Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Forming an LLC is a significant step when launching a new business. This type of business structure is an excellent choice for entrepreneurs looking to protect their personal assets making filing taxes easier.
Read on to learn more about registering an LLC in Illinois.
Step 1: Determine If an LLC Is Right for You
Limited Liability Companies are a popular business structure because they protect your assets. In most cases (if they are managed correctly), creditors won’t be able to go after your home, vehicle, and other assets should you file bankruptcy for your business venture.
Depending on the tax treatment you choose when you form your LLC, you can also report your business profit or loss as personal income instead of paying corporate taxes, making filing taxes easier.
However, there are other options to consider. A sole proprietorship can be a good alternative for small businesses with few risks. Most LLCs are by default treated as sole proprietorships for tax purposes.
If you’re launching a business with one or more partners, a limited partnership or limited liability partnership can better suit your needs. Forming a partnership means one owner will become liable for the business while others share limited liability.
A C-Corp can also be a good option to limit your personal liability. A C-Corp means that your business becomes a separate legal entity. The downside is that you’ll have to pay corporate taxes and personal income taxes on the profits.
Note that the name you use to register your business can differ from your name to do business. If you want to use a different name when operating, you’ll have to file Form LLC-1.20 to obtain a business name in Illinois.
Step 2: Choose a Name for Your Business
Like most states, Illinois requires you to create a unique name for your LLC to avoid confusion. However, you can use an online database to look up existing business names.
There are a few additional rules you’ll have to follow when choosing a name for your LLC:
- The name of your business must end with LLC, L.L.C., or Limited Liability Company.
- You can’t use a name concerning another type of business structure. It includes abbreviations like ‘Ltd.’ or ‘Co.’ and the words ‘corporation’ or ‘partnership.’
- If you work in a regulated industry like healthcare, finance, law, or real estate, your business’s name needs to end with‘ Professional Limited Liability Company’ or ‘PLLC.’
It can be a good idea to reserve a business name. You can file Form LLC-1.15 and pay $25 to have the Illinois Secretary of State reserve the name you want to use.
Step 3: Get an Illinois Business License If Applicable
You’ll likely need to get a business license from the Illinois Department of Revenue before you can form your LLC.
If you plan to hire employees or sell goods, you’ll need a business license. You can get started with the application process by filling out form REG-1 on the official website of the Illinois Department of Revenue.
Depending on your industry, you might need an additional license through the Illinois Department of Financial and Professional Regulations. For example, you’ll need to apply for a professional license if you work in a regulated industry, such as finance, law, or healthcare.
Step 4: File Your Articles of Organization
The next step is the most important one. You’ll have to file your articles of organization with the Illinois Secretary of State. You can do it online or by mail. You’ll have to pay a filing fee of $150.
Your articles of organization are an official document that outlines legal liabilities, rights, and obligations.
Here is what you’ll need to include in this important document:
- The name you registered for your business and the address the business will be operating from.
- The names and addresses of the parties involved and their status as managers or members.
- You’ll also need to specify whether a manager will control the LLC or if members will manage the business.
- Include the date on which you officially launched the business. It should be within 60 days of filing this document.
- This document should also include the name and address of your registered agent. A registered agent is a person who can receive official documents and communicate on behalf of the business. One of the members can act as a registered agent, but you can also designate an LLC filing service.
- Next, you’ll need to describe the purpose of your business briefly.
- Add any relevant provisions. If applicable, you can include a dissolution date, establish that members aren’t liable, or state that you’re operating a professional LLC.
Step 5: Create an Operating Agreement
An operating agreement is an optional document, but there are several benefits to creating one. The operating agreement is more detailed compared to your articles of organization.
The information you file with your articles of organization will become publicly available while your operating agreement will remain private. You can go into more details regarding how the business will operate.
There is some information in common between the two documents, including the name and purpose of your business or the identity of the members.
However, your operating agreement will go over several provisions. Here are some things you can address with this document:
- You can use your operating agreement to establish a record of what each member contributed to the business.
- You should indicate the ownership stake of each member.
- Outline how you will share business profits and vote to make decisions.
- Your operating agreement should also describe how you bring in new members and let current members exit the business.
The operating agreement aims to prevent future disputes and protect the people involved, so don’t hesitate to be as detailed as possible.
Step 6: Tax Considerations
Your tax setup will vary depending on the nature of your LLC. If you’re creating an LLC as a single business owner, you will pay an income tax on your business profits and don’t need to take any additional steps.
However, if there are two or more members, you’ll need to pay an annual personal property replacement tax to the state of Illinois. You can also choose to pay taxes as a C-Corp or S-Corp. You’ll need to file Form 8832 with the IRS and include a statement signed by the different members.
