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List of Forms by Chapter - Chapter 1 — Selection of the Business Entity
- I. [1.1] Introduction
-
II. [1.2] Types of Entities — The Various Forms in Which Business Can Be Conducted - [1.3] Sole Proprietorship
- [1.4] General Partnership
- [1.5] Partnership Agreement
- [1.6] Sale, Transfer, and Termination
- [1.7] Advantages and Disadvantages of the General Partnership
- [1.8] Limited Partnership
- [1.9] Limited Liability Partnership and Limited Liability Limited Partnership
- [1.10] Corporation
- [1.11] Owners and Liability
- [1.12] Organization and Governance — Overview
- [1.13] Board of Directors
- [1.14] Shareholders’ Rights
- [1.15] Officers
- [1.16] Stock and Debt Instruments
- [1.17] Sale, Transfer, and Termination
- [1.18] Advantages and Disadvantages of the Corporation
- [1.19] Close Corporation
- [1.20] Professional Corporation
- [1.21] Benefit Corporation
- [1.22] Limited Liability Company
- [1.23] Organization and Governance — Overview
- [1.24] Operating Agreement and Management
- [1.25] Low-Profit Limited Liability Company
- [1.26] Capitalization and Distributions
- [1.27] Sale, Transfer, and Termination
- [1.28] Professional Limited Liability Company
- III. Nontax Considerations in Selecting a Business Entity
- [1.29] Limited Liability
- [1.30] Sole Proprietorship
- [1.31] General Partnership
- [1.32] Limited Partnership
- [1.33] Limited Liability Partnership and Limited Liability Limited Partnership
- [1.34] Corporation
- [1.35] Limited Liability Company
- [1.36] Administrative Requirements
- [1.37] Sole Proprietorship
- [1.38] General Partnership
- [1.39] Limited Partnership
- [1.40] Limited Liability Partnership and Limited Liability Limited Partnership
- [1.41] Corporation
- [1.42] Limited Liability Company
- Costs
- [1.43] Sole Proprietorship
- [1.44] General Partnership
- [1.45] Limited Partnership
- [1.46] Corporation
- [1.47] Limited Liability Company
- [1.48] Corporate Transparency Act
- Chapter 2 — Tax Considerations in Entity Selection
- I. [2.1] Introduction
- II. Federal Income Taxation
- [2.2] History
- [2.3] Prior to Tax Reform Act of 1986
- [2.4] Tax Reform Act of 1986
- [2.5] “Check-the-Box” Regulations
- [2.6] Jobs and Growth Tax Relief Reconciliation Act of 2003
- [2.7] Sunset of Economic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003
- [2.8] Tax Cuts and Jobs Act of 2017
- [2.9] Tax Classifications
- [2.10] Default Entity Tax Classifications
- [2.11] Electing Tax Classification
- [2.12] Disregarded Entity Tax Classification
- [2.13] Partnership Tax Classification
- [2.14] C Corporation Tax Classification
- [2.15] S Corporation Tax Classification
- [2.16] Taxation of Disregarded Entities (Sole Proprietorships and Single-Member Limited Liability Companies)
- [2.17] Transfer of Property to a Disregarded Entity
- [2.18] Capital Structure — Debt vs. Equity
- [2.19] Allocation of Income and Losses
- [2.20] Deductibility of Losses
- [2.21] At-Risk Rules
- [2.22] Passive Activity Loss Limitations
- [2.23] Excess Business Losses
- [2.24] Effect of Loss Carryover on Qualified Business Income
- [2.25] Qualified Business Income Deduction — Internal Revenue Code §199A
- [2.26] Qualified Business Income
- [2.27] Qualified Trade or Business
- [2.28] Specified Service Trade or Business
- [2.29] Qualified Property
- [2.30] Wage and Property Limitations
- [2.31] Owners’ Compensation
- [2.32] Qualified Business Income Deduction Limitation for W-2 Wages
- [2.33] Self-Employment Tax
- [2.34] Qualified Retirement Plans
- [2.35] Other Fringe Benefits
- [2.36] Distributions to Owners of a Disregarded Entity
- [2.37] Termination of a Disregarded Entity
- [2.38] Sale of a Disregarded Entity
- [2.39] Taxation of Entities Classified as Partnerships (Partnerships and Multiple-Member Limited Liability Companies)
- [2.40] Transfer of Property to a Partnership
- [2.41] Capital Structure — Debt vs. Equity
- [2.42] Allocation of Income and Losses
- [2.43] Allocation of Qualified Business Income, W-2 Wages, and Unadjusted Basis Immediately After Acquisition for Purposes of Internal Revenue Code §199A Deduction
- [2.44] Deductibility of Losses
- [2.45] Qualified Business Income Deduction — Internal Revenue Code §199A
- [2.46] Qualified Business Income
- [2.47] Qualified Trade or Business
- [2.48] Specified Service Trade or Business
- [2.49] Qualified Property
- [2.50] Wage and Property Limitations
- [2.51] Owners’ Compensation
- [2.52] Self-Employment Tax
- [2.53] Qualified Retirement Plans
- [2.54] Other Fringe Benefits
- [2.55] Distributions to Partners
- [2.56] Termination of a Partnership
