How to Get Started with a Disregarded Entity in Chicago
Starting a Disregarded Entity in Chicago: Find Familiar Legal Counsel3 min read
If you are looking to start a disregarded entity in Chicago then it is important to work with legal counsel that is familiar with local laws and regulations. Disregarded entities, also known as single-member LLCs, are pass-through entities with no distinction between their owners and the company. Even though the owners and the single-member LLC have the same liability, it is beneficial to have a disregarded entity in certain situations. This article will discuss how to get started on a disregarded entity in Chicago and what to consider when doing so.
A disregarded entity is a type of Limited Liability Company (LLC) that is owned by one person. It is set up as an LLC for the liability protection that it provides. However, it is “disregarded” or treated as if it doesn’t exist for tax purposes. This means that all of the profits and losses that the LLC makes are passed through to the individual owner and the owner pays taxes on them as part of their personal taxes.
One of the primary advantages of a disregarded entity is the limited liability protection it provides. Even though the owner and the business are considered one and the same for both tax and legal purposes, the owner’s personal assets are still not at risk if the business gets sued. As long as the business is operated legally, the owner cannot be held personally liable.
Another advantage of a disregarded entity is that it allows the owner to separation of business and personal finances. This makes it easier to keep track of income and expenses and can also help to protect personal assets from creditors.
When getting started with a disregarded entity, the first step is to choose an LLC structure and prepare the formation documents. In Chicago, this involves filing the articles of organization with the Illinois Secretary of State and paying the required fee.
It is also important to create an operating agreement, which is the document that outlines the rules and regulations of the company. The operating agreement should include the name and address of the company, the purpose of the company, the ownership percentage of each member, and how profits and losses will be distributed among members. The operating agreement should also include provisions for meetings, voting, and dispute resolution.
Once the business is formed, the next step is to obtain an employer identification number (EIN) from the IRS. This number is used for tax purposes and is required for filing taxes, opening bank accounts, and other business transactions.
It is also important to be aware of the legal requirements for your business. Depending on what type of business you are operating, you may need to obtain certain licenses and permits. These can be obtained from the Illinois Department of Business and Professional Regulation and other state and local government agencies.
Finally, it is important to make sure you stay compliant with all applicable laws and regulations. This means keeping accurate and up-to-date records, filing taxes, and making sure all employees are properly classified and paid. It is especially important to be aware of the federal, state, and local laws and regulations that pertain to your business activities.
Overall, forming a disregarded entity in Chicago can be a complex process. However, if done properly it can provide valuable protection for the owner and help to separate business and personal finances. It is important to work with an experienced legal counsel who understands the local regulations and can help guide you through the process.
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