S corp LLC: does the LLC make the Illinois close corporation with S election obsolete?
Illinois Bar Journal › Vol. 95 Nbr. 10, October 2007
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Summary
Limited liability company
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S corp LLC: does the LLC make the Illinois close corporation with S election obsolete?
In 1996, the Internal Revenue Service ruled that a limited liability company (LLC) would be taxed as a partnership unless the LLC chose to be taxed as a corporation. (1) Since then, LLCs have become increasingly popular in Illinois. As of 2004, there were over 68,000 registered LLCs in the state. (2)
The Illinois Limited Liability Company Act (3) (LLC Act) now allows LLCs to enjoy many benefits. An LCC can have one or more members (either natural or business-entity), offer limited liability to those members, enjoy perpetual life, and be managed by either member or nonmember managers. Also, if a member dissociates from the firm, the LLC must purchase his distributional interest. Given the many benefits of an LLC, is there any reason to advise a small business that wishes to be taxed as a partnership (i.e., with tax liability passing through to the owners) to instead create a close corporation and then make the Subchapter S election? The answer is "maybe." This article will compare and contrast certain features of the Illinois Close Corporation Act (CCA) and the LLC Act and examine situations in which a small, nonprofessional business that wants single ...See the full content of this document
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