- [2.57] Sale of an Interest in a Partnership
- [2.58] Taxation of Entities Classified as C Corporations
- [2.59] Transfer of Property to a C Corporation
- [2.60] Capital Structure — Debt vs. Equity
- [2.61] Allocation of Income and Losses
- [2.62] Deductibility of Losses
- [2.63] Owners’ Compensation
- [2.64] Self-Employment Tax
- [2.65] Qualified Retirement Plans
- [2.66] Other Fringe Benefits
- [2.67] Distributions to Shareholders of a C Corporation
- [2.68] Tax Termination of a C Corporation
- [2.69] Sale of a C Corporation
- [2.70] Taxation of Entities Classified as S Corporations
- [2.71] S Corporation Qualifications of Internal Revenue Code §1361(b)
- [2.72] Transfer of Property to an S Corporation
- [2.73] Capital Structure — Debt vs. Equity
- [2.74] Allocation of Income and Losses
- [2.75] Allocation of Qualified Business Income, W-2 Wages, Unadjusted Basis Immediately after Acquisition for Purposes of Internal Revenue Code §199A Deduction
- [2.76] Deductibility of Losses
- [2.77] Qualified Business Income Deduction — Internal Revenue Code §199A
- [2.78] Qualified Business Income
- [2.79] Qualified Trade or Business
- [2.80] Specified Service Trade or Business
- [2.81] Qualified Property
- [2.82] Wage and Property Limitations
- [2.83] Owners’ Compensation
- [2.84] Self-Employment Tax
- [2.85] Wages Maximizing Internal Revenue Code §199A Deduction
- [2.86] Qualified Retirement Plans
- [2.87] Other Fringe Benefits
- [2.88] Distributions to Shareholders of an S Corporation
- [2.89] Termination of an S Corporation
- [2.90] Sale of an S Corporation
- [2.91] Revenue Offset Provisions in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010
- III. Illinois Income Taxation
- IV. Analysis of Entity Choice and Planning Opportunities
- Chapter 3 — Fiduciary Duties
- I. [3.1] Fiduciary Duties in General
- II. [3.2] The Duty of Care
- III. [3.7] Duties Owed to the Entity — The Duty of Loyalty
- [3.8] Conflicts of Interest
- Corporate Law
- [3.9] Common Law
- [3.10] Section 8.60 of the Business Corporation Act of 1983
- [3.11] When Is a Director or Shareholder Disinterested?
- [3.12] Limited Liability Companies
- [3.13] Partnerships
- [3.14] Corporate (Entity) Opportunity
- [3.15] Corporations
- [3.16] Limited Liability Companies
- [3.17] Partnerships
- [3.18] Competing with the Entity
- [3.19] Corporations
- [3.20] Limited Liability Companies
- [3.21] Partnerships
- [3.22] Covenants Not To Compete
- [3.23] The Duty of Obedience
- [3.24] The Duty of Disclosure/Candor
- [3.25] The Duty Not To Misappropriate
- [3.26] Other Fiduciary Duties to the Entity
- IV. Duties Owed to Partners/Shareholders/Members
- [3.27] Duties Owed by One Partner to Another
- [3.28] Duty of Controlling Shareholders to Minority Shareholders
- [3.29] The Massachusetts Cases
- [3.30] The Illinois Cases
- [3.31] Various Formulations of the Duty of Controlling Shareholders to the Minority
- [3.32] Duty Owed by Members in a Limited Liability Company to Each Other
- [3.33] The Duty of Disclosure
- [3.34] Relationship of Breach of Fiduciary Duty to Oppression
- V. [3.35] The Concept of Oppression
- [3.36] The Statutory Basis
- [3.37] The Illinois Decisions on Oppression and Dissolution
- [3.38] Reasonable Expectation and the New York Decisions
- [3.39] Alternative Remedies
- [3.40] Mandating or Setting Aside Corporate Actions
- [3.41] Mandating Dividends
- [3.42] Appointing a Custodian or Provisional Director
- [3.43] Modifying the Articles of Incorporation or Bylaws
- [3.44] Removal of an Officer or Director
- [3.45] Oppression in Limited Liability Companies
- VI. [3.46] Aiding and Abetting a Breach of Fiduciary Duty
- VII. [3.47] The Burden of Proof
- VIII. [3.48] Derivative vs. Direct Suits, Demand Required/Excused
- IX. [3.49] Special Litigation Committees
- X. [3.50] Defining or Limiting Fiduciary Duties
- XI. [3.51] Forfeiture of Compensation and Punitive Damages
- XII. [3.52] Fiduciary Duty to Creditors
- XIII. [3.53] Fiduciary Duties of Officers and Employees
- Chapter 4 — Formation of Illinois Corporations
- I. Introduction
- II. Preincorporation Steps
- III. Articles of Incorporation
- [4.9] Drafting the Articles — Form BCA 2.10
- [4.10] Form BCA 2.10, Article 1 — Corporate Name
- [4.11] Form BCA 2.10, Article 2 — Registered Agent and Office
- [4.12] Form BCA 2.10, Article 3 — Corporate Purposes
- [4.13] Form BCA 2.10, Article 4 — Capital Stock Provisions
- [4.14] Form BCA 2.10, Article 4, Paragraph 1 — Authorized and Issued Shares
- [4.15] Form BCA 2.10, Article 4, Paragraph 2
- [4.16] Form BCA 2.10, Article 5 — Initial Board of Directors
- [4.17] Form BCA 2.10, Article 6 — Allocation Factor
