Illinois: The $39 Limited Liability Company

Last week, some number of Americans tuned in to President Obama’s State of the Union Address (or caught the highlights on radio/web).  Governors had their own “State of the State Addresses,” like Gov. Pat Quinn here in Illinois.  Among other proposals that he mentioned, one jumped out:  the $39 limited liability company.

Illinois wants more businesses headquartered here.  (Illinois almost lost ADM, lost part of Jimmy John’s operations, and lost Office Depot.  Illinois state corporate taxes are often cited as the culprit.  Illinois also wants to start more small businesses.  Illinois also has the highest limited liability organization fee in the country:  $500.

So, Gov. Quinn announced that he wants to lower that fee to the lowest in the country, $39, to spur small business growth.

So, there’s a lot of faulty reasoning here.  I have no problem with lowering the LLC fee, but Gov. Quinn shouldn’t be surprised if it has no effect on job growth in Illinois.

First, as anyone reading this blog knows, organizing in a state does not mean that you will move your operations there.  (See, e.g., Delaware.)  Now, it could bring indirect benefits to the state, like franchise taxes and litigation expenditures, but unless Illinois becomes the Delaware of LLC law, it won’t bring any jobs (and then not that many).  Second, it’s hard to imagine a would-be entrepreneur thinking “Gee, I really want to start a business, but the LLC fee is $461 too high.”  Any small business owner in Illinois could organize an LLC anywhere (Delaware — $90!; Indiana — $90!).  Third, the ongoing costs of incorporation (annual fees, taxes) may be more inportant than the organization fee for attracting incorporations, even if we thought out-of-state incorporations would be a boon to Illinois.

Mohsen Manesh has a paper on the market for LLC incorporations.