How to Start an LLC in Illinois? (What You Need to Know)

Creating an LLC offers cost and efficiency advantages for small businesses. Without proper guidance, the process can be complex.

Drawing from my extensive experience in business formation and supported by a team of legal experts, we've crafted a practical guide, informed by real-world insights and Illinois law research.

This resource eliminates unnecessary confusion and empowers you to establish an Illinois-based LLC seamlessly, allowing you to concentrate on your business growth confidently.

Plus, an Illinois professional LLC service can be a valuable resource in forming an LLC on your behalf.

Quick Summary

• To start an LLC in Illinois, it's essential to choose a suitable name, appoint a registered agent, file Articles of Organization, create an operating agreement, and get an EIN.
• Selecting a registered agent is crucial as they handle important legal documents and ensure compliance with state requirements.
• Illinois' incentives, including tax credits and grants, have notably improved the business landscape, leading to a scenario where small businesses constitute 99.6% of all firms and employ 45.1% of the workforce.
• Drawing on years of guiding LLC formations, I believe personalized support from expert services is invaluable for navigating Illinois' complexities.

How to Form an LLC in Illinois

Setting up an LLC is a pretty straightforward process. To open an LLC, you will need to complete a few steps before everything sets into place.

1. Choose the Type of Your LLC (Mandatory)

As a business consultant, I've guided numerous entrepreneurs in Illinois through the process of choosing the right LLC structure. Each type presents unique advantages and challenges:

• Single-Member LLC: Ideal for solo entrepreneurs. It offers simplicity in management and tax filing. However, it might be perceived as less credible by some investors or financial institutions.
• Multi-Member LLC: Suitable for businesses with multiple owners. It allows for shared decision-making and diverse expertise. The downside is potential conflicts between members and more complex management.
• Manager-Managed LLC: Best for owners who prefer not to be involved in daily operations. It enables professional management but can lead to less control for members and additional costs for hiring managers.
• Member-Managed LLC: This structure allows all members to be actively involved in management. It fosters direct oversight but may result in slower decision-making due to the need for consensus.

2. Choose a Name for Your LLC (Mandatory)

Choosing a name for your LLC is among the first things you should do. Name requirements for business entities in Illinois are governed by state statutes.

These requirements include that the name you choose cannot be exactly like another active business entity in your county or anywhere else in the country.

It also must end with a title such as "LLC," "Limited Liability Company," etc., so it is easy to determine what kind of entity you have. Keep in mind that variations "Co." and "Ltd." are not allowed in the state of Illinois.

You can search the state's name database at the Illinois Secretary of State Department of Business Services [2].

If your business name does not comply with certain requirements, then you may also be required to reserve it before proceeding and pay another \$25 fee for this.

The reservations can last for up to 3 months, and they are filed with the Department of Business Services through an Application to Reserve a Name.

3. Select a Registered Agent (Mandatory)

As a business consultant, I've assisted many clients in selecting a registered agent for their LLC in Illinois.

A registered agent is crucial as they serve as the official recipient of legal documents on behalf of your business. They must maintain an office in Illinois and be authorized to accept these documents, playing a pivotal role in managing essential business tasks like handling operating agreements and other critical documents.

Choosing the right registered agent is not just about fulfilling a legal requirement. It's about finding a reliable partner who can efficiently manage crucial paperwork and act as a dependable point of contact for legal matters.

I recall a client who initially chose a friend as a registered agent to save costs. However, this decision backfired when they missed a crucial legal notice, leading to unnecessary complications.

The agent must also be prepared to serve as the official contact for any lawsuits, should they arise. You have the option to choose either an individual or a company that meets these requirements.

Another requirement for an Illinois registered agent is that they must have a physical street address in Illinois.

The Illinois Chamber of Commerce website has a list of registered agents who meet these requirements and offer services for LLCs starting. The list is updated regularly.

4. File Illinois LLC Articles of Organization (Mandatory)

File LLC Articles of Organization with the Illinois Secretary of State to form an LLC. The articles list information about your business name, business structure, address, and registered agent service.

A registered agent must also include a statement that no other articles have been submitted for filing within 30 days before or after this document was filed.

Creating the Articles of Organization requires filling out an online application, which includes uploading articles upon submission, or you can file by mail.

The LLC Articles of Organization represent a legal document and should be prepared and reviewed with care, thus requiring a registered agent if you aren't as well-versed.

Articles of Organization should also state whether your LLC will be manager-managed or member-managed.

You must include a check for \$150 made out to the Illinois Secretary of State with your articles of organization, whether you choose to submit them by mail or online.

The processing time for your Illinois LLC typically takes ten business days, although you can opt for expedited processing at an additional fee.

If you already have an LLC in another state, you will have to file new Articles of Organization with the state of Illinois and register as a Foreign LLC.

