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List of Forms by Chapter - Chapter 1 — Overview
- Chapter 2 — Introduction to and Background of Illinois Limited Liability Companies
- I. [2.1] Introduction
- II. [2.2] What Is a Limited Liability Company?
- III. [2.3] Origin and Development of the Limited Liability Company
- IV. [2.4] History of the Limited Liability Company Act
- V. [2.5] Advantages over Other Forms of Business
- VI. [2.6] Organization of This Handbook
- VII. [2.7] Limited Liability Company Organization Checklist
- Chapter 3 — Organizing an Illinois Limited Liability Company
- I. [3.1] Introduction
-
II. Choice of Entity: Industry, Tax, Liability, Control, and Distribution Issues - [3.2] For-Profit and General Nonprofit Business and Other Organization Types
- [3.3] Comparison Charts: State of Illinois Tax Rates, Organizational Filing Fees, Legal Characteristics by Type of Business Entity, or Non-Entity Operation
- Federal Tax on Earnings; Miscellaneous Entity Types
- Subchapter C Corporations
- [3.4] In General
- [3.5] Double Taxation
- Federal Tax Rates on Entity Income
- [3.6] In general
- [3.7] Personal service corporations
- [3.8] Taxation of corporate distributions
- Choice of Entity and Entity-Level Tax Rates
- [3.9] Choice of entity follows industry norms
- Investor tax needs or investment type determinants for entity-level tax rates
- [3.10] Venture-backed startups
- [3.11] Publicly traded companies
- [3.12] Entities Taxed as Partnerships; Limited Liability Companies not Electing Corporation Status, Limited Partnerships, Registered Limited Liability Partnerships
- [3.13] Subchapter S Corporation Income
- [3.14] For-Profit or Nonprofit Purposes Permitted for Illinois Limited Liability Companies
- [3.15] Client Organizational Issues by Size of Business
- [3.16] Securities Registration and Liability
- [3.17] Sole Practitioner of Law
- [3.18] Two Investors
- [3.19] Software Company
- [3.20] Corporate Group
- State Tax Planning
- [3.21] In General
- [3.22] State Sales Taxes — Constitutional Limits
- [3.23] Unitary Business Groups
- III. Organizational Filings and Forms Needed
- [3.24] Limited Liability Company Organization and Tax Registration
- [3.25] Regulated Entity Compliance Certificates
- Not-for-Profit Organizations
- [3.26] Charitable Trusts Registration and Reporting
- [3.27] Religious Organizations
- [3.28] Tax Exemption
- [3.29] Federal Income Tax Exemption
- [3.30] Religious Organization Exemptions
- [3.31] Political Organization Exemptions
- [3.32] Sales Tax Exemption
- [3.33] Property Tax Exemption
- [3.34] Local Registration and Permits
- IV. For-Profit Entity Tax Incidence
- [3.35] Tax Planning
- [3.36] Federal and State Income Tax
- [3.37] Filings Needed To Obtain Specific Federal Tax Treatments
- Status Available Without Election Filings
- [3.38] Disregarded Entity
- [3.39] Limited Liability Company Taxed as a Partnership
- [3.40] Limited Partnership Limited Liability Company
- [3.41] Entity Status Requiring Election or IRS Qualification Decisions
- [3.42] S Corporation Status
- [3.43] C Corporation Status
- [3.44] Limited Liability Companies Pay No Illinois Franchise Tax
- V. [3.45] Self-Employment Tax
- VI. Liability Limitation
- VII. Control and Management
- VIII. [3.59] Pre-Organization Agreement
- IX. [3.60] Reservation of Name
- X. Articles of Organization
- [3.61] In General
- [3.62] Filing Form LLC-5.5
- [3.63] Question 1 — Limited Liability Company Name
- [3.64] Question 2 — Address of Limited Liability Company’s Principal Place of Business
- [3.65] Question 3 — Date That Articles of Organization Are Effective
- [3.66] Question 4 — Registered Agent’s Name and Registered Office Address
- [3.67] Question 5 — Purposes for Which Limited Liability Company Is Organized
- [3.68] Questions 6 and 7 — Dissolution
- [3.69] Question 8(a) — Management by Managers
- [3.70] Question 8(b) — Management by Members
- [3.71] Question 9 — Affirmation
