The New Chicago and Cook County Paid Sick Leave Ordinances – What Do They Say and How Do They Work?

By E. Christopher Caravette

July 12, 2017

Before July 1, 2017, in Cook County, Illinois, about 40 percent of private-sector workers (or about 840,000 people) were not entitled to any paid sick leave, and many risked losing their jobs if illness kept them from showing up to work. Today, however, all of that changed.

On July 1, 2017, both the City of Chicago and the County of Cook mandated, by ordinances, that employers must provide paid sick leave to employees. The county ordinance allows municipalities in the county to opt out if they so choose. An employer that employs at least 1 covered employee is covered under the ordinance.

Who is covered under the ordinance?

A covered employee under the new ordinances is anyone who works for a covered employer at least 80 hours in any 120-day period, and who works at least 2 hours in any 2-week period within Chicago or any municipality in Cook County that has not opted out.

Time spent traveling within a covered municipality (such as time spent on deliveries or sales calls) counts toward the 2-hour minimum.

Some specific employee exemptions for Chicago are allowed including agricultural employees, outside salespersons, members of religious organizations, students at an Illinois college or university covered by Fair Labor Standards Act, and employees or motor carriers.

Cook County exempts government entities and Indian tribes.

Both Chicago and Cook County exclude construction workers who are subject to collective bargaining agreements.

Ordinance Requirements

The ordinances require that covered employers grant covered employees paid sick time, which will accrue at a rate of at least 1 hour for every 40 hours worked. The maximum mandated amount of paid sick leave is 40 hours in a 12-month period. A 40-hour workweek is assumed for exempt employees (those who are not paid hourly). If the exempt employee works less than 40 hours, the employer has the responsibility of proving it.

Sick leave starts accruing on an employee’s first day of employment after July 1, 2017 (for existing employees, on July 1, 2017). A new employee must wait 180 days to start using the accrued time (this requirement effectively eliminates those who are temporary employees). Employees must be permitted to carry over up to 20 hours (which is half of the yearly allowance) into the following year for any unused time.

Under both ordinances, covered employers are required to post a notice of the employees’ rights at each physical location in Chicago or Cook County, as well as include a notice with each employee’s first paycheck (for current employees, the first paycheck they receive after July 1, 2017).

What is Not Required

Employers are not required to pay out accrued unused sick time upon an employee’s termination of employment, unless they are covered under a collective bargaining agreement that mandates this payment. Employers who already offer paid sick leave that meets the same requirements are not required to provide any additional paid sick leave. Existing paid time off or paid vacation policies can be used to satisfy the ordinances as long as the policy allows employees to use the time for illness as well.

Using Accrued Leave

A covered employee can use accrued sick leave under of the following circumstances:

  • if the employee is ill or injured;
  • if the employee is caring for an ill or injured family member;
  • if the employee is receiving medical care, treatment, diagnosis, or preventive care;
  • if the employee is caring for a family member who is receiving medical care, treatment, diagnosis, or preventive care;
  • if the employee, or a member of his or her family, is the victim of domestic violence or a sex offense; or
  • if the employer’s place of business (or the school of an employee’s child) is closed due to a public health emergency.

Employers may require up to 1 week of notice for leave that is reasonably foreseeable (such as for scheduled doctor appointments). When the need for sick leave is not reasonably foreseeable, employers can only require employees to give as much notice as is practicable under the circumstances. Employers cannot require a sick employee to arrange for a co-worker to fill in for them during the paid sick leave.

If an employee is on paid sick leave for 3 consecutive days, the employer may require proof of the stated reason for taking leave. However, employers cannot require the employee to specify or identify any precise illness, injury or medical condition.

Municipalities Opting Out in Cook County

Many municipalities have opted out of the county ordinance requiring paid sick leave. Included among those now opting out are Arlington Heights, Barrington, Bartlett, Des Plaines, Elk Grove Village, Elmwood Park, Hanover Park, Hickory Hills, Hoffman Estates, Mount Prospect, Niles, Northbrook, Oak Forest, Oak Lawn, Orland Park, Palatine, Rolling Meadows, Rosemont, Schaumburg, South Barrington, Streamwood, Park, and Wheeling.