Check our article to see what is the total cost to get your LLC started in Illinois.

Steps to Take After Forming an LLC in Illinois

With your Illinois LLC now officially formed, it's crucial to turn your attention to the next set of important tasks. These steps are not just about maintaining compliance with state laws but are also vital for the smooth operation and growth of your business.

5. Create an LLC Operating Agreement (Optional, but Recommended)

Operating agreements are a cornerstone for the smooth operation of LLCs, detailing key aspects from ownership percentages to dissolution procedures.

In my experience as a business consultant, I've witnessed the significant impact a well-drafted operating agreement can have on an LLC's operations.

I worked with an LLC that faced a challenging situation when a member decided to exit the business. They had no operating agreement in place, leading to disputes over the departing member's share of profits and assets. This situation could have been easily avoided with a clear operating agreement outlining each member's rights and obligations.

Operating agreements are important for LLCs and should include:

• What percentage of ownership does each member have in the LLC
• Share of profits and losses.
• How much LLC capital contributions are required from each LLC member
• The rights & responsibilities of LLC members to manage the business operations.
• Dissolution steps in case LLC members wish to end the LLC.
• How LLC profits will be shared among LLC members and whether or not an LLC member would get a salary from company income or if all profit goes directly into their business bank account.

LLC members can prepare an Illinois LLC operating agreement on their own or hire a professional to do it.

LLC operating agreements represent internal legal documents that don't have to be filed with the state. However, having an operating agreement will help LLC members avoid unnecessary misunderstandings and disagreements.

For example, LLCs that do not have an operating agreement can face problems when one of the LLC's members decides to leave the business entity (and take his share of profits with them).

Without a written LLC Operating Agreement, it is difficult to prove whether or not this particular person had an equal right to those profits.

The structure of an LLC Operating Agreement is similar to the agreement that LLC members would draw up as part of a buy-sell arrangement or in case they were selling their ownership stakes within an LLC.

"While legally optional in Illinois, an operating agreement is highly advisable for your LLC to clarify internal governance and protect your liability shield."

- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

Obtain a Federal Employer Identification Number (EIN), also called a federal tax identification number.

An EIN can be obtained free of charge by completing Form SS-4 online at the Internal Revenue Service website.

An Employer Identification Number is required if your LLC has any employees or plans to hire employees in the future.

If your business doesn't have employees or you own a sole proprietorship or a single-member LLC, you don't need an EIN. Single-member LLCs are required to file Form REG-1, though.

EINs are also required to file state and federal taxes or open a business bank account for your LLC, regardless of its structure and elected taxation.

Once you apply for an Employer Identification Number, you will have to choose one of the taxation options available for Illinois LLCs.

S corporation status offers reduced federal tax obligations, but the majority of LLCs usually opt for default tax status.

7. Open an LLC Bank Account (Optional, but Recommended)

After forming your LLC in Illinois, opening a dedicated bank account for your business is a strategic move. While it's optional, it's highly recommended due to several reasons:

8. File Your Illinois LLC Annual Report (Mandatory)

Annual reports are something that you have to deal with once you form an LLC.

The State of Illinois requires LLCs to submit an annual report. Illinois annual report for an LLC may be filed online at the Illinois Secretary of State website or by mail (through Form LLC-50.1).

Annual reports will help your business stay in good standing with the State of Illinois. It is one of the main reasons why it's important to have a registered agent in the first place.

A registered agent service will notify you when your annual report is due so you can file it on time.

If the LLC fails to submit an Annual Report, it will be subject to a fine for each year that passes without filing its report.

9. Obtain Business Licenses and Permits

In Illinois, the specific business licenses and permits you'll need depend on the nature of your business and its location. It's essential to conduct thorough research to understand the exact requirements for your LLC.

Here are some examples:

• Professional Licenses: Certain professions are regulated in Illinois. For instance, if you're opening a medical practice, you'll need a license from the Illinois Department of Financial & Professional Regulation.
• Sales Tax Permit: If you're selling goods in Illinois, you must register for a sales tax permit through the Illinois Department of Revenue.
• Environmental Permits: Businesses that may impact the environment, like manufacturing plants, need permits from the Illinois Environmental Protection Agency.
• Health Department Permits: If your business involves food services, you need to obtain permits from the local health department.
• Building and Zoning Permits: If you're planning construction or modifying a business location, check with your local city or county for necessary building and zoning permits.
• Home-Based Business Permits: Some localities require special permits for home-based businesses.
• Signage Permits: If your business will use signage, some cities require a permit for this.

10. LLC Publication Requirement (Mandatory)

Illinois has a unique requirement known as the LLC Publication Requirement, but it's important to note that this applies only in certain counties.

For example, in counties like Cook County, newly formed LLCs are not required to fulfill this requirement. However, in some other counties, LLCs might be required to publish a notice of their formation in a local newspaper for several weeks.