- [4.18] Form BCA 2.10, Article 7 — Other Provisions
- Filing Articles of Incorporation
- [4.19] Executing the Articles of Incorporation
- [4.20] Computing and Paying Fees and Taxes
- [4.21] Filing with Secretary of State
- IV. [4.22] Bylaws
- V. Post-Incorporation Steps
- VI. Appendix — Forms
- [4.26] Preincorporation Subscription Agreement
- [4.27] Bylaws
- [4.28] Article I — Offices
- [4.29] Article II — Shareholders
- [4.30] Article III — Directors
- [4.31] Article IV — Officers
- [4.32] Article V — Contracts, Loans, Checks, and Deposits
- [4.33] Article VI — Certificates for Shares and Their Transfer
- [4.34] Article VII — Voting of Securities
- Article VIII — Indemnification
- [4.35] Short-Form Provision
- [4.36] Long-Form Provision
- [4.37] Article IX — Fiscal Year
- [4.38] Article X — Dividends
- [4.39] Article XI — Seal
- [4.40] Article XII — Waiver of Notice
- [4.41] Article XIII — Amendments
- [4.42] Waiver of Notice of Organizational Meeting of Incorporators
- [4.43] Call and Notice of Organizational Meeting of Incorporators
- [4.44] Minutes of Organizational Meeting of Incorporators
- [4.45] Incorporators’ Consent to Action in Lieu of Organizational Meeting
- [4.46] Waiver of Notice of Organizational Meeting of Shareholders
- [4.47] Call and Notice of Organizational Meeting of Shareholders
- [4.48] Minutes of Organizational Meeting of Shareholders
- [4.49] Shareholders’ Consent to Action in Lieu of Organizational Meeting
- [4.50] Waiver of Notice of Organizational Meeting of Board of Directors
- [4.51] Call and Notice of Organizational Meeting of Board of Directors
- [4.52] Minutes of Organizational Meeting of Board of Directors
- [4.53] Directors’ Consent to Action in Lieu of Organizational Meeting
- Chapter 5 — Shareholders’ Agreements
- I. [5.1] Introduction
- II. Governance Provisions
- III. Voting Trusts, Voting Agreements, and Proxies
- IV. Stock Transfer Restrictions and Buy-Sell Provisions
- [5.21] Purposes of Stock Transfer Restrictions and Buy-Sell Provisions
- [5.22] Protect the Business
- [5.23] Protect Long-Term Interests of Business
- [5.24] Protect Inactive or Minority Shareholders
- [5.25] Protect Parties Leaving the Business
- [5.26] Establish Estate Tax Value
- [5.27] Special Need in S Corporations
- [5.28] Compliance with Exemption Provisions of Federal and State Securities Laws
- [5.29] Qualification for Statutory Close Corporation Provisions, Professional Corporation Status, or Medical Corporation Status
- Legal Limitations on Transfer Restrictions
- [5.30] In General
- [5.31] Requirement of Reasonableness
- [5.32] Notice of Transfer Restrictions Under Corporation Law
- [5.33] Notice of Transfer Restrictions Under the UCC
- [5.34] Principal Provisions of Buy-Sell Provisions
- Identify the Purchaser
- [5.35] Other Shareholders — Cross-Purchase Agreement
- [5.36] Corporation — Redemption Agreement
- [5.37] Trust or Escrow
- [5.38] Other Purchasers and Combinations
- Consider Form of Transaction
- [5.39] Option To Buy or Right of First Refusal
- [5.40] Binding Buy-Sell Provisions
- [5.41] Option To Sell
- [5.42] Combination
- [5.43] Review Operative Contingencies and Restrictions on Transfers
- Review Methods of Valuation
- [5.44] In General
- [5.45] Fixed Price — Periodic Amendment
- [5.46] Appraisal
- [5.47] Book Value
- [5.48] Capitalized Earnings
- [5.49] Market or Best Offer
- [5.50] Combinations
- Consider Payment Terms
- [5.51] Lump Sum
- [5.52] Installment Purchase
- [5.53] Periodic Liquidating Purchase or Serial Redemption
- [5.54] Fraudulent Conveyance Law and the Doctrine of Equitable Subordination
- Select Method of Funding
- [5.55] In General
- [5.56] Secured Borrowing
- [5.57] Accumulation of Earnings by Corporation
- [5.58] Life Insurance
- [5.59] Disability Insurance
- [5.60] Determine Transfers for Termination of Restrictions
- [5.61] Types of Buy-Sell Agreements
- Cross-Purchase Agreements
- [5.62] Nature of Agreement
- Funding
- [5.63] Lump-sum and/or installment purchases
- [5.64] Some special aspects of life insurance funding
- [5.65] Relating funding provisions to valuation provisions
- [5.66] Relating funding provisions to increased purchase commitments upon execution of some purchases
- [5.67] Provide for purchase by surviving shareholders of policies owned by decedent
- [5.68] Problem of multiple policies
- [5.69] Burden of premium payments
- [5.70] Parties of approximately equal interest and age
- [5.71] Dividend income if premiums paid by corporation
- [5.72] Selection of interest option for period between death and transfer