For additional information, please use the contact form.

LOOK TO US FOR ALL OF YOUR REAL ESTATE, SMALL BUSINESS, AND ESTATE PLANNING LEGAL NEEDS! WE APPRECIATE YOUR BUSINESS!

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)

Are your Powers of Attorney Up-to-Date? Changes in both Florida’s and Illinois’ Power of Attorney laws in the past few years may have an impact on those provisions you have already put in place. Now is the time to make sure your Powers of Attorney are as effective as you need them to be!

by E. Christopher Caravette

What is a “Power of Attorney” in the first place?

A Power of Attorney is a legal document that gives another individual the authority to act on your behalf when you do not or cannot act. You are the “principal” and the person you appoint is the “agent”.

There are generally two types of Powers of Attorney:

  • The financial Power of Attorney (in Illinois, called the “Power of Attorney for Property”), for financial and property matters; and,
  • The health care Power of Attorney (in Florida, called the “Health Care Surrogate”), for health care decisions.

Florida

Effective October 1, 2011, Florida’s Power of Attorney law changed drastically.

With respect to a Power of Attorney dealing with financial and property issues, the new law expands on the old law as a result of careful consideration by the Florida legislature and also as a result of experience over time with the provisions of the old law.  Some of the changes in the new law are:

  • Co-agents can exercise authority independently, unless the Power of Attorney provides otherwise.
  • Copies in lieu of original documents are acceptable.

One of the key purposes of the Florida Power of Attorney Act is to clarify the agent’s authority as it might affect the principal’s estate plan.  The principal must specifically acknowledge in the document if:

  • The agent has authority to make changes to the principal’s estate plan.
  • The agent has authority to change the rights of survivorship and beneficiary designations.
  • The agent has authority to waive rights under annuities and retirement plans.
  • The agent has authority to make gifts.

These are called the “superpowers”.  This list is by no means exhaustive, but instead illustrates some of the clarifications which the legislature intended to confer with the new law.  The purpose of these changes is to protect the principal and to clarify what previously was not in the statute.

How does this change in the law affect you?  Well, if you executed a Power of Attorney previous to the change, your Power of Attorney is still effective.  However, because of the change in Florida law, it is advisable to execute new documents to make sure your Power conforms and expresses your unique desires.

Illinois

Effective July 1, 2011, Illinois’ Power of Attorney law changed. The legislature’s goals were to provide more protection to the often-vulnerable principal from financial or physical abuse, and to make the forms more user-friendly.

How has the law changed?

With respect to an Illinois Power of Attorney for Health Care:

  • It incorporates into the new statutory Power of Attorney for Health Care form the latest changes in light of HIPAA and the new Disposition of Re­mains Act.
  •  It deletes use of the outdated medical term “irreversible coma” and replaces it with more medically accepted definitions used in the Health Care Surrogate Act.

With respect to an Illinois Power of Attorney for Property (financial decisions):

  • It elevates the agent’s standard of care, requires more oversight of the agent’s actions, and expands the remedies against an agent who abuses his or her fiduciary responsibilities.
  • It provides a notice to an agent under the Power of Attorney for Property that describes his or her responsibilities.
  • It provides default provisions for co-agents in a non-statutory Power of Attorney for Property.
  • It limits who may act as a witness to the execution of a Power of Attorney to avoid conflicts of interest.

If you executed a Power of Attorney in Illinois previous to this change, your Power of Attorney is still effective.  However, because of the change in Illinois law, it would be prudent to consult with us to make sure any Power still reflects your unique needs and desires.

Our firm has been assisting our clients with their estate planning needs for more than twenty-five years.  Please call us to discuss how this change in both Florida and Illinois law might affect your situation.

