Startup Lawyer & Business Organization Attorneys
As a startup lawyer and business organization attorney, I help ensure that sole proprietors and general partners shield their own personal assets from attack for the debts and other liabilities of the business itself. This means a judgment entered against the business is not, in essence, a judgment against the individual owners. Personal assets of the owners can be used to satisfy a judgment against a business, resulting in disastrous consequences including potential bankruptcy in some instances.
I help startups and existing businesses organize and reorganize into the correct business entity in order to minimize risk. I also help guide them through the crucial beginning steps to ensure proper long-term planning. In order to avoid costly and time-consuming mistakes, each entity formation requires sound structural planning from the beginning. I possess the requisite knowledge and skill to provide the appropriate strategic planning necessary to guide your startup or existing business into the future.
An experienced and trusted Illinois startup lawyer gives any business a significant advantage over competitors operating in the dark, or that use online incorporation services that simply promote their products without any real understanding of how the law works.
Where Should You Organize Your Startup?
Almost always, it is best to organize your business in the state where it is physically located. Despite what you may read online from business formation/asset protection services, the state where your business activities occur or where its assets are physically located is generally always the correct state to organize. Businesses with a physical presence in Illinois that organize under the laws of another state must still register to conduct business in Illinois as a foreign business. Without a real need to organize elsewhere, this can add unnecessary initial and annual filing fees and taxes to the bottom line.
In terms of personal liability protection, there is little real benefit for an Illinois business to organize in another state. Many online incorporation and “asset protection” services typically tout Nevada and Wyoming (and sometimes New Mexico) as states that offer business owners a greater degree of personal liability protection from creditors under their business organization laws. But, the statutes of each state can usually be superseded or at least augmented to the benefit of the owners by a well-written LLC operating agreement or (to a lesser degree) corporation bylaws. The organizational documents for a business entity can usually establish what the owners want to accomplish without resorting to that state’s “default” statutes.
Further, online business formation/asset protection services conveniently don’t mention that when courts are trying to determine whether to pierce the corporate veil of a business, they will generally apply the law of their jurisdiction, not the laws of the jurisdiction where the entity was established. A judge in Illinois will most likely use Illinois law and consider Illinois public policy concerns to decide whether your foreign corporation will be protected. Establishing your corporation in Nevada, Wyoming or some other state generally isn’t going to help you much if you happen to live in and get sued in another state. (Internal governance matters are a different story and the laws of the state of organization will generally be honored by foreign state courts for internal disputes.)
That doesn’t mean there are not factors that business owners can consider, which may include:
- The comparative costs of the filing fees and franchise taxes in a particular state and the costs of registering to do business as a foreign corporation or LLC;
- The business income tax structure and tax rates of the given state(s);
- The laws of the state regarding the rights of creditors and beneficial owners, including charging order protections;
- The laws of the state with regard to the rights, responsibilities and fiduciary duties of corporate shareholders, officers, directors or members/managers of an LLC;
- Liabilities of directors, officers, and managers of an LLC;
- Other business-related laws such as corporate ownership of stock, contribution of services for stock and personal liability of the owners;
- Raising venture capital or going public eventually (a Delaware corporation is generally the right choice in this case).
Registering as a foreign entity, franchise, and corporate taxes, charging order protection, rights of creditors and liability of the owners are all fundamental topics we help new business owners understand.
Are Shareholders & LLC Members Ever Personally Liable?
Business owners may still have personal liability after organizing the business entity. Shareholders and LLC members are always liable for their own direct conduct. In addition, courts can impose liability on individuals for the actions of the corporation, which is referred to as “piercing the corporate veil.” In order to avoid personal liability for debts and other acts of the business entity, business owners must be certain to separate the personal affairs of each owner from the business itself and avoid other mistakes. We carefully instruct business owners on how to operate the business as a separate and distinct entity and how to reduce the odds of incurring personal liability.
Can Business Owners Stay Anonymous In Illinois?
Neither shareholders of a corporation or members of an LLC are required to be listed in the organizing documents. However, the directors and officers of a corporation must be disclosed on the corporate annual report required to be filed each year in Illinois with the Secretary of State. Conversely, members of an LLC may name an outside manager to be listed on the articles of organization and on the annual report without listing the members. In that regard, if LLC members name a non-member manager to manager the LLC, it offers more privacy than the corporation. Other states treat disclosure of business owners differently. Keep in mind that complete anonymity really only means disclosure of ownership on public records that can be requested or searched. Individual names are required to be filed in connection with tax federal tax and other regulatory filings for both corporations and LLCs. In addition, a court of law can compel non-owners in some circumstances to disclose the identities of the actual owners of an organized business entity.