Owning a business in the Windy City is a heady opportunity, connecting with a vibrant customer base on the shores of Lake Michigan.
No matter what business you own or are thinking of launching, it’s smart to understand the challenges and opportunities that come with running a company. You’ll need to attract customers, differentiate your products and services and kickstart buzz, whether through advertising, giveaways or other forms of publicity.
Challenges aside, owning a Chicago business can be an exciting venture, providing you with an opportunity to achieve your dreams and earn profits.
When running a Chicago company, it’s important to be aware of some of the legal issues that need to be addressed. Understanding the legal implications and requirements of owning a business in Chicago helps to avoid costly penalties and ensure your business is operating correctly.
Here is a closer look at some of the legal considerations when running a Chicago business.
Understanding Employment Law
Employment law is an important consideration for any business. If you plan to hire employees, you will need to understand many aspects of employment law, including the following:
Hiring Process. Employees must be at least 16 years old, though 14 and 15 year olds can work three hours a day in some cases. You’ll need to determine whether you offer benefits, such as paid time off; whether you’ll conduct background checks; and what restrictions apply if you sell restricted products like alcohol
Applicant Questions: Federal and state law prevents you asking questions to applicants, including their race, religion, gender, sexual orientation, marital status, pregnancy status, disability or age
EIN: Businesses need to obtain an Employer Identification Number, which is a unique identifier that is similar to an individual’s Social Security number. It’s used by businesses and employees alike on tax forms
Withholding. As an employer, you will need to cover the employer’s portion of Social Security and Medicare taxes and withhold those taxes from employee paychecks
Business License
Business licenses are necessary at the state and local level in Chicago. At the state level, you will need to obtain a Certificate of Registration and establish your MyTax Illinois account.
Chicago businesses need to secure a business license. The costs vary greatly based on the business type and, in some cases, require a zoning review and criminal background check.
Business Entity Structure and Formation
Choosing a business structure is an important consideration. The business structure you choose has critical impacts on taxation and liability.
For small businesses, there are two common business structure types – sole proprietorship and limited liability company (LLC).
Sole Proprietorship
This structure is the simplest to form and requires no formal paperwork to operate. In a sole proprietorship, the single business owner runs the business independently, making all the key decisions.
In a sole proprietorship, the profits and losses are passed through onto the owner’s individual tax returns and included on Schedule C. However, the owner is also responsible for any liabilities the company has, including court rulings and bankruptcy filings. That means that courts and creditors can come after the personal assets of the business owner, including homes, cars and savings.
LLC
The LLC business structure is highly popular among small-business owners. That’s because with an LLC, you have both tax and liability advantages.
Taxes in an LLC are handled the same way as in a sole proprietorship. Profits and losses are passed onto the owners’ (called members) individual tax returns. However, the tax laws allow an LLC to be taxed in different ways, either as a sole proprietorship by default (or a partnership if there are multiple members) or as a corporation.
From a liability standpoint, an LLC is an excellent choice. In an LLC, you are not held personally liable if there is a court judgment against the company, except in cases of extreme negligence or misconduct.
With an LLC, you can also determine how the business is managed, either by a member or members themselves or by a manager hired by the members.
Knowing how to form an LLC is important. LLCs are filed within the state of operation. In Illinois, there’s a $150 filing fee and a $75 annual fee when you file an annual report. You’ll need to file Articles of Organization when you form an LLC in Illinois. These documents contain basic information about the company and its members.
Contracts and Agreements
If you’re going to own a Chicago business, it’s likely that you will have to draft and sign contracts and other agreements with business partners, suppliers, vendors and other business entities. While you may be tempted to create these documents yourself, it’s not a good idea.
When you need legal documents to be written or reviewed, it’s smart to have a lawyer who is creating and looking at documents before they’re signed. This step ensures that you’re protecting yourself and your business and complying with federal and state laws.
If you have regular, repeatable contracts, you may want an attorney to draft a template you can use. However, any changes that you or another party make to the language of these contracts runs the same legal risks.
Licenses and Permits
Depending on the type of business you run in Chicago, you may be required to secure licenses or permits to operate beyond the business license. For example, in Chicago, if you run a business from your home, you are required to pay additional taxes and licensing fees.
Certain businesses, such as those that involve food or alcohol, will be subject to health requirements and approvals prior to starting the business and may be subject to periodic inspections.
Zoning requirements also come into play. Certain businesses may only be allowed to operate in certain business zones within the city and subject to approval from the city before launching.
Business Insurance
Protecting your company and yourself is important and why having business insurance is critical. There are many different types of insurance available and which policies you need depends greatly on your business. Here are some of the most common:
General Liability. Covers property damage, bodily injury, medical payments and legal fees. Also known as business liability insurance
Errors and Omission. Covers professional misconduct or mistakes that cause a client or customer to lose business
Property. Protects your assets, including the space where you rent or own for your business, inventory, furniture, tools and equipment and personal items
Business Interruption. Often included in general liability policies and covers disruptions to your business operations due to a natural disaster
Cyber Liability. Protects against losses from cyberattacks, data breaches, malware, ransomware
or hardware failures
Product Liability. Covers deficiencies in the products you sell, including remediation efforts to correct faulty products
Crime and Fidelity. Protects against employee theft, fraud, forgery or property destruction
In addition, many businesses offer their employees various insurance protections, with companies paying a portion of the policy premiums. Among the most common employer-provided insurance types are medical, dental and vision.
Compliance
Today, complying with various regulatory mandates is a big part of conducting business. Compliance requirements govern how your company manages and protects customer and employee data and financial information. Among the most common compliance laws to consider are:
General Data Protection Regulation (GDPR). Cover European Union citizens and has specific requirements with how companies gather, store, use and sell personal data
CAN-SPAM. Regulates how businesses market using email and gives users the right to opt out of communications
Health Insurance Portability and Accountability Act (HIPAA). Protects health records and information stored and shared and requires patient consent before sharing
Payment Card Industry Data Security Standard (PCI DSS). Requires businesses to protect credit and debit card data used in online transactions, including how it is stored, transmitted and managed
National Institute of Standards and Technology (NIST). Optional guidelines to help businesses reduce risk of cyberattacks and strengthen cybersecurity
There are many types of regulations that may be applicable to your business. Researching the regulations that apply to your business is an important step to take.
Business Bank Account
Having separate finances for your small business is important. One key step is to open a business bank account. Doing so has several advantages.
For one, having a business bank account helps establish a relationship with a financial institution, which can help when seeking loans or other financial assistance. In addition, a company bank account lends credibility to your business, allowing you to conduct business with vendors and customers with checks and transactions via your business.
If something goes wrong, having separate business finances is important. Courts may rule that your personal assets are open to being affected by negative judgements if your business and personal finances are mingled.
Starting a business in Chicago is an exciting opportunity for any entrepreneur. Understanding the legal components of a business helps strengthen your company and position it for future success.