Business Formation FAQs

Q. I want to start my own business. How do I begin?

A. The first step is to write a business plan. It will get you to consider how feasible it is to start the business, how you want your business to grow, and which markets you want to enter. It facilitates objective and critical thinking on the likelihood of success, and will help you keep your business on the right path. It should inform you on what your objectives are for the business and analyze losses, profits, costs, and other projections. Ultimately, it will help you stay on track as the business grows, and if you’ve done solid research, you will have calculated solid financial targets to measure success. Consulting an attorney such as Richard J. Arendt in the greater Chicagoland area is helpful here as he or she can help review your business plan with an eye towards ensuring that it accurately reflects the legal implications of the business.

Q. What kind of ownership structure should I have for my business?

A. There are different ways of structuring a business in Illinois. This includes:

  • Sole Proprietorships or General Partnerships. A Sole proprietorship is the simplest of all business structures involving a single owner. It does not need to be registered with a state, but does not allow owners to enjoy limits to liability or tax benefits as with other structures. General partnerships are the simplest structure for those businesses with two or more owners, but similar to sole proprietorships, do not enjoy limited liability or other tax benefits. With both of these structures, the law does not consider the business separate from its owner or owners.
  • Corporations. Corporations are legal entities that are viewed separately and distinctly from its owners. It requires the satisfaction of legal formalities and registration with the state government, which includes the filing of articles of incorporation and by-laws. Typically, corporations consist of three main groups: directors, who acts on behalf of the corporation and its best interests and directs the corporation’s affairs and business path; officers, who oversee the daily operations of the business; and shareholders, who have invested money in the company and possess an ownership interest. There are different types of corporations, and you should consult with an experienced business attorney to help you determine what kind of corporation best suits your needs.
  • Limited Liability Companies (LLCs). LLCs are business structures that provide limited liability similar to corporations but are not considered as separate taxable entities and, therefore, its owners pay the taxes for the LLC. To form an LLC, you must also satisfy formality requirements such as the filing of articles of organization and the payment of a registration fee with the state.

There are a myriad of different type of businesses structures; Non-profit Corporations, Sole Proprietorships, Benefit Corporations, Limited Liability Partnership (LLP), Professional Limited Liability Company (PLLC or PC), Limited Partnerships.  Whether you choose an S- Corporation or a C Corporation, each has its own tax implications, filing and reporting requirements. It is important to discuss your objectives for the business, your liabilities and your plans for the future with an experienced business attorney who can guide you to the right solution for your business.

Q. What kinds of licenses and permits do I need to start a business and where do I get them?

A. It depends on the kind of business, whether it will have employees, and what kinds of taxes are owed.If the business is a corporation or an LLC, then it must be registered with the Illinois Department of State. It is likely that the business will need a federal employment identification number (EIN) from the federal Internal Revenue Service (IRS) and may need to be registered and/or licensed by the Illinois Department of Revenue. Some municipalities and counties also impose their own taxes in addition to state and federal taxes.

Q. What is a Registered Agent?

A. A registered agent is a responsible third-party who is registered in the same state in which a business entity was established and who is designated to receive service of process (SOP) notices, correspondence from the Secretary of State, and other official government notifications, usually tax forms and notice of lawsuits.

Q. Why do I need a Registered Agent?

A. No matter where you’re starting your business, if you’re forming an LLC or corporation, you’re required to have a registered agent in each state where you do business. But this doesn’t mean you need to hire a registered agent service. A registered agent is simply a person or entity appointed to accept service of process and official mail on your business’ behalf. You can appoint yourself, or in many states, you can appoint your business to be its own registered agent. Which really begs the question, why hire a registered agent at all?

While states vary in their exact requirements for Registered Agents, there are three rules that generally apply:

  1. The Registered Agent must be a resident individual or a domestic or qualified out-of-state corporation.
  2. The Registered Agent’s office address must be a physical address in the state. This means that a P.O. Box does not qualify as an in-state address. Some states require you to designate a “Registered Office” in addition to naming a Registered Agent.
  3. The Registered Agent must be available during “normal” business hours–nine to five, Monday through Friday.

