Illinois S Corp: Everything You Need to Know
An Illinois S corp is a corporation that chooses to pass all corporate income, deductions, losses, and credits through the shareholders for the purposes of federal taxes. 3 min read
2. Important Points to Consider When Forming an Illinois S Corporation
3. Limited Liability for Shareholders
4. Raising Capital for an S Corporation
5. Tax Implications for S Corporations
An Illinois S corp is a corporation that chooses to pass all corporate income, deductions, losses, and credits through the shareholders for the purposes of federal taxes. Many entrepreneurs in the state of Illinois consider forming an Illinois S-corp due to its many advantages.
Illinois S Corporation: Overview
The Illinois S corporation is ideal for entrepreneurs who want to establish an organization with a formal structure like that of a corporation but with limited liability and pass-through taxation of the profits.
An Illinois S corporation is a standard corporation that turns into an S corporation when the shareholders designate a special tax status with the IRS. Shareholders need to file the IRS Form 2553. This can only be done after the official documents are filed with the state.
Just like a C corporation, an S corporation is viewed as an individual entity by the law. An S corporation is viewed as separate from the owners and is often treated like a human being.
Shareholders of an Illinois S corporation enjoy limited liability when it comes to obligations, debts, and liabilities incurred by the corporation. The same is also true when it comes to liability stemming from legal action.
In general, shareholders are not able to lose more money than the amount they chose to invest in the corporation. In the event an S corporation goes bankrupt, the owners will not be held liable for its debts.
If someone sues an S corporation and the court finds the organization liable, the property of the corporation can be taken away to satisfy the judgment. However, if the property is not sufficient to satisfy the judgment, the personal assets of the shareholders cannot be taken away. Some examples of personal assets include the following:
- A bank account
- A home
- A car
Important Points to Consider When Forming an Illinois S Corporation
In order to form an S corporation in the state of Illinois, official documents need to be filed with the state. Also, the state filing fees need to be paid in full.
The shareholders need to file Form 2553 to elect special tax status. This form needs to be filed with the IRS.
By law, an Illinois S corporation is viewed as an entity that is separate from its shareholders. When establishing an organization, shareholders interested in incorporating the organization into an S corporation should keep in mind that there are limitations when it comes to the type of businesses S corporations in Illinois are able to conduct.
The owners of an S corporation need to record minutes that document the meetings of the board of directors and the stockholders.
Illinois S corporations are not able to have a number of shareholders that exceeds 100. Shareholders are not allowed to be other corporations, partnerships, non-resident aliens, limited liability companies, or certain trusts.
Limited Liability for Shareholders
Shareholders of Illinois S corporations usually enjoy limited liability. These shareholders cannot lose more money than the total they invested in the organization.
The protection of the personal assets of shareholders is one of the main reasons why many business owners decide to incorporate. However, there are a few exceptions to this rule. For example, shareholders can be held personally liable in instances of fraud.
Raising Capital for an S Corporation
In comparison to other types of businesses, S corporations often have an easier time getting additional capital. The reason for this is that the owners of S corporations can issue and sell stock as well as other forms of financial instruments to serve as evidence of interest.
In some cases, the sale of stock is subjected to both federal and state securities laws. Ownership of the corporation can be transferred via the process of selling stock. S corporations are only able to have a single class of stock. However, the voting rights of S corporations can differ.
Tax Implications for S Corporations
Usually, S corporations in Illinois are audited less frequently than partnerships and sole proprietorships. S corporations in Illinois enjoy the advantages of pass-through taxation. This means that the shareholders can avoid the dreaded double taxation that applies to C corporations.
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