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)

Doing Businiess in Chicago

The Business Operator’s Guide for Starting and Operating a Business in Chicago

If You Need Inspections

Your application will be sent to the appropriate departments and inspections will be performed. (Not all businesses require inspections.) These include Fire, Building, Plumbing, Ventilation and Health. If you need Electrical Inspection, you must schedule it: (312) 744-3460. The following license classes require Electrical Inspection:

  • PPA (Public Place of Amusement) Day Care 1, 2 Massage Establishment, Audio-Video Shop, Health Care Est.-Hospital, Nursing Home Shelter
  • If your business fails its inspection, violations must be corrected. It is your responsibility to schedule reinspections: (312) 744-3438

Licenses are not issued until all inspections are passed.

License Categories:
Animal Care
Auctioneer
Audio-Video Repair
Day Care
Explosives
Filling Station
Food-Mobile
Food-Retail
Food-Special Event
Food-Wholesale
Hazardous Materials
Home Based Business
Home Repair
Hospital
Hotel
Junk Dealer
Laboratory
Limited Business
Liquor-Beer Garden
Liquor-Club
Liquor-Late Hour
Liquor-Music and Dance
Liquor-On Premise
Liquor-Packaged Goods
Liquor-Tavern
Manufacturing
Massage Establishment
Massage Therapist
Motor Vehicle Repair
PPAs
Parking Garage
Pawnbroker
Peddler
Recycling
SRO
Scavenger
Secondhand Dealer
Sidewalk Café
Ticket Broker
Tire Facility
Tobacco-Retail
Tobacco-Sampler
Tobacco-Vending
Tobacco-Vending Business
Tobacco-Wholesale
Weapons Dealer

How to Register for Business Taxes:
The city of Chicago levies a variety of business taxes. You may be required to pay one or more of the following business taxes:

Airport Departure
Amusement Tax
Auto Amusement Tax
Cigarette Tax
Employers Expense
Foreign Fire
Ground Transportation
Hotel Tax
Liquor Tax
Motor Vehicle Lessor Tax
Non-Titled Personal Property Use Tax
Parking Tax
Reseller of Electricity Tax
Soft Drink Tax
Telecommunications Tax
Vehicle Fuel Tax
Titled Property Use Tax

01. Complete the tax registration form that is included in your license application.
02. You will meet with a Tax Administration Rep who will review your registration form in the license application and give you a set of appropriate tax returns.
03. It is important to remember to file your tax returns as required by ordinance with the Tax Administration Unit of the Chicago Department of Revenue.

Note: Failure to file any tax return on time could cause you to pay a penalty and could put a hold on the renewal of your license.

Direct any questions regarding taxes to the Tax Administration Unit: (312) 747-9723

How to Renew Your License
All licenses must be renewed annually, except liquor licenses, which must be renewed semi-annually. You will receive your renewal form approx. 30 days before the expiration date on your license.

How to Review — The best way to renew your license is to submit your renewal application and your check or money order by mail to the Department of Revenue:

Chicago Department of Revenue
City Hall, Room 107
121 N. LaSalle St.
Chicago, IL 60602

To renew in person, bring the renewal application together with the payment to City Hall, Room 107, Monday through Friday, 8:00 am to 5:00 pm.

Completing the Renewal Application — Your renewal application will be mailed to you approximately 30 days before the expiration of your current license. Changes in home address or phone number can be made on the form. Changes may be sent in during non renewal periods as well. If there are any changes in Officers, Business Name, or Location, you must file an appropriate change form and submit fee. Contact (312) 744-3947.

Submitting Your Payment — Check the Fee Amount on renewal application. Make check payable to Chicago Dept. of Revenue.

Is There a Hold on Your License? — A hold can be placed on the renewal of your license if the City of Chicago or the State of Illinois has evidence of unpaid debts owed to the City or the state. A hold notice would be printed on your renewal application. Direct questions to city/state agencies indicated on the renewal form. All Holds must be cleared prior to acceptance of a renewal. For quick processing, please do not wait until the last week before the deadline.

How to Resolve Licensing Problems:
The best way to obtain your license and renew it is to avoid incurring debts to the City and to pay all fees on time.