Regardless of how many members there are, you’ll also need to obtain an Employer Identification Number for payroll taxes if you plan on having employees. There is an online application you can fill out to get your EIN.
Cost to Start an LLC in Illinois
You’ll have to pay a one-time $150 fee when filing your articles of organization with the Illinois Secretary of State. You’ll also have to pay a yearly $75 fee when filing your Illinois LLC Annual Report, which we’ll discuss below.
If you need a business license, you’ll have to pay an additional fee. These fees can vary depending on where your business will operate and on your industry. For instance, Chicago charges anywhere from $165 to $1,000 for a business license, with most industries requiring a $250 license. Expect to pay more for business ventures that require a liquor license.
There will also be additional fees if you decide to get legal help to establish your operating agreement or choose to work with an LLC filing service.
What to Do After Forming Your LLC in Illinois
You’ll have to wait to hear back from the Illinois Secretary of State. Once you confirm that this agency has filed your articles of operation, you can officially launch your business.
One of the first things you might want to do is hire some employees. You’ll have to get worker’s compensation and unemployment insurance first.
Next, you’ll probably want to open a bank account for your business. You’ll need the confirmation that the Secretary of State has filed your articles of organization and that your LLC is a legitimate legal entity.
If you haven’t secured financing already, your next step should be to create a strong business plan and start looking for investors, loans, or other options.
You’ll also want to buy business liability insurance, purchase inventory, and focus on marketing to let people know about your new business.
How to Keep Your LLC Compliant in Illinois
You’ll have to do a few things to keep your LLC compliant with state laws. Here are some of the things you’ll have to do:
- Familiarize yourself with anti-discrimination laws and apply them when hiring new employees.
- The state of Illinois requires you to have a few posters about labor laws and other topics displayed in your place of business.
- You’ll need to carry worker’s compensation and unemployment insurance. There might be additional insurance requirements based on your industry.
- You will have to file form LLC-50.1 once a year and pay a $75 fee. This form is an annual report designed to provide the Secretary of State with an up-to-date list of the managers and members involved in the LLC.
- If you added a dissolution date in your articles of organization, you’d have to dissolve the business or renew your LLC registration when this date comes up.
- You’ll also have to comply with all tax filing requirements at the local, state, and federal levels.
Tax Filing Requirements for LLCs in Illinois
Your tax filing requirements can vary based on the structure of your business. The IRS will tax you as a sole proprietor if you’re the only member. You should report your business income on Schedule C. You’ll pay an income tax and a self-employment tax to cover Social Security and Medicare.
If there are two or more members, you’ll pay taxes as a partnership. Each partner will need to file Schedule K-1, and you’ll also have to file Form 1065 to report the income of each member.
You also have the possibility of filing Form 8832 to have the IRS consider your business as a corporation for tax purposes. If you choose this option, you’ll report your business income with Form 1120S.
As a sole member, you’ll have to report your business income on your state tax report. If there are two or more members, you’ll need to file Form IL-1065 to pay a 1.5% personal property replacement tax on your business income.
If you sell goods, you’ll have to file form ST-1 to pay a sales tax to the state of Illinois. There are also additional tax requirements if you have employees.
You’ll have to file forms IL-941 and IL-501 with the Illinois Department of Revenue to withhold employee income taxes. Plus, you’ll need to file form UI-1 with the Illinois Department of Employment Security to pay state unemployment insurance taxes.
Frequently Asked Questions
Here are a few other things to know about creating an LLC in Illinois.
How long does it take to register an LLC in Illinois?
The entire process shouldn’t take more than a month. You should hear back from the Secretary of State within seven to ten days after filing your articles of organization.
What tax structure should I choose for an LLC in Illinois?
Paying taxes as a sole proprietorship or partnership is a solution that makes sense for a majority of businesses. However, requesting the IRS to consider your business as a corporation has some advantages if you earn a lot.
If you pay taxes as a corporation, the IRS will consider you a shareholder. The business will pay a flat corporate tax with a rate of 21% for C-corps, and you won’t pay any self-employment tax or income tax. If you earn enough to be in a high tax bracket, choosing a C-Corp or S-Corp tax structure can be interesting.
Should you hire an LLC formation service in Illinois?
Getting help from an LLC formation service is an excellent option if you’re not familiar with registering a business. Plus, you’ll get expert advice on additional provisions to include in your articles of organization or on the tax structure to choose. Getting help from experts can make registering your LLC easier, especially if there are several members or if you work in a regulated industry.
Filed under: Illinois Business Guides