It can be used to avoid issues that develop in any good relationship by defining expectations before problems occur. Possibly the most important advantage, of a Shareholder Agreement, is that it can be used to determine the arrangement in the event one party wishes to leave, retire, or dies. Corporations as separate entities are also taxpayers. This can result in double taxation as the corporation pays tax on its net income. This situation is usually remedied by proper tax and accounting elections and advice.
Salaries are the most common way to avoid having net income in the corporation.
Salaries must be considered reasonable to the IRS or they may be considered a dividend and get taxed twice. In view of some of the huge corporate salaries out there, there appears to be a broad definition of reasonableness. Corporations may cost slightly more to operate from a legal and accounting standpoint, but depending on your personal assets, the limited liability alone, makes it well worthwhile. Limited Liability Companies - LLC's in Illinois are governed by The Illinois Limited Liability Company Act, effective January 1. 1994. The LLC is a very progressive form of ownership and is gaining in popularity all across the country.