- [3.72] Other Provisions for Regulation of Internal Affairs of Limited Liability Company
- [3.73] Transacting Business Under Assumed Name
- XI. Tax Registration
- XII. Appendix
- Chapter 4 — Limited Liability Company Operating Agreements
- I. [4.1] General Description and Function
- II. [4.2] Comparison to Partnership Agreements and Corporate Bylaws
- III. [4.3] Restriction on Operating Agreement Provisions
- IV. [4.4] Default Rules
- [4.5] Admission of New Members
- [4.6] Right to Information
- [4.7] Management
- [4.8] Standards of Member’s and Manager’s Conduct
- [4.9] Member’s and Manager’s Rights to Payments and Reimbursement
- [4.10] Actions by Members
- [4.11] Member’s Liability for Contributions
- [4.12] Sharing of Profits and Losses
- [4.13] Sharing of Distributions
- [4.14] Timing of Interim Distributions
- [4.15] Dissociation
- [4.16] Member’s Right To Withdraw Voluntarily; Effects of Dissociation
- [4.17] Distributions Following Dissociation
- [4.18] Form of Distributions
- [4.19] Transfer of Interest
- [4.20] Dissolution
- [4.21] Distribution of Assets upon Dissolution
- [4.22] Limited Liability Audit Rules
- V. [4.23] Series Limited Liability Companies
- VI. [4.24] Checklist of Provisions for Operating Agreement
- VII. Appendix — Sample Forms
- Chapter 5 — Illinois Limited Liability Company Operating and Maintenance Issues
- I. [5.1] Introduction
- II. Management Structure and General Operating Topics
- [5.2] Member-Managed Limited Liability Company Default Rules
- [5.3] Manager-Managed Limited Liability Company Default Rules
- [5.4] Modification of the Default Rules
- [5.5] Meeting and Voting Requirements
- [5.6] Officers
- [5.7] Agency Authority and Agent’s Obligations
- [5.8] General Standards of Conduct
- [5.9] Liability of Members and Managers
- [5.10] Theory of Incorporation
- [5.11] Artificial Entity with Liabilities Separate from Those of Owners
- [5.12] Bankruptcy Exception to Asset Protection for Owners of Business Entities
- [5.13] Organization Tax Liabilities May Not Extend to Owners
- [5.14] Environmental Liabilities and Other Regulatory Responsibilities
- [5.15] Disregarding the Entity
- [5.16] Reverse Veil-Piercing
- [5.17] Veil-Piercing Theory and Dominant Lenders
- [5.18] Liability for Board Members or General Partner Directors
- [5.19] Fraudulent Transfer Challenges
- [5.20] Indemnification
- [5.21] Right of Inspection
- [5.22] Single-Member Limited Liability Companies
- [5.23] Low-Profit Limited Liability Companies
- [5.24] Dissolution and Winding Up
- III. Election and Compensation of Managers
- IV. Proper Election of Management Structure
- V. [5.29] Secretary of State Information
- Chapter 6 — Liability of Members and Managers in Limited Liability Companies, Including Breach of Fiduciary Duties
- I. [6.1] Scope of Chapter
- II. Sources of Liability
- [6.2] Liability for Personal Conduct
- Liability Predicated on Agency Considerations, Particularly Involving Undisclosed or Partially Disclosed Principals; Promoter’s Liability
- [6.3] Agency Liability
- [6.4] Promoter’s Liability
- [6.5] Liability for Improper Distributions
- [6.6] Liability Arising Out of Dissolution
- III. [6.7] Piercing the Limited Liability Company Veil
- IV. Fiduciary Duties
- [6.8] Fiduciary Duties in General
- [6.9] Limited Liability Company Act Provisions Regarding Fiduciary Duties
- [6.10] Fiduciary Duties Owed to the Limited Liability Company
- [6.11] Ratification
- [6.12] Fiduciary Duties Owed to Members
- [6.13] Fiduciary Duties Owed to Creditors
- [6.14] Oppression
- [6.15] Defining and Limiting Fiduciary Duties
- V. [6.16] Liability Arising from the Securities Laws
- VI. [6.17] Charging Orders Against Members
- VII. [6.18] Derivative Actions
- VIII. [6.19] Special Litigation Committee
- Chapter 7 — Capital Structure and Membership Interests
- I. [7.1] Scope of Chapter
- II. Contributions
- III. Distributions
- [7.5] Agreement as to Allocation
- [7.6] Default Provision
- [7.7] Interim Distributions
- [7.8] Right to Distribution