Common Problems that Occur with License Renewals:

  • NSF Hold — A hold on your license because of a non-sufficient funds check
  • Receivable Unit Hold (annual inspection) — Your business has not paid all its annual privilege, maintenace or inspection fees.
  • Law Hold — Law Department at the City of Chicago has an unsettled judgement against you.
  • State Hold — State of Illinois’ records indicate that your business is delinquent in paying Retailer’s Occupation Tax (Illinois Sales Tax).
  • City Tax Hold — Chicago Business Tax Unit in the Dept. of Revenue has records showing incomplete payment of all your business taxes.
  • Parking Ticket, Water Bills, Etc. — Such unpaid debts to City of Chicago may cause a hold on your application.
  • Streets & Sanitation Hold — You have a violation of City Sanitation code.
  • Consumer Services Hold — You have a violation in the nature of Consumer Services Regulations, ie., consumer fraud.
  • A Failed Inspection — A failed Annual Inspection or Bond Review.

Common Problems that Occur with New Licenses:

  • A Failed Inspection — It is your responsibility to reschedule inspections if you failed any. Direct all questions to the Customer Inquiry & Info Unit: (312) 744-3947.

Important: The Mayor’s License Commission and Local Liquor Control Commission must approve issuance of a retail liquor license. Notwithstanding approval of all city inspecting departments, the License Commission has authority to deny an application for liquor license for a variety of reasons, and may also fine or revoke licenses due to violations in codes or state statutes. Mayor’s License Commission & Local Liquor Control Commission: 320 N. Clark St. (Room 519) Chicago, IL 60610 (312) 744-8071.

Prepare Before Applying for Your Licnese:
Select your business structure: as a Sole Owner, Partnership, Limited Partnership, a Limited Liability Corp., or Corporation. To incorporate, you must register with the State of Illinois at the address below:

01. To Incorporate Your Business, go to:
Secretary of State
17 N. State St., Suite 1137
Chicago, Illinois 60601 (312) 793-3380

02. Apply for your Federal ID #
Federal Taxpayer Service (17th floor)
Federal Building, 230 S. Dearborn St.
Chicago, Illinois 60601 1-800-829-1040
Sole Proprietors may be able to use your Social Security Numbers. Call to check on your status.

03. Choose a Business Name
Assumed Names – County Building
118 N. Clark St. (lower level)
(312) 603-5652

If you conduct business in Illinois under an assumed name or title (a name other than your own name), file for a certificate with Cook County. (This does not apply to corporations.) Lists of current business names are available.

04. Obtain a State Tax Number
Illinois Department of Revenue
100 W. Randolph St. (7th floor)
Chicago, Illinois 60601 (312) 814-5258

Most, if not all businesses require a State Tax Number – either a Retailer’s Occupational Tax Number, or a Illinois Business Tax (IBT) Number. You may apply in person at the above address.

05. License and Tax Registration
Department of Revenue
121 N. LaSalle St. (Room 107)
Chicago, Illinois 60602 (312) 744-3947

You need a business license to operate a business location in Chicago. You will receive your license after all inspections have been approved by various departments. You must also register for applicable city taxes for your business.

Obtaining Your License:
City Hall (Room 107), 121 N. LaSalle Street

01. Obtain Application at Counter
Please obtain and complete a business license application. You may be asked to present the necessary identification and documentation:
A. Driver’s License, Voter Reg. Card or State ID.
B. Federal Employers ID # (FEIN) (for corporations or partnerships) or Social Security # (for sole proprietorships)
C. A Sales Tax # (Retailer’s Occupations Tax # or a Illinois Business Tax Number)

02. Zoning Approval
Your business location must be approved by the Zoning Department. You must visit the Zoning Department, Room 800, 8th floor, City Hall. If denied, contact the Zoning Board of Appeals, Room 806, City Hall, 121 N. LaSalle Street. If approved, return to the Registration Counter.

03. Business Account
The information provided in your application will be entered into our computer system to establish your new account and DREV number for licenses and taxes.