- [5.73] Use of alternate direct beneficiary designations to preserve settlement options for shareholder’s intended beneficiary
- Purchase by Key Employees
- [5.74] Nature of agreement
- [5.75] Some special aspects of life insurance funding
- [5.76] Use of “split-dollar” insurance
- [5.77] Provision for key employee who may die first
- Corporate Redemption Agreements
- [5.78] Nature of Agreement
- Funding
- [5.79] In general
- [5.80] Problem of insufficient surplus
- Some special aspects of life insurance funding
- [5.81] In general
- [5.82] Augmentation of value of shares by reason of insurance
- [5.83] Use of loan values by corporation
- [5.84] Burden of insurance shifted
- Use of Trust or Escrow
- [5.85] Nature of Arrangement Overlay on Cross-Purchase Agreement
- Advantages
- [5.86] Avoiding multiple policies
- [5.87] Minimizing problems of failure to pay premiums
- [5.88] Agreement virtually self-executing
- V. [5.89] Capitalization Requirements
- VI. [5.90] Deadlock
- VII. Other Provisions
- VIII. Suggested Provisions for Shareholders’ Agreements
- Chapter 6 — Corporate Operating and Maintenance Issues
- I. Introduction
- II. Reports, Forms, Fees, and Basic Organizational Documents
- III. Shareholders’ Meetings
- [6.11] General Scope
- [6.12] Need for Shareholders’ Meetings
- [6.13] Call and Notice
- [6.14] Quorum and Vote Requirements
- [6.15] Inspectors of Election
- [6.16] Voting Rights of Shareholders; Voting by Proxy; Other Shareholder Rights
- [6.17] Election of Directors; Cumulative Voting; Staggered Board
- [6.18] Time and Place of Shareholders’ Meetings
- [6.19] Electronic Meetings of Shareholders
- [6.20] Directors’ Resolution Authorizing Annual Shareholders’ Meeting
- [6.21] Call of Special Meeting
- [6.22] Notice of Meeting
- [6.23] Waiver of Notice
- [6.24] Agenda for Annual Shareholders’ Meeting
- [6.25] Conduct of Annual Shareholders’ Meeting
- [6.26] Certificate of Inspectors of Election
- [6.27] Minutes of Shareholders’ Meeting
- [6.28] Shareholders’ Action by Written Consent
- [6.29] Solicitation of Proxies Generally; Proxies for Public Companies
- [6.30] Ballot-Type Proxy
- [6.31] General Proxy for Specific Meeting or Period of Time
- [6.32] Proxy with Limitation on Authority or for Particular Purpose
- [6.33] Revocation of Proxy
- IV. Directors’ Meetings
- [6.34] General Scope
- [6.35] Directors’ Meetings; Quorum; Written Consents; Electronic Meetings
- [6.36] Legal Authority of Directors
- [6.37] Duties of Directors
- [6.38] Corporate Governance and Conflicts of Interest
- [6.39] Liabilities of Directors Under §8.65 of the Business Corporation Act of 1983
- [6.40] Indemnification and Insurance
- Forms for Directors’ Meetings and Written Consents
- [6.41] Call of Meeting
- [6.42] Notice of Meeting
- [6.43] Waiver of Notice
- [6.44] Minutes of Directors’ Meetings
- [6.45] Directors’ Action by Written Consent
- [6.46] Directors’ Resolutions
- [6.47] Form of Resolution
- [6.48] Certificate of Adoption of Resolution
- [6.49] Resolution Electing Officers and Establishing Salary
- [6.50] Resolution Approving Contract
- [6.51] Resolution Approving Contract with Interested Director
- [6.52] Advisory Directors
- V. Amendment of Articles of Incorporation
- VI. Dividends
- VII. Consolidations, Mergers, Share Exchanges, Asset Sales, and Basic Contracting
- [6.61] Types of Corporate Consolidations
- [6.62] Procedure for Consolidations, Mergers, and Share Exchanges and the Effects Thereof
- [6.63] Securities Law Requirements
- [6.64] Rights of Dissenting Shareholders
- [6.65] Business Combinations with Interested Shareholders
- [6.66] Asset Sale Transactions
- [6.67] Antitakeover Statute and Fair Price Statute
- [6.68] Basic Contracting
- VIII. Dissolution
- IX. Additional Operating Issues
- [6.75] Acquisition by a Corporation of Its Own Shares
- [6.76] Share Certificates and Share Transfers
- [6.77] Foreign Corporations
- [6.78] Shareholder Agreements
- [6.79] Resignations and Removals
- [6.80] Resignations of Directors and Officers
- [6.81] Removals of Directors and Officers
- [6.82] Shareholder Remedies Under §12.56 of the Business Corporation Act of 1983
- X. Appendix — Sample Forms
- [6.83] Script for Annual Shareholders’ Meeting
- [6.84] Responses to Disruptive Shareholder Conduct
- [6.85] Request for Quiet
- [6.86] Second Warning
- [6.87] Removal of Shareholder
- [6.88] Recess of Meeting
- [6.89] Response to Shareholder Nomination of Additional Nominees
- [6.90] Response to Shareholder Motion
- [6.91] Merger Resolutions
- [6.92] Plan of Merger
- [6.93] Directors’ Resolution Authorizing Annual Shareholders’ Meeting
- [6.94] Call of Special Meeting of Shareholders