- [7.9] Distribution in Kind
- Limitations on and Liability for Improper Distributions
- [7.10] Liability
- [7.11] Definition of “Improper Distribution”
- [7.12] Right of Contribution
- [7.13] Statute of Limitations for Liability
- [7.14] Barring Any Known Claims
- IV. Membership Interest
- Chapter 8 — Uses for Limited Liability Companies
- I. [8.1] Introduction
- II. Versatile Entity Form Creates Many Uses
- III. [8.8] Common and Specific Uses for Limited Liability Companies
- [8.9] Liability Protection Generally
- [8.10] Ease of Isolating and Organizing Assets and Operations
- [8.11] High-Risk Businesses
- [8.12] Real Estate
- [8.13] Property Acquisition
- [8.14] Property Management
- Estate Planning
- [8.15] Efficient Method for Operating and Transferring Family Assets
- [8.16] Life Insurance
- [8.17] Joint Business Opportunities
- [8.18] Certifications
- [8.19] General Certification Requirements
- [8.20] Women’s Business Enterprises
- [8.21] Minority Business Enterprises
- [8.22] Veteran Business Enterprises
- [8.23] Disadvantaged Business Enterprises
- [8.24] Operating Agreement Requirements
- [8.25] Low-Profit Limited Liability Company
- IV. [8.26] Prohibited and Uncertain Limited Liability Company Uses
- V. [8.32] Conclusion
- Chapter 9 — Working with Limited Liability Companies
- I. [9.1] Scope of Chapter
- II. Conversion of an Existing Entity to a Limited Liability Company
- [9.2] Overview
- Conversion of an Existing Partnership to a Limited Liability Company
- [9.3] Considerations Under the Limited Liability Company Act
- [9.4] Tax Considerations
- Conversion of an Existing Corporation to a Limited Liability Company
- [9.5] Considerations Under the Business Corporation Act of 1983
- [9.6] Tax Considerations
- [9.7] Tax Principles of Corporate Liquidation
- [9.8] Consequences of Corporate Liquidation
- [9.9] Liquidation of a C corporation
- [9.10] Liquidation of an S corporation
- [9.11] Special Circumstances
- [9.12] Alternatives to Outright Conversion
- [9.13] Mirror Limited Liability Company
- Corporate Freeze
- [9.14] Generally
- [9.15] Tax considerations
- [9.16] Special concerns involving an S corporation freeze
- Merger of an Illinois Limited Liability Company with or into an Existing Entity
- [9.17] Considerations Under the Limited Liability Company Act
- [9.18] Tax Considerations
- III. Bankruptcy Law and Creditors’ Rights Issues
- [9.19] Treatment of an Illinois Limited Liability Company Under the Federal Bankruptcy Code
- Creditors’ Rights Under the Limited Liability Company Act
- Against an Illinois Limited Liability Company
- [9.20] Excess Distributions
- [9.21] Claims Against a Dissolved Limited Liability Company
- [9.22] Against a Judgment Debtor’s Distributional Interest
- [9.23] Continuation of an Illinois Limited Liability Company Following a Member’s Bankruptcy
- IV. [9.24] Securities Law Issues
- V. Across-State-Border Issues
- Foreign Limited Liability Companies in Illinois
- [9.25] Generally
- [9.26] Qualification of Foreign Limited Liability Companies
- [9.27] Powers of Foreign Limited Liability Companies
- [9.28] Impact of Nonqualification
- Illinois Limited Liability Companies in Other States
- [9.29] Conflict of Laws
- [9.30] State Tax Issues
- [9.31] International Tax Issues
- VI. Using Limited Liability Companies for Business Transactions
- Limited Liability Company Contracts
- [9.32] Standing To Sue
- [9.33] Illinois Jurisdiction by Agreement
- [9.34] Post-Sale Disputes Under Company Asset Purchase Agreements
- [9.35] Warranty and Fraud Claims Against Out-of-State Manufacturer
- Limited Liability Company Entity Organization for Various Industries and Tax Situations
- [9.36] Organizational Flexibility
- Limited Liability Company Use for Private Equity Funds
- [9.37] Entities Used
- [9.38] Documentation Needed for Investor Funds-Receiving Entity
- [9.39] Carried Interest Reduces or Eliminates Ordinary Income and Allows Capital-Gains Tax Liability for Fund Managers and Investors
