I was having a conversation with another attorney who was incorporating a client that was taking the stance that an LLC is better than an S-Corporation. The reduced organization fee and annual report fee do make it more comparable in price. Also once organized an LLC can be converted for tax reporting purposes to an S-Corporation, if within a specified time period. But if more than one owner you may still need an “Operating Agreement”.
The argument by the attorney for the LLC is that the legal requirements of an S-Corporation are deemed too strenuous for a business owner to enact without an attorney.
In Illinois the requirements look something like this:
- File Articles of Incorporation with the Secretary of State – this filing will create your corporation and name its shareholders. Either option requires paperwork filed with the state.
- Draft Bylaws – Bylaws are the rules for the operation of your corporation and the interactions between shareholders. Even if your corporation only consists of one shareholder, you will need a set of bylaws in order to show that the corporation is distinct from the shareholder as an individual. This is available in any ordered Corporate Record Book. I typically share a vendor with clients, I have them for my businesses.
- Hold an Initial Meeting of Shareholders – At this initial meeting, you should adopt your bylaws and elect directors. You should draft minutes from this meeting and file them in your corporate book. Again, even if you are the only shareholder in your corporation, it is important to hold and keep minutes of initial and annual shareholder meetings.
- Create a Stock Ledger – A stock ledger is a document recording the issuance and transfer of all shares, as well as the names and addresses of all current shareholders as well as the number of shares held by each. This again in in any ordered Corporate Record Book.
- Create a Corporate Book – This is a book that should be created and maintained by your attorney to house all corporate documents including your bylaws, meeting minutes, and notices.
- File Annual Reports – This is an annual filing required by the secretary of state to update the information on file for the corporation. An accompanying fee is required to be paid on an annual basis. This goes to the Registered Agent on file.
- Hold an Annual Meeting of Shareholders – At least one shareholder meeting per year is generally required. In preparing for the meeting, it is important to comply with the notice requirements in your bylaws. Minutes of the meeting should be recorded in your corporate book. These are required by Illinois per (805 ILCS 5/7.05) (from Ch. 32, par. 7.05)
- Follow the Bylaws for Corporate Action – Your bylaws should indicate which corporate actions require the Directors to vote or consent in writing, which require the vote or consent of shareholders, and which require neither. You should know what your bylaws require and comply with them before taking corporate action.
Typically when I am meeting with a client for the 3rd Qtr year-end tax planning meeting we hold with business clients. The notes and planning become part of the corporate books and records. We even hold the elections.
For assistance in maintain your records we can assist, or refer you to an attorney for assistance.