- [6.95] Notice of Meeting of Shareholders and Affidavit of Mailing
- [6.96] Waiver of Notice of Shareholders’ Meeting
- [6.97] Agenda for Annual Shareholders’ Meeting
- [6.98] Certificate of Inspectors of Election for Shareholders’ Meeting
- [6.99] Minutes of Shareholders’ Meeting
- [6.100] Shareholders’ Action by Written Consent
- [6.101] Ballot-Type Proxy
- [6.102] General Proxy for Specific Meeting or Period of Time
- [6.103] Proxy with Limitation on Authority or for Particular Purpose
- [6.104] Revocation of Proxy
- [6.105] Call of Meeting of Board of Directors
- [6.106] Notice of Meeting of Board of Directors
- [6.107] Waiver of Notice of Meeting of Board of Directors
- [6.108] Minutes of Directors’ Meeting
- [6.109] Directors’ Action by Written Consent
- [6.110] Directors’ Resolutions
- [6.111] Certificate of Adoption of Directors’ Resolutions
- [6.112] Directors’ Resolution Electing Officers and Establishing Salary
- [6.113] Directors’ Resolution Approving Contract
- [6.114] Directors’ Resolution Approving Contract with Interested Director
- [6.115] Directors’ Resolution Declaring Cash Dividend
- [6.116] Directors’ Resolution Declaring Property Dividend
- [6.117] Directors’ Resolution Declaring Stock Dividend
- [6.118] Director’s Resignation Letter
- Chapter 7 — S Corporations
- I. Introduction
- II. Requirements To Elect S Status
- General Considerations
- [7.4] S Corporation Election May Reduce Social Security/Medicaid and Unemployment Tax Incidence
- [7.5] LLC Election of S Corporation Status
- [7.6] Corporations and Other Business Entities Qualified To Make S Corporation Election
- [7.7] Ineligible Corporations
- [7.8] Domestic Corporation
- [7.9] No More than 100 Shareholders
- [7.10] Spouses
- [7.11] Family Members
- Shareholders Must Be Individuals, Estates, Certain Trusts, Certain Tax-Exempt Organizations, and Certain Qualified Retirement Plans
- [7.12] Individuals
- [7.13] Estates
- [7.14] Grantor-Type Trusts
- [7.15] Voting Trusts
- [7.16] Qualified Subchapter S Trusts
- [7.17] Requirements for QSST
- [7.18] The QSST Election
- [7.19] Electing Small Business Trusts
- [7.20] Election Process
- [7.21] Conversion to QSST
- [7.22] Termination of ESBT
- [7.23] ESBT as Shareholder and Taxes Imposed
- [7.24] Individual Retirement Accounts Owning Stock in a Bank
- [7.25] Tax-Exempt Organizations
- [7.26] Qualified Retirement Plans
- [7.27] Shareholder May Not Be a Nonresident Alien
- [7.28] No More than One Class of Stock
- [7.29] Buy-Sell and Redemption Agreements
- [7.30] Obligations Designated as Debt
- [7.31] Call Options, Warrants, and Similar Instruments
- [7.32] Straight Debt Safe Harbor
- [7.33] Qualified Subchapter S Subsidiaries
- [7.34] The Election
- [7.35] Late QSub Election
- [7.36] Termination of QSub Election
- Maintaining the Subchapter S Election
- [7.37] Inadvertent Terminations
- [7.38] Election After Termination
- III. The Process of Electing S Status
- IV. Tax Consequences at the Corporate Level
- [7.46] In General
- Tax Consequences of Converting from C Corporation to S Corporation
- [7.47] LIFO Recapture
- [7.48] Investment Credit Recapture
- [7.49] Carryovers and Carrybacks
- [7.50] Earnings and Profits
- Other Tax Issues Related to the S Election
- Selection of a Fiscal Year
- [7.51] Permitted Taxable Year
- [7.52] Code §444 Election
- [7.53] Code §7519 Payments
- [7.54] Comprehensive Example
- [7.55] Selection of Accounting Method
- Corporate Level Calculations
- [7.56] Computation of Taxable Income
- [7.57] Tax Elections
- Taxes Imposed at the Corporate Level
- Tax on Passive Income
- [7.58] Liability for and Amount of Tax
- [7.59] Accumulated Earnings and Profits
- [7.60] Excess Net Passive Income
- [7.61] Net Passive Income
- [7.62] Passive Investment Income
- [7.63] Gross Receipts
- [7.64] Waiver of the Sting Tax
- [7.65] Tax on Built-In Gains
- [7.66] Liability for and Amount of Tax
- [7.67] Net Unrealized Built-In Gain
- [7.68] Net Recognized Built-In Gain
- [7.69] The accrual method rule
- [7.70] Inventory
- [7.71] Sections 267(a)(2) and 404(a)(5) deductions
- [7.72] Completed-contract method
- [7.73] Installment sales
- [7.74] Partnership interests
- [7.75] Anti-stuffing rule
- [7.76] Assets Transferred from C Corporations to S Corporations
- Tax Returns
- [7.77] Returns Must Show All Income and Deductions
- [7.78] Tax Cuts and Jobs Act of 2017
- V. Taxation of Shareholders
- [7.79] Flow-Through of Income and Losses
- [7.80] Character of Items
- [7.81] Gross Income of Shareholder
- [7.82] Shareholder’s Net Operating Loss Deduction
- [7.83] Special Rules
- [7.84] Family Groups
- [7.85] Limitation on Losses and Deductions