- [9.40] Additional Resource
- [9.41] Limited Liability Company Use for Private Real Estate Investment
- Limited Liability Company for Same Uses as a Family Trust or Limited Partnership
- [9.42] Marketability and Control Discounts Reduce Taxable Transfer
- [9.43] Nontax Advantages of Family Business Entities
- Tax Regulations Applicable to Limited Partnerships or Limited Liability Company Interests Treated as Family Limited Partnerships
- [9.44] Economic substance and compliance with entity filing requirements
- [9.45] Surviving IRS challenges
- [9.46] IRS auditor questions
- [9.47] Special tax benefits for farm limited liability companies or limited partnerships
- Chapter 10 — Tax Issues
- I. [10.1] Introduction
- II. Federal Income Tax
- [10.2] Partnership Rules
- [10.3] Economic-Substance Doctrine
- [10.4] Investment Company Issues
- [10.5] 80-Percent Test
- [10.6] Diversification Test
- [10.7] Allocations of Profits and Losses
- [10.8] Allocations of Debt
- Distributions of Cash and Property
- [10.9] Disguised Partner Sales
- [10.10] Guaranteed Payments
- [10.11] Elections
- [10.12] Mergers and Conversions
- [10.13] Internal Revenue Code §199: Qualified Production Activities Deduction
- [10.14] Partnership Tax Provisions of Troublesome Application to Limited Liability Companies
- [10.15] Application of At-Risk and Passive Loss Rules
- [10.16] Recourse and Nonrecourse Loans
- [10.17] Legal Guidance
- [10.18] Fiscal Year
- [10.19] Method of Accounting
- [10.20] Tax Matters Partner and Partnership Representative Provisions
- [10.21] Internal Revenue Code §108: Cancellation of Indebtedness Income
- III. Illinois State Taxes
- IV. [10.27] Self-Employment and Payroll Taxes
- V. Medicare Taxes
- VI. [10.32] Estate and Gift Taxes
- VII. Comparison of Partnerships with Other Entities
- [10.39] In General
- [10.40] Comparison with Limited Partnerships
- [10.41] Limited Liability
- [10.42] Participation in Management
- [10.43] Comparison with S Corporations
- [10.44] Relaxed Ownership Criteria
- [10.45] Advantages of Partnership Taxation
- [10.46] Step-Up in Basis
- [10.47] Internal Revenue Code §754 Election
- [10.48] Internal Revenue Code §704(b) Special Allocations
- [10.49] Absence of Election
- [10.50] Complexity of S Corporation Tax Laws
- [10.51] S Corporation Built-in Gains Tax
- [10.52] Charitable Contributions
- [10.53] Payroll Tax and Tax on Investment Income
- Comparison with C Corporations
- [10.54] Entity Level
- Owner Level
- [10.55] Owner-Employees of C Corporations
- [10.56] Employer-Provided Health Insurance
- [10.57] Internal Revenue Code §1202
- [10.58] Effective Tax Rates
- Chapter 11 — Series Limited Liability Companies
- I. [11.1] Introduction
- II. [11.2] Illinois Statute: How To Establish a Series Limited Liability Company
- III. [11.8] Filing with the Secretary of State
- IV. [11.9] Securities Law Considerations
- V. [11.10] Tax Treatment
- VI. [11.11] Risks and Questions
- VII. [11.12] Conclusion
- VIII. [11.13] Appendix — Sample Separate Series Agreement
- David R. Chanez
David R. Chanez
David R. Chanez is an attorney with Nepple Law, PLC, in Moline, where he focuses his practice on estate planning, probate, elder law, and taxation. Mr. Chanez, who is also a C.P.A., is a member of the Illinois State and Iowa State Bar Associations. He received his J.D. with High Distinction from the University of Iowa College of Law and his B.A. with High Distinction from the University of Iowa.
- Timothy S. Farber
Timothy S. Farber
Timothy S. Farber is Senior Counsel with Locke Lord LLP, in Chicago, and concentrates his practice on transactional and regulatory issues. Mr. Farber is a member of the Chicago, Illinois State, and American Bar Association. He received his B.S./B.A. summa cum laude from the University of Missouri and his J.D. from Washington University School of Law, where he was Editor of the Washington University Law Review, formerly Washington University Law Quarterly.