Q. Why can’t I just be my own Registered Agent?

A. If you meet the requirements for being a Registered Agent, you can certainly do that. Remember you must have a physical address in each state where you conduct business. Before you choose to be your own registered agent, consider some of the obstacles that could negatively impact your business.  A registered agent is your business’ contact to the State where you do business   Are you always going to be available?

  1. If you are using your personal address as your business address, the Registered agent’s address is publicly available, anyone has access to it, including marketers, mailing lists, and spammers. Registered agents often receive unsolicited junk mail for the businesses they represent.  If you wish to keep your company or personal address information confidential, opt for a third party registered agent. You’ll get an extra layer of privacy and won’t have to deal with as much unsolicited mail.
  2. Time-sensitive materials require immediate attention. You’re busy running your business and most certainly that means you’re not always available during regular business hours to receive important communications that require a response by a certain deadline or due date. A professional registered agent is available for the receipt of official documents and will forward them to you in a timely fashion so you don’t miss important annual report, tax and litigation filing deadlines. A reliable professional agent helps you avoid the consequences of improper handling of critical paperwork.  Consider this scenario: you missed the paperwork for litigation against your business. If someone was not there to accept the paperwork, in Illinois, it is delivered to the Secretary of State.  Because you were not aware of the court filing and date, you were not in attendance at the court date and a default judgement was issued against your business. Under these circumstances, your business has no ability to appeal the judgement. Is it worth risking your business over this?
  3. Protecting your business image. If you are acting as your registered agent, then service of process papers are served to you at your business.  If you are served with notice of litigation, how will your customers react when they know that your business has been served with litigation?  What does that do to your business reputation?
  4. Maintaining the “Good Standing” of your business.  A business in ‘Good Standing” means that the business entity is current with the payment of all required filing fees, licensing, tax obligations and filing of all required periodic reports. A registered agent will keep track of the deadlines for your business and ensure that you are filing your required reporting on time.

Q. How does a business lose its good standing?

A. The most common reason that a business loses their good standing is when they do not file their required annual reporting on time or their franchise tax obligations were not paid on time.  States can often raise fees, change deadline dates or change the forms required.  If a business does not know about these changes, the notification may not be sent or could be directed to the wrong person.

Q. What happens when a business is not in good standing?

A.  Several things can happen to a business that loses its good standing.  A business can lose its access to the court system. A business can have difficulties in securing financing because most lenders consider a loss of good standing as an indication of increased risk. If the business loses its good standing because of missed tax payments, a tax lien will be issued against the business.  A tax lien takes priority over any other lien against the business.   In addition to the tax implications, you could have your business dissolved by the state, and also lose your right to secure the name of your business. In this case, someone could take your business name and you would have no recourse to stop this action.  Many states also impose penalties on companies that don’t comply with requirements of the state.  When a corporation or LLC is dissolved or revoked, you can also lose your personal liability status and can be held accountable personally for the obligations of the revoked business.

Q. How do I choose a registered agent?

A. The right registered agent is a partner in the success of your business. A reliable professional registered agent gives you peace of mind that you won’t miss a critical filing and endanger your business’s good standing. The Law Office of Richard J. Arendt has been a registered agent for hundreds of businesses. As the registered agent for your business, and a law firm, you can have the confidence of knowing that we are aware of any compliance issues and any changes the State of Illinois may make to fees, forms, or deadlines.  In the event of any lawsuit, we can be ahead of it and ensure that your required response is timely and appropriate.

Q. What happens if you fail to maintain a Registered Agent?

A. Failing to have a registered agent contact in the state in which your business was formed and also in the states where your business has expanded may result in serious adverse consequences. Your business can be administratively dissolved in the state of its formation and forfeit the authority to do business in other states. Continuing to do business as usual under this status means your business is not only subject to fines and penalties but may also be unable to defend itself in a lawsuit. Reinstatement of what is known as “good standing” for businesses varies state-by-state and can be a tedious—and expensive—process.  In many cases it may be cheaper to start a new business than to pay the fines and penalties of reinstated a revoked business.

If you are looking to start a business, the Law Office of Richard J. Arendt can help. Dedicated to providing seasoned representation in the greater Chicagoland area, including Boone, Cook, Du Page, Kane, McHenry, Lake, and Will counties, Richard J. Arendt has decades of experience helping individuals begin the journey towards starting their own businesses.