apart from being incorporated as a corporation, you may want to consider how you want your corporation to be taxed. Below are brief descriptions of different tax structures for your corporation:

IRS Subchapter C (Referred to as C-Corporations for Tax Purposes)

A corporation that is taxed under IRS Subchapter C is commonly referred to as a C corporation. In a C corporation, or C corp, shareholders are taxed on their income from the corporation, and the corporation is also taxed at the entity level. There's no limit to the number of shareholders a C corp can have, making it an ideal structure for businesses requiring significant capital. Utilizing this structure can benefit businesses that forecast rapid expansion or require substantial capital influx.

IRS Subchapter S (Referred to as S-Corporations for Tax Purposes)

A corporation that is taxed under IRS Subchapter S is known as an S corporation. An S corporation, or S corp, is a corporation with special tax status. It is taxed like a partnership and does not pay federal corporate tax. Instead, the corporation's profits and losses are passed on to shareholders who are taxed pursuant to the personal tax rate. 

There are strict eligibility rules a corporation must meet to elect S corp status. The number of shareholders is limited to 100, and specific rules determine shareholder eligibility. This tax status is often a favorable option for businesses that wish to avoid double taxation while still enjoying the benefits of incorporation.

Non-Profit Corporations

Corporations can also be used to establish non-profit ventures such as charities, educational institutions, and religious organizations. Rather than distributing profits to shareholders, profits are reinvested in the business, so non-profit corporations are typically exempt from paying taxes. Airdo Werwas, LLC has substantial experience working with and advising non-profit corporations and can help establish and maintain an organization's tax-exempt status at the local, state, and federal levels. This status not only allows for tax benefits but also reinforces the corporation's commitment to its charitable, educational, or religious missions.

Factors to Consider Before Incorporating

Before you incorporate, you may want to evaluate the following six factors to ensure incorporation aligns with your business strategy:

1. Complexity. What type of business do you have, and how complex is its structure or management?
2. Liability. How significant is personal liability to you?
3. Number of Owners. Will ownership be divided among others, or do you want to maintain sole ownership?
4. Capital. Do you need to raise capital, and if so, how much?
5. Taxation. Double taxation is a hallmark of corporations, and as such, how does this affect the business?
6. Survivorship. If something happens to you (e.g., incapacitation or death), do you want the company to survive?

Airdo Werwas, LLC can help you assess and weigh these factors and decide if a corporation is the right fit for your business. We provide guidance to ensure all legal and strategic considerations are thoroughly addressed before you proceed with incorporation.

Frequently Asked Questions

What Are the Steps to Incorporation in Chicago?

Incorporating a business in Chicago requires several key steps. First, selecting a unique business name and ensuring it meets state guidelines is essential. You must also appoint a registered agent who will handle legal documents on behalf of your business. The next step is filing the articles of incorporation with the Illinois Secretary of State, which officially recognizes your corporation. Creating corporate bylaws detailing the operational framework of your business is equally important. Finally, hosting an organizational meeting to appoint a board of directors and issue shares is advisable. Consulting with an incorporation lawyer in Chicago familiar with Illinois laws can simplify this process and protect your interests.

How Does Local Regulation Affect Business Incorporation in Chicago?

Local regulations in Chicago can significantly impact the business incorporation process, affecting how businesses operate and achieve compliance. Factors such as zoning laws, environmental regulations, and local business ordinances can influence the choice of business location and operations. It's critical to stay informed about the Chicago Department of Business Affairs & Consumer Protection guidelines, as they offer resources and support for adherence to city-specific rules. Partnering with a legal firm experienced in Chicago regulations ensures your corporation remains compliant, minimizing risk and unexpected legal challenges. Working with an experienced incorporation lawyer in Chicago ensures your corporation remains compliant, minimizing risks and avoiding legal challenges.

What Are the Costs Associated with Incorporation in Illinois?

Incorporating a business in Illinois involves several costs, including filing fees for the articles of incorporation and fees associated with maintaining a registered agent. Additional costs may arise from publishing notice of incorporation, if required, and licensing or permit fees, depending on your business type. Legal fees can also be a consideration, as engaging professional legal assistance helps ensure the process is completed accurately and efficiently. Understanding these costs helps in budgeting effectively for incorporation and aids in making informed business decisions.

Can a Corporation be Converted to an LLC in Illinois?

Yes, a corporation in Illinois can be converted to a Limited Liability Company (LLC) if it meets certain criteria. The conversion process involves obtaining approval from the corporation's board of directors and shareholders, followed by filing the necessary paperwork with the Illinois Secretary of State. Additionally, business owners must draft and approve an LLC operating agreement. This type of restructuring can offer benefits such as simplified tax reporting and flexibility in management, but consulting with legal counsel is advisable to address any potential legal and financial implications thoroughly.

What Role Does a Registered Agent Play in Chicago Corporations?

A registered agent in Chicago is an individual or entity designated to receive legal documents on behalf of a corporation. This role is crucial as the agent ensures that the corporation remains informed about lawsuits, subpoenas, or official government communications. Having a registered agent based in Illinois is mandatory for compliance, and failing to maintain one can lead to administrative dissolution. Engaging a reliable registered agent service guarantees timely delivery of important documents, enabling the corporation to respond quickly to legal and business matters.

Contact Airdo Werwas, LLC Today

If you need to incorporate a business, do it strategically and smartly. Airdo Werwas, LLC helps clients form corporations and plan for their futures. Contact us either by completing the online form or by calling (312) 506-4450, and we will schedule a consultation to discuss your business venture. We are dedicated to providing personalized service, ensuring each legal solution aligns with your business’s specific objectives and needs. With our experience in the field, we guide you comprehensively from initial inquiries to final incorporation, ensuring no step is overlooked in creating a solid foundation for your venture. Partnering with an experienced incorporation lawyer in Illinois helps ensure your corporation stays compliant, reducing risks and preventing unexpected legal issues.

Contact Airdo Werwas, LLC at (312) 506-4450 to schedule a consultation and learn more about corporations and your business ideas.