- [7.86] Basis Rules
- [7.87] Carryovers to Post-Termination Transition Period
- [7.88] Carryovers After Liquidations, Reorganizations, and Divisions
- [7.89] Pro Rata Share
- [7.90] Determining Days of Ownership
- [7.91] Trust Conversions
- [7.92] Election To Terminate Year
- [7.93] Examples
- [7.94] Basis for Stock in and Loans to an S Corporation
- [7.95] Initial Basis for Stock
- [7.96] Adjustments to Stock Basis
- [7.97] Timing of Adjustments
- [7.98] Ordering Rules
- [7.99] For taxable years beginning before January 1, 1997
- [7.100] For taxable years beginning on or after August 18, 1998
- [7.101] Elective ordering rule
- [7.102] Examples
- [7.103] Adjustments to Basis of Loans
- [7.104] Reductions in Basis
- [7.105] Restoration of Basis
- [7.106] Timing of Adjustments
- [7.107] Examples
- [7.108] Fringe Benefits
- [7.109] Self-Employment Tax
- VI. [7.110] Taxation of Distributions to Shareholders
- [7.111] S Corporations Having No Earnings and Profits
- [7.112] S Corporations Having Accumulated Earnings and Profits
- [7.113] Previously Taxed Income
- [7.114] Accumulated Adjustments Account
- [7.115] Adjustments to the AAA
- [7.116] Ordering Rules
- [7.117] Adjustment for Redemptions, Liquidations, Reorganizations, and Divisions
- [7.118] Elections Related to Source of Distributions
- [7.119] Election To Distribute Earnings and Profits First
- [7.120] Election To Make Deemed Dividend
- [7.121] Election To Forgo Previously Taxed Income
- [7.122] Time and Manner of Making Elections
- [7.123] Election To Terminate Year for Qualifying Disposition
- [7.124] Distributions of Property
- VII. Termination of S Election
- [7.125] In General
- [7.126] Revocation of the S Election
- [7.127] Termination by Ceasing To Be a Small Business Corporation
- [7.128] Termination Due to Excess Passive Income
- [7.129] S Termination Year
- [7.130] Other Consequences of S Termination Year
- [7.131] Inadvertent Terminations
- [7.132] Election After Termination
- VIII. Conversion to Other Entity Forms, Domestication to and from Illinois, and Statutory Mergers
- Procedures Under the Entity Omnibus Act
- [7.133] Procedure for Conversions
- [7.134] Procedure for Domestication
- Tax Considerations
- [7.135] Corporations Will Be Taxed as if Liquidated
- [7.136] Tax Principles of Corporate Liquidation
- [7.137] Consequences of S Corporation Liquidation: Stepped-Up Basis
- Merger Procedures Under Entity Acts
- Procedure for Illinois Corporations Merging with Other Entities
- [7.138] Statutory Processes
- [7.139] Official Filings
- [7.140] Corporate Books and Records
- Procedure for Illinois Limited Liability Companies Merging with Other Entities
- [7.141] Statutory Process
- [7.142] Official Filings
- Procedure for Illinois Partnerships, Limited Partnerships, and Limited Liability Partnerships Merging with Other Entities
- [7.143] Statutory Process
- [7.144] Official Filings
- [7.145] Procedure for Other Types of Organizations Merging with Other Entities
- [7.146] Dissolution Procedures Under Entity Acts
- [7.147] Alternatives to Outright Conversion
- [7.148] Mirror LLC
- Corporate Freeze
- [7.149] General Process
- [7.150] General Tax Considerations in Corporate Freezes
- [7.151] Special Tax Concerns Involving an S Corporation Freeze
- [7.152] S Corporation Tax-Free Conversion to a Cotenancy That Is Not an Entity for State Law Purposes
- IX. Appendix — Forms
- [7.153] Qualified Subchapter S Trust Election
- [7.154] Electing Small Business Trust Election
- [7.155] Shareholders’ Consent to S Election
- [7.156] Election To Terminate Taxable Year
- [7.157] Election To Distribute Earnings and Profits First
- [7.158] Election To Make a Deemed Dividend
- [7.159] Election To Terminate Taxable Year for a Qualifying Disposition
- [7.160] Revocation of S Election
- Chapter 8 — Professional and Medical Corporations
- I. [8.1] Introduction
- II. [8.2] Selection of Entity
- III. Professional Service Corporation
- [8.3] Professional Service Corporation Act
- [8.4] Incorporation
- [8.5] Name of the Professional Corporation
- Provisions for the Articles of Incorporation
- [8.6] Purpose
- [8.7] Qualifications
- [8.8] Location
- [8.9] Ownership and Control
- [8.10] Death or Disqualification of a Shareholder
- [8.11] Rendering of Professional Service
- [8.12] Merger
- IV. Medical Corporation
- V. [8.22] Dissolution of a Professional or Medical Corporation
- VI. [8.23] Personal and Corporate Liability
- VII. Formalities
- [8.24] Registration in General
- [8.25] Registration with the Illinois Department of Financial and Professional Regulation
- [8.26] Registration for Attorneys