04. Now You Pay the License Fee
You will pay your application License Fee at the Collections Counter and receive your receipt. This is not a license. Unless you purchase a limited business license, you are not yet allowed to operate your business. Keep the receipt as your reference number when inquiring on your status.

05. If You Need a Site Inspection
Inspections (if necessary) are generally arranged for you and can take place approximately 15-20 days after the license (deposit) payment date. Use the payment receipt K#5000 series as reference.

Helpful Organizations and Phone Numbers:
(All phone numbers are 312 area code)

City of Chicago Departments:
Buildings @ 744-3438
Business Services Division @ 744-3947
Consumer Services @ 744-4006
Environment @ 744-7606
Fire @ 744-4762
Finance – Risk Mgmt. @ 747-7830
Health – Food & Dairy @ 746-8046
Health Code Enforcement @ 744-8482
Law @ 744-6900
Streets & Sanitation @ 744-4611
Taxes @ 747-9723
Water @ 744-7038
Zoning @ 744-9042

City of Chicago Department of Planning & Development:
Business Express @ 744-CITY
Business Services Division @ 747-6559
Cartography Division @ 744-4996
Community Development @ 744-0763
Finance Division @ 744-9220
Landmarks Division @ 744-3200
Policy & Research & Planning @ 744-4142
Zoning & Center Development @ 744-0763

Cook County:
Assumed Names @ 443-5652
Business Assistance @ 443-4893
Property Tax Incentives @ 443-7529

State of Illinois:
Commerce & Community Affairs @ 814-7179
Revenue – Sales Tax @ 814-5258
Small Business Hotline @ 814-3263

U.S. Department of Commerce:
Economic Development Admin. @ 353-8143
Federal Tax Service @ 1-800-829-1040
Minority Business Development @ 353-0182
Small Business Administration @ 353-0359

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)

 

Home Occupation

Rules and Regulations for Operating a Home Based Business in the City of Chicago

Recognizing the national employment trend in recent years that has required millions of people to work from their homes, Mayor Richard M. Daley and the Chicago City Council have created the Home Occupation Ordinance, which will allow certain business activities to take place in a person’s home.

The Ordinance was developed by a Task Force appointed by Mayor Daley, consisting of city government officials, aldermen and members of the work-at-home force. It was carefully crafted to balance the competing demands of person’s wishing to operate a business from their place of residence and the need to maintain the residential character of the surrounding communities. Specifically, the ordinance places certain restrictions on the types of businesses that may be operated from the home and the number of persons that may visit the business on any given day, and takes other steps necessary to ensure that residential neighborhoods do not become disorderly or overly congested with commercial traffic.

The Ordinance will be regulated by the departments of Zoning and Revenue, with inspectors investigating complaints, assessing fines and penalties, ultimately closing down unlawful operations.

The Home Occupation Ordinance only applies to individuals who are self employed or operate their own business. A Home Occupation License is not required from individuals who work from their homes on either a part-time or full-time basis for an employer that has a separate place of business.

Questions regarding what types of businesses may be licensed and other aspects of the Home Occupations Ordinance can be answered by the Department of Zoning at: 312-744-9042. For further information on obtaining a license, contact the Department of Revenue at: 312-744-3947, or visit the Department of Revenue at City Hall, 121 N. LaSalle St., Room 107.

Further information and application materials are also available on the City of Chicago’s home page on the World Wide Web at: www.ci.chi.il.us

Prohibited Home Occupations

Any repair of motorized vehicles, including the painting or repair of automobiles, trucks, trailers, boats or lawn equipment

  • Animal hospitals, kennels, stables, or bird keeping facilities
  • Astrology, card reading, palm reading, or fortune telling in any form
  • Barber shops or beauty parlors
  • Dancing schools
  • Restaurants, or any catering/food preparation businesses
  • Massage Therapy
  • Funeral chapels or homes, crematoria, mausoleums
  • Medical or Dental Clinics, provided that nothing in this chapter shall prohibit the performance of emergency medical services in a residential dwelling
  • Any facility where products are manufactured, produced or assembled when the home occupation licensee is not in the retail sale for such products
  • Public places of amusement, such as theaters or video arcades
  • The sale of firearms or ammunition
  • Warehousing, welding or machine shops
  • Construction business or landscaping businesses that include the storage of goods and materials to be utilized in the operation of the business or use (No parking of business vehicles on the premise)

Home Occupation Regulations

01. A “Home Occupation” must be an accessory use of a home for a business or commercial enterprise. The use must be incidental and secondary to the principal residential use of the dwelling unit and must not change the residential character of the dwelling unit or adversely affect the character of the surrounding neighborhood.

