I Want to Start My Own Business. What Legal Things Do I Need to Consider?

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Reader question: I want to go into business for myself, but am not sure where to start. Should I file as a corporation? An LLC? What's the difference, and what else do I need to consider?

:  First and foremost you should have a good business plan in place before proceeding so that you will be able to understand and anticipate the problems that can occur with a new business as well as the opportunities for growth. The Small Business Administration offers free small business advice through an association known as the Service Corps of Retired Executives (SCORE.) They volunteer their time to help, and I think it's a great idea.

As for the entity that you should select, that depends on the type of business you will be conducting and the potential risks of that business.  There are several types of entities that are available. Generally, these are: sole proprietorships, partnerships, limited partnerships, limited liability companies and corporations. 

Illinois law imposes different requirements depending on the type of entity selected.  It is best to obtain the assistance of an attorney to discuss these requirements so that you can make an informed decision.  In order to incorporate in Illinois, Articles of Incorporation must be filed with the Illinois Secretary of State.  In addition, Illinois law requires corporations to hold annual meetings and elect officers and directors as well as establish By-laws for the corporation and issue shares of stock to the shareholders. 

A Limited Liablity Company or LLC is created by filing Articles of Organization with the Illinois Secretary of State.  LLCs are not subject to all of the same governance requirements as corporations, but the members of the LLC should have an operating agreement in place.  If the LLC does not have an operating agreement, the provisions of the Limited Liability Act will apply instead, which may not be what the members had in mind.

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Once you have decided on a type of entity, you will need to obtain:

1. Federal tax ID number
2. Illinois state tax ID number
3. (If you are going to have employees, there will be an additional area of compliance that needs to be discussed.)

It is a good idea to assemble a team of professionals to assist you through this process. Specfically:

1. Accountant—to initially set up and help keep your books
2. Business Attorney—to counsel you on the best way to legally structure your business, assist you with the formation of the entity, explain the requirements that go along with the entity selected and provide advice on how to stay in compliance. 
3. Insurance Agent—to ensure you get the proper type of insurance for your business (you will need to consider workers compensation if you are planning to hire employees)
4. Banker—to help you obtain a line of credit or obtain a loan for the business.

Good luck! And feel free to ask follow up questions in the comments below.