- [8.27] Registration for Professional Design Firms
- [8.28] Registration for Real Estate Professionals
- [8.29] Registration for Public Accountants
- [8.30] Special Bylaws Provisions
- [8.31] Shareholders’ Agreement
- [8.32] Directors’ Organizational Consent
- VIII. Appendix
- [8.33] Medical Corporation Fictitious Name Affidavit
- [8.34] Sample Organizational Consent Provisions for an Illinois Medical Corporation
- Sample Bylaws Provisions
- [8.35] Qualification Requirement for Shareholders
- [8.36] Disqualification of Shareholders
- [8.37] Qualification Requirement for Directors
- [8.38] Qualification Requirement for Officers
- [8.39] Removal of Directors and Officers
- [8.40] Rendition of Professional Services
- [8.41] Consolidation and Merger of a Professional Corporation
- [8.42] Insert for Annual Report Letter to Client
- [8.43] Draft Registration Reinstatement Letter to the Illinois Department of Financial and Professional Regulation
- Chapter 9 — The Illinois Franchise Tax
- I. [9.1] Introduction
- II. [9.2] Those Subject to the Franchise Tax
- III. [9.3] Franchise Tax Base
- IV. [9.8] Apportionment Factor
- V. [9.9] Initial Franchise Tax
- VI. [9.10] Additional Franchise Tax
- VII. [9.11] Annual Franchise Tax
- VIII. [9.12] Extended Filing Month Option
- IX. Franchise Tax Rates
- X. Reports and Payments
- XI. [9.24] Remedies
- XII. [9.25] Allocation Factors and Corrections
- XIII. [9.26] Stock Option Treatment
- Chapter 10 — Business Breakups
- I. [10.1] Introduction
- II. [10.2] Partnerships
- III. [10.11] Corporations
- [10.12] Dissolution Under the Business Corporation Act of 1983
- [10.13] Voluntary Dissolution
- [10.14] Administrative Dissolution
- Judicial Dissolution
- [10.15] Judicial Dissolution by Nonshareholders
- [10.16] Judicial Dissolution in Actions by Shareholders
- [10.17] Appointment of Receivers
- [10.18] Survival of Remedies
- [10.19] Liquidation
- [10.20] Shareholder’s Derivative Action
- [10.21] Dissolution of Close Corporations
- [10.22] Dissolution of Professional Service Corporations
- [10.23] Dissolution of Medical Corporations
- [10.24] Dissolution of Not-for-Profit Corporations
- [10.25] Dissolution of Benefit Corporations
- IV. [10.26] Limited Liability Companies
- V. [10.32] Creditors’ Bankruptcy Alternative
- VI. [10.33] Summary
- Sarah K. Billington
Sarah K. Billington
Sarah K. Billington is an attorney at David & Campell in Peoria, where she focuses her practice of corporate law and estate planning. She is a member of the Illinois State Bar Association. Billington received her BA with distinction from the University of Colorado and her JD summa cum laude from the University of Illinois College of Law.
- Samantha K. Breslow
Samantha K. Breslow
Samantha K. Breslow is a Partner at HMB Legal Counsel in Chicago, where she focuses her practice on state and local taxation. She is a member of the Illinois State Bar Association (Chair of the State & Local Taxation Committee), the Chicago Bar Association (Past Chair of the State & Local Taxation Committee), the Chicago Tax Club (Chair of the Administration Committee), and the National Law Review. She has been awarded the National Law Review’s Go-To Thought Leadership Award for Tax Law. Ms. Breslow received her B.A. from the University of Texas and her J.D. magna cum laude from the University of Illinois College of Law.
- Miriam Leskovar Burkland
Miriam Leskovar Burkland
Miriam Leskovar Burkland is a Member at Howard & Howard Attorneys PLLC in the firm’s Chicago office and has been Vice Chair of the firm’s Business & Corporate Practice Group since 2012. Ms. Burkland concentrates her practice in corporate and commercial transactions. She has been recognized as an Illinois Leading Lawyer (2010 – 2023) and included in Leading Lawyers’ Leading Women Lawyers (2023). She has also been recognized by the Chicago Daily Law Bulletin and Chicago Lawyer Magazine’s Top 50 Women in Law (2021). Ms. Burkland received her B.A. cum laude from the University of Illinois at Urbana-Champaign and her J.D. from the University of Illinois College of Law.
- Mary A. Corrigan
Mary A. Corrigan
Mary A. Corrigan is an attorney with Howard & Howard Attorneys PLLC in the firm’s Peoria office, where she concentrates her practice in corporate and commercial transactions and estate planning. She is a member of the Illinois State and Peoria County Bar Associations. She has been recognized as an Illinois Leading Lawyer (2014 – 2023) and included in Leading Lawyers’ Leading Women Lawyers (2023). Ms. Corrigan received her B.A. from Monmouth College and her J.D. from the University of Illinois Chicago School of Law.