02. A dwelling unit may be used for one or more home occupations. The business is to operated by the person or persons living in the home and may allow only one non-resident employee.

03. All individuals must obtain a Home Occupations License from the Department of Revenue for a fee of $125.

04. No Home Occupation may be operated from an accessory structure or garage.

05. The Home Occupation may not display or create any external evidence of the operation of the Home Occupation (no sign).

06. There may not be any internal or external structural alterations or construction, either permanent or temporary, to the home.

07. Separate entrances from the outside of the home may not be added.

08. Home Occupations may only be conducted with in the home.

09. Storage related to the home occupation will remain within the home.

10. The direct sale of any product on display shelves or racks is not permitted.

11. The area in the home from which the home occupation will be operated must not exceed ten percent of the floor area of any single family home, or fifteen percent of the floor area of any unit in a multiple dwelling building.

12. No more than two patrons or clients may be present in the home at one time when the home is used for business purposes.

13. No more than ten clients or patrons may be present in the home during a 24-hour time period.
14. Bulk deliveries related to the home occupations are limited to one per day, in addition to U.S. Mail service, Federal Express, U.P.S. and messenger services. Tractor trailer deliveries are not permitted. Bulk deliveries can only be made between the hours of 8:00 a.m. and 5:00 p.m.

15. A Home Occupation must not emit noise, smoke, dust or any other particulate or odorous matter; heat, humidity, glare, or any other effect that unreasonably interferes with anyone’s enjoyment of his or her residence.

16. Nothing in this ordinance shall prevent a Condominium Association’s Board of Directors, a Cooperative Association’s Board of Directors, or a landlord from adopting a rule prohibiting home occupations on the premises.

17. The Departments of Zoning and Revenue will enforce this ordinance. Penalties for violating any conditions of the ordinance will result in fines ranging from $200 to $500 per offense.

Home Occupation Hotlines:

For general inquiries regarding home occupations visit or call

Department of Zoning
121 N. LaSalle Street, Room 802
312-744-9042 TTY: 312-744-2950

For inquiries regarding licensing home occupations visit or call

Department of Revenue
121 N. LaSalle Street, Room 107
312-744-3947 TTY: 312-744-9275

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)

IRAs for Small Business

Two IRAs were created for small-business owners with no company retirement plan. A SEP IRA (Simplified Employee Pension) is a modified profit-sharing plan for firms of 25 or fewer eligible employees. The employer makes contributions for employees based on a percentage of earnings but does not have to put in anything if the firm has a bad year.

A SIMPLE IRA (Savings Incentive Match Plan of Small Employers) is an alterative to a qualified 401(k) plan. The employer matches employee contributions up to 3 percent of salary for at least three out of five years.

David Robinson, president of Resource Consulting Group in Austin, compares the program. “A SEP is more suitable when the employers’s compensation is significantly higher than the employees’, when turnover is relatively high, and there is profit uncertainty,” he says.

“A SIMPLE is more attractive when the employer wants to offer retirement salary deferral without any discrimination rules or administrative hassles to deal with when the business has relatively stable profits to support the mandatary matching contributions, and when the employer does not need the higher contribution limits of the SEP.”

Reprinted from Spirit magazine
November 1999

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)

Limited Liability Companies — A New Alternative to Corporations and Partnerships

by E. Christopher Caravette

Illinois has recently joined the growing list of states which now recognizes a new form of business organization, the Limited Liability Company (“LLC”). The legislation which recognizes the LLC is called the Illinois Limited Liability Company Act (“the Act”), which was passed into law on September 11, 1992, and became effective January 1, 1994. By June of 1994, it is expected that almost all fifty states will have adopted similar legislation recognizing LLCs.