This notice typically includes basic information about the LLC, such as its name, the date of formation, the address of the principal place of business, and a statement that the LLC has been formed under the laws of Illinois.

Once the publication is completed, the newspaper provides an affidavit of publication, which the LLC should keep for its records.

It's crucial for LLC owners to check the specific requirements of the county where their LLC is registered. Non-compliance with the publication requirement, where applicable, can lead to legal complications.

11. Choosing Your Tax Structure

Depending on your taxation election with the Internal Revenue Service, the State of Illinois will tax you differently.

• Standard Limited Liability Company

The income, deductions, and other items of the LLC will be reported on the owner's federal tax return if it is a disregarded entity for income tax purposes, with the result that such income, deductions, and other things will be disclosed on the owner's personal return.

• Sole Proprietors

The LLC's net income will be reported on the owner's Form IL-1040, Illinois Individual Income Tax Return if it is considered a sole proprietorship for tax purposes. Its earnings are shown on the owner's U.S. Form 1040, U.S. Individual Income Tax Return.

• Limited Liability Partnership

The LLC will need to file an IL-1065, Illinois Partnership Replacement Tax Return if it is a partnership for federal income tax purposes.

The LLC is required to submit an IL-1065, Illinois Partnership Replacement Tax Return.

• S or C Corporation

If the LLC is a corporation for federal tax purposes, it will file Form IL-1120, Corporation Income, and Replacement Tax Return.

Benefits and Drawbacks of an LLC in Illinois

Benefits:

• Limited Personal Liability: As with LLCs in other states, Illinois LLCs provide a shield for your personal assets against business debts and lawsuits.
• Flexible Taxation: LLCs in Illinois can choose to be taxed as a sole proprietorship, partnership, or corporation, offering flexibility in managing tax liabilities.
• Ease of Compliance: Compared to corporations, Illinois LLCs face fewer state-mandated annual requirements and formalities, such as board meetings and minutes.
• Access to State-Specific Incentives: Illinois' incentives, including tax credits and grants, have notably improved the business landscape, leading to a scenario where small businesses constitute 99.6% of all firms and employ 45.1% of the workforce [1]. These measures underscore their role in driving employment and fostering a supportive environment for business innovation and growth.

Drawbacks:

• Higher Fees and Taxes: Illinois is known for its relatively high filing fees for LLC formation and annual report filing. Additionally, the state's tax environment, including income and sales tax rates, can be considered high compared to some other states.
• Publication Requirement in Some Counties: Unlike many states, certain counties in Illinois require new LLCs to publish a notice of formation in a local newspaper, which can add to the initial costs and effort.
• Complex Local Regulations: Navigating the county and city-specific regulations in addition to state laws can be challenging for LLC owners in Illinois, requiring more effort in ensuring compliance.
• Economic Climate Variability: The economic environment in Illinois can vary significantly from one region to another, affecting business growth and opportunities depending on the LLC’s location.

Related Articles:

• How to Start a Series LLC in Illinois
• Illinois LLC Business Check
• How to Cancel an LLC in Illinois
• Premium LLC Formation Services in Illinois

DIY vs. Professional LLC Formation

DIY LLC Formation

Pros:

• Cost-Effective: DIY is generally less expensive as it eliminates professional service fees.
• Personal Control: Handling the process yourself ensures direct oversight over every detail.
• Learning Experience: It offers a deep dive into the legal and operational aspects of LLCs.

Cons:

• Time-Consuming: DIY requires significant time investment to research and understand state-specific regulations.
• Risk of Errors: Without legal expertise, there's a higher risk of making mistakes in paperwork or compliance.
• Lack of Customization: Generic online forms may not cover specific needs or offer customization options.

Professional LLC Formation Services

Pros:

• Expertise: Professionals are knowledgeable about state-specific requirements and legal nuances.
• Time-Saving: Delegating the formation process saves time, allowing focus on other aspects of the business.
• Compliance Assistance: Many services offer ongoing compliance support, ensuring the LLC remains in good standing.

Cons:

• Higher Cost: Professional services come with fees, making this option more expensive than DIY.
• Less Personal Involvement: Outsourcing means less hands-on control over the formation process.
• Variability in Service Quality: The quality and thoroughness of services can vary between providers.

Choosing between DIY and professional LLC formation depends on individual needs, expertise, and resources.

If cost-saving is crucial and you have the time and willingness to learn, DIY might be suitable. However, if time is scarce and accurate, thorough compliance is a priority, professional services might be the better route.

FAQs

References

1. https://advocacy.sba.gov/wp-content/uploads/2020/06/2020-Small-Business-Economic-Profile-IL.pdf
2. https://apps.ilsos.gov/businessentitysearch/