- Daniel A. Cotter
Daniel A. Cotter
Daniel A. Cotter is an attorney and counselor with Howard & Howard Attorneys PLLC in Chicago, where he focuses his practice on corporate and business law. Mr. Cotter is a member of the American Bar Association’s House of Delegates, a member and Past President of the Chicago Bar Association, and President Elect of the National Conference of Bar Presidents. He received his B.A. from Monmouth College and his J.D. summa cum laude from the University of Illinois Chicago School of Law. He has also successfully completed the Certified Public Accountant Exam.
- Pamela E. Hart
Pamela E. Hart
Pamela E. Hartis a Partner at Scott & Scott, P.C., in Springfield, where she concentrates her practice in business entities, business litigation, elder law, estate planning, and real estate. She is a member of the Central Illinois Women’s Bar Association (Past President — 2012), the Illinois State Bar Association, and the National Academy of Elder Law Attorneys. She received her B.A. magna cum laude from Illinois College and her J.D. summa cum laude from the Valparaiso University School of Law.
- Michael G. Horstman, Jr.
Michael G. Horstman, Jr.
Michael G. Horstman, Jr. (2019), is a Shareholder of Sorling Northrup in Springfield, where he concentrates his practice in taxation, business advising, commercial transactions, charitable organizations, trade associations, and real estate. Prior to joining Sorling Northrup, Mr. Horstman served as Chief Counsel of Jane Addams Hull House Association, a Chicago not-for-profit social service agency. He regularly counsels for-profit businesses and not-for-profit corporations on business and taxation issues faced during their formation and operation. Mr. Horstman is a regular speaker on issues affecting businesses and not-for-profit organizations. He is a member of the Business Law Section of the American Bar Association, along with the Illinois State and Sangamon County Bar Associations. Mr. Horstman received his undergraduate degree from the University of Illinois at Urbana-Champaign and his J.D. from Washington University School of Law.
- Anthony J. Jacob
Anthony J. Jacob
Anthony J. Jacob is a Partner at Hinshaw & Culbertson LLP, in Chicago, and concentrates his practice in business law, banking and commercial finance law, real estate law, and election law. In 2013 and 2014, respectively, Jacob was appointed as a member of the investment committee for the board of trustees at the University of Illinois Chicago School of Law (formerly known as the John Marshall Law School) and as a board member at the Institute of Illinois Business Law at Chicago-Kent College of Law. He has previously chaired the Business and Securities Law Section Council of the Illinois State Bar Association. Jacob received his B.A. at Northern Illinois University and both his LL.M. and J.D. from the University of Illinois Chicago School of Law, where he was Student Publications Editor of the UIC Law Review and a member of the moot court team.
- Alan J. Jedlicka
Alan J. Jedlicka
Alan J. Jedlicka (2019) received his undergraduate degree from Claremont McKenna College, his J.D. from the University of Illinois Chicago School of Law, and his LL.M. in the Law of Taxation from Chicago-Kent College of Law.
- Connie M. Mayer
Connie M. Mayer
Connie M. Mayer is a Partner at Hinshaw & Culbertson LLP in Chicago, where her practice focuses on commercial transactions. She is a member of the Illinois chapter of the ESOP Association and has been recognized as a Rising Star by Illinois Super Lawyers (2021 – 2023). Ms. Mayer received her B.A. cum laude from Illinois Wesleyan University and her J.D. from the Washington University School of Law.
- Dennis E. Merkley
Dennis E. Merkley
Dennis E. Merkley is a Partner at Howard & Howard Attorneys PLLC, where he concentrates his practice in corporate matters, mergers and acquisitions, and financial institution matters. He is a member of the American Bar Association (Banking Law Committee and Credit Unions Committee), the Illinois State Bar Association, and the Peoria County Bar Association (Board of Directors, 2020 – 2022). Mr. Merkley received his B.S. from Illinois State University and his J.D. from the DePaul University College of Law.
- Charles W. Murdock
Charles W. Murdock
Charles W. Murdock is a Professor at Loyola University Chicago School of Law, where he teaches corporate and securities law. Professor Murdock is a member of the Illinois State Bar Association’s Business Law & Securities Section Council. He was involved in drafting the Business Corporation Act of 1983 and the Limited Liability Company Act. He received his B.S.Ch.E. from the Illinois Institute of Technology and his J.D. from Loyola University Chicago School of Law.
- R. Stephen Scott
R. Stephen Scott
R. Stephen Scott is a Senior Partner at Scott & Scott, P.C., in Springfield, where he concentrates his practice in business entities, business litigation, tax controversies, and estate matters. He is a member of the American Academy of Attorney-Certified Public Accountants (President, 2006), the Illinois State Bar Association (Past Chair, Corporate Law Departments Section Council), and the Illinois Bar Foundation (Treasurer). In 2003, he was recognized as a Regent by the American College of Attorney-Certified Public Accountants. Mr. Scott received his B.S.B.A. from Marquette University and his J.D. with honors from Chicago-Kent College of Law.
- Todd M. Young
Todd M. Young
Todd M. Young is a Partner at Hinshaw & Culbertson LLP in Chicago, where he concentrates his practice in corporate transactions and governance, with a particular focus on employee stock ownership plan transactions. He was recognized as a Notable LGBTQ Executive by Crain’s Chicago Business in 2018. He received his A.B. cum laude from Dartmouth College and his J.D. from the University of Chicago Law School, where he was Comment Editor of the Law Review.
Business Law: Choice of Entity 2024 Edition
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