But just what is a Limited Liability Company, and how does it differ from the more familiar forms of business organization, the corporation and the partnership? An LLC is a form of business organization which, in essence, allows a business to organize and function like a corporation in some respects and like a partnership in others. While there are a number of characteristics unique to an LLC, perhaps the most attractive is that an LLC provides all of the members of the business with the recognized corporate characteristic of limited liability (hence, the name) without limiting the ability of the equity owners of the business to participate in the management of the venture (like a limited partnership), while providing pass-through income tax treatment (again like a partnership or an “S” corporation). An LLC can either more closely resemble a corporation or a partnership in its structure and operations, depending upon the desires and goals of its members.

How is an LLC established? Under the Act, one or more persons may organize an LLC by filing Articles of Organization with the Secretary of State. The filing fee is $500.00. The Act also requires that an LLC must have at least two “members”, or owners. Members of an LLC may be individuals, corporations, or partnerships. In contrast, a corporation may have only one owner or shareholder, an “S” corporation is limited to thirty-five (35) owners or shareholders (all of whom must be individuals or meet other strict requirements), and a partnership is unlimited in the number of owners or partners it may have.

What types of businesses can organize as an LLC? The Act provides that any lawful business may organize as an LLC, except banking or insurance companies. Illinois Supreme Court rules also bar lawyers from organizing as an LLC.

An LLC is also required to have an Operating Agreement, which is a combination of what we recognize as corporate by-laws and a partnership agreement. This Operating Agreement defines the relationship of the LLC members to each other and describes the management and operation of the business. Unless otherwise provided in the Articles of Organization, an LLC is managed by its members, although management may be vested in a group of non-owner managers. For example, the management of an LLC is generally reserved to its members, much like a partnership. However, an LLC may also elect managers who are charged with the day-to-day operations and who make management decisions, much like a corporation. Furthermore, unless the Articles of Organization provide otherwise, any one or more of the members can bind the LLC by that member’s actions, much like the partners of a general partnership.

How is an LLC treated for tax purposes, and what, if any, are the liability concerns which are peculiar to an LLC? For federal income tax purposes, an LLC is treated similarly to a partnership if it is properly formed, and therefore avoids the double income tax characteristic of many corporations. There is, however, a very significant difference between an LLC and a partnership which relates not to tax issues, but to liability. Specifically, in a partnership, all partners are responsible for the liabilities of the partnership. Likewise, in a limited partnership, at least one general partner is personally responsible for the liabilities of the limited partnership. In an LLC, however, no member is required to be liable for the debts of the LLC, much like a corporation where there is also limited liability. Furthermore, limited partners of a limited partnership are generally prevented from participating in the management and control of the partnership’s business. If a limited partner does take part in management activities, that limited partner may lose his limited liability. In contrast, members of an LLC may participate in the management and control of the business without becoming liable for the debts of the LLC.

What are an LLC’s powers? Similar to that of a corporation, an LLC has the ability to sue and be sued; to purchase, sell, lease or mortgage property; and to lend and borrow money.

What, if any, are the drawbacks of an LLC? Perhaps the biggest is that, at present, there are necessarily a number of unknowns. Specifically, since it is a relatively new form of business organization, there is little case law for precedent in the treatment of LLCs in areas such as bankruptcy and tax matters. Second, like a corporation, the attractive limited liability feature can, under certain circumstances, be set aside by a court of law. Finally, recognition of an LLC in a state outside the one in which it has been established may be problematic. Under the Illinois Act, LLCs validly formed in other states are recognized as such here. However, LLCs organized in Illinois may or may not be recognized as such in other states, depending upon the applicable laws in that particular state.

For any new business, the Limited Liability Company form of organization should be considered as an alternative to a partnership or corporation. We will be happy to advise you further as to whether a Limited Liability Company is the right type of organization for your business.

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)