Sun 17 Apr 2016 | By:

Pros and Cons to Forming a Corporation in Illinois

Pros and Cons to Forming a Corporation

Incorporating your Illinois small business is the best way to start your operations. Running an incorporated business can give you loads of benefits and advantages – it will even make you more favorable in the eyes of customers. If you’re confused about which entity you should pick, you may want to look into starting a Corporation in Illinois.

But before you decide to learn how to start a Corporation in Illinois, read this article first to determine if it’s the right business structure for you. In this article, we’re going to talk about the advantages and disadvantages of forming an Illinois Corporation. Let’s start!


Pros to Starting a Corporation in Illinois

1) Protection Against Liabilities

When you incorporate and form an Illinois Corporation, your business will be recognized by the state as a separate entity, one with its own rights and transactions. Therefore, if it faces any issues and problems in the future, it will be accountable for its own mistakes. The state will respect its right to due process and treat your business fairly.

Having said this, you will also be fully protected as a business owner. Whether it’s legal, financial and personal, you will be excused from all liabilities related to your business. You can sleep soundly at night knowing that your personal assets are protected.

2) Unlimited Life

One of the most important advantages of incorporating your Illinois small business as a corporation is ensuring its lifetime existence. There’s a 100% chance that your business will outlive you or your co-founders. If you want to continue its legacy even when you’re no longer there, it’s best to form it as a corporation.

Even if your business changes its management structure or ownership, it will still be allowed by the state to continue its operations. Aside from this, the ability of a corporation to easily transfer shares of stocks helps it to survive for many years.

3) Lower State Taxes

Your Illinois startup is in charge of paying its own taxes and if you decide to incorporate it as a corporation, it will be able to save a lot on taxes. The state of Illinois or any other state for that matter has lenient tax laws when it comes to corporations.

If your business qualifies under the small business category and it has an active income, it will benefit from a lot of deductions and reduced income taxes. The state also has fewer restrictions when it comes to capital losses reports, improving business transparency thus, your Illinois LLC will be spared from strict audits.

4) Business Credibility

If you incorporate your business under corporation, it will be able to establish your corporate identity. Having the abbreviation Co. right after your business name will improve your reputation and image among consumers. Knowing that you’re legally registered before the state as an entity will boost your credibility.

5) Organized Management Structure

Unlike other forms of entities like LLC’s, corporations are subject to strict rules when it comes to constructing their management structure. Although this stiff and unbendable rule is quite a disadvantage for many, this will surprisingly help your Illinois small business function efficiently.

For a corporation, its organizational structure must be in chronological order, from owners, Board of Directors, shareholders, management team and down to company employees. All roles must have proper job descriptions, with a list of responsibilities and scopes.

These are just some of the most important advantages if you form an Illinois Corporation. If you want to make sure that your business is fit to be incorporated as a Corporation, you can consult with an attorney or (if you want to save money) you can use a business entity comparison chart.


Cons to Starting a Corporation in Illinois

1) Expensive, Challenging and Time-consuming

Government processes are expected to be all these, however, forming an Illinois Corporation is especially daunting. You need to prepare yourself for this because it can really be stressful and exhausting.

Make sure to prepare financially as the process can be quite expensive. For all other tasks, you can always seek the assistance of professionals, use several tools and even ask help from concerned government agencies to guide you.

2) Risk for Double Taxation

This is highly possible, but it can only happen if you pay your shareholders in the form of dividends as payment for their investments. Double Taxation is basically the state where you are taxed twice for corporate income.

To avoid this, make sure you don’t issue dividends to your shareholders, because if you do, you already know what will happen, anyone of them who receives this will be taxed for personal income as well and double taxation takes place.

3) Strictly Regulated by the Government

With all the advantages and perks that an Illinois Corporation receives, it would be normal to think that there are also accompanying government initiated laws that would monitor this. The IRS and other government agencies will always have an eye on your business. The best way to avoid penalties and warnings is to stay compliant and keep everything legal.

4) Difficult to Dissolve

One of the dilemmas of the majority of entrepreneurs when it comes to corporations is that it’s hard to dissolve. While this is highly useful when establishing perpetual existence this can also be a big problem in the future.

If you really want to close down your Illinois Corporation because of bankruptcy or you’ve lost hope that it will ever do good and would want to avoid legal repercussions and penalties, dissolving it is your best option.

However, with the long process and documents that you need to comply with, you’ll undoubtedly find it difficult. Corporations are highly regulated from formation, operation and dissolution.

5) Numerous Corporate Formalities to Follow

Unlike other entities, corporations must follow many corporate formalities for two reasons: first, it is a way to fully establish the business as an entity and second, to comply with state and federal requirements. Some corporate formalities that need to be followed include regular board meetings, employee conferences, safe record keeping of business activities and more.

After reading this article, if you feel like a corporation is not for you, there are other entities which you can choose from. Some of them include forming a limited liability company, sole proprietorship and general partnership. However, all these can’t give you the same amount of benefits that a corporation does. For the good of your Illinois startup, re-examine your options and consider starting a corporation again.

At the end of the day, your decision must boil down to what is good for your Illinois small business. To be able to choose the right entity, assess your business needs thoroughly and determine the size of the business you’re about to build.

Whether or not you decide to form an Illinois Corporation, the most important thing is, you’re convinced that you must incorporate your startup before the state of Illinois. To help you get started, check out this list of Illinois resources!

Need Help Forming Your Corporation?

Have a professional filing service take care of the paperwork for you. All services use online questionnaires that take you less than 15 minutes to fill out.

Please be aware that this is not legal advice – it is solely an informational guide. For details on how to form a Corporation in Illinois or starting a business in Illinois, a lawyer has the best answers for you.

About Ryan James

Half hardworking hermit, half avid adventurer, Ryan founded Startup Savant to simplify entrepreneurship and pay it forward by donating a portion of all revenue to support children's education via