- Kelly E. Hintzsche
Kelly E. Hintzsche
Kelly E. Hintzsche is an attorney in Rockford. She previously was with Hinshaw & Culbertson LLP, where she focused on business transactions. Ms. Hintzsche is a member of the Winnebago County Bar Association. She earned her J.D. from Northern Illinois University College of Law and her B.S. from Illinois State University.
- Anthony J. Jacob
Anthony J. Jacob
Anthony J. Jacob is a Partner with Hinshaw & Culbertson LLP, in Chicago, where he focuses his practice on business law, banking and commercial finance law, real estate law, and election law. He is a member of the Defense Research Institute, the Chicago Bar Association, and the Illinois State Bar Association. Mr. Jacob earned his B.A. from Northern Illinois University and both his LL.M. and J.D. from The John Marshall Law School.
- Timothy J. Leake
Timothy J. Leake
Timothy J. Leake is a Partner at Hinshaw & Culbertson LLP, in Rockford, and concentrates his practice on business transactions. Mr. Leake is a member of the American Bar Association and its Business Law Section, Real Property Trust & Estate Law Section, and Young Lawyers Division. He is also a member of the Trust and Estate Section of the Illinois State Bar Association and the Estate Section of the Winnebago County Bar Association. He earned his J.D. cum laude from The John Marshall Law School and his B.A. cum laude from Luther College.
- Kelli E. Madigan
Kelli E. Madigan
Kelli E. Madigan is a Shareholder with Mathis, Marifian & Richter Ltd., in Belleville, and concentrates her practice on business law, estate planning, taxation, real estate, and banking. Ms. Madigan is a member of the American, Illinois State, St. Clair County, and Missouri Bar Associations and the Women Lawyers’ Association. She received her B.A. from Saint Louis University, her LL.M. from Washington University School of Law, and her J.D. from Saint Louis University School 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.
- James A. Nepple
James A. Nepple
James A. Nepple is the Managing Partner of Nepple Law, PLC, with offices in Moline, Illinois, and Davenport and Muscatine, Iowa. He practices primarily in the areas of taxation, estate planning, trust administration, probate matters, retirement plans, business entities, and nonprofit organizations. Mr. Nepple has an A rating from the Martindale-Hubbell Law Directory and is a member of the American, Illinois State, Iowa State, and Muscatine Bar Associations as well as the Institute of Illinois Business Law. He received his undergraduate degree from Creighton University, his J.D. with distinction from the University of Iowa College of Law, and his Master of Laws in Taxation from New York University.
- Kayleigh Thomas Nicholl
Kayleigh Thomas Nicholl
Kayleigh Thomas Nicholl is an associate at Hinshaw & Culbertson LLP, in Rockford, and concentrates her practice of business transactions. Ms. Nicholl is a member of the Illinois State and Winnebago County Bar Associations. She received her J.D. from The John Marshall Law School and her B.S. from Bradley University.
- Jennifer A. Nielsen
Jennifer A. Nielsen
No bio available.
- William A. Price
William A. Price
William A. Price is in private practice in Warrenville, concentrating in business and administration litigation, national and international transactions, and nonprofit entity law. Mr. Price is a member of the Illinois State Bar Association, where he has served as Chair for the Corporation, Securities & Business Law Section Council and the Administrative Law Section Council. Mr. Price was awarded the Matthew Mahoney Tradition of Excellence Award, Section of General Practice, by the ISBA in 2012. He also served as Chair of the Institute for Illinois Business Laws (2014 – 2016) and has taught courses in venture capital and business law at the Stuart Graduate School of Business of the Illinois Institute of Technology. He received his B.A. magna cum laude from the University of Illinois and his M.A. and J.D. from Duke University.
- Chad J. Richter
Chad J. Richter
Chad J. Richter is an associate at HeplerBroom, LLC, in Edwardsville, and focuses his practice on commercial and transaction law. Mr. Richter is a member of the Illinois State Bar Association and the Secretary of its Business and Securities Law Section Council. He earned his J.D. from Southern Illinois University School of Law, his M.S. from Southern Illinois University, and his B.S. from Truman State University.
Limited Liability Companies 2018 Edition
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