I think you are equally protected under either an LLC or S corporation. There may be some tax benefit one way or the other, depending on the nature of your business. I suggest you ask your accountant for advice as to whether there would be a tax benefit choosing one form of entity over the other.

While it is true that insofar as liability protection is concerned, an Illinois LLC or a corporation should provide similar benefits, it should be noted that the law concerning limited liability companies is less developed in Illinois than that for corporations. (An "S" corporation is simply a federal tax designation, whereas the creation of a corporation is a matter of state law.) There is at least one provision of the Illinois Limited Liability Company Act that would seem to provide more protection than that afforded by a corporation, and since there is a dearth of case law interpreting this provision, one could argue that an LLC affords somewhat more protection than a corporation.

I typically recommend my clients engage in business as an LLC over a corporation, even though the Illinois Secretary of State charges a few hundred dollars more to create and maintain. Furthermore, if you're engaging in business with a friend, the most important item will be the Operating Agreement, which would spell out the rights/obligations of each of you.

-- Kenneth J. Ashman; Ashman Law Offices, LLC; KAshman@AshmanLawOffices.com

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