The process of how to create an LLC in Illinois can be complicated. There are many steps you need to take before your company is set up and ready for business.
Creating an LLC requires less paperwork and fees than other types of business entities, which makes them very attractive for small businesses who want lower costs and fewer hoops to jump through when starting up their business.
Doing this can be complicated and confusing if you don't know what steps to take first.
This blog post will break down the process of setting up an LLC in Illinois and help make it much easier for business owners.
Why Should I Form an LLC in Illinois?
The main reason business owners choose to form an Illinois LLC is to help protect their personal assets from debts and claims against the company.
By creating an Illinois limited liability company, your business is treated as a separate legal entity that can own property, enter into contracts, pay taxes, sue, or be sued.
Another reason why Illinois is such a popular state for LLCs is because of how easy it is to form and maintain an LLC.
It only takes a few minutes for you to file your Illinois Articles of Organization with the Illinois Secretary of State, all while avoiding complicated tax forms and extensive filings like many other states require.
Lastly, Illinois LLCs are not expensive to set up, making this state attractive to those business owners who don't want to spend a lot of money before they even get off the ground.
Illinois LLC Setup
Setting up an Illinois LLC is a pretty straightforward process. To open an LLC, you will need to complete a few steps before everything sets into place.
Step 1: Choose Your Illinois LLC Business Name
Choosing a name for your LLC is probably the first thing 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 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.
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 it's filed through with the Department of Business Services through an Application to Reserve a Name.
Step 2: Hire a Registered Agent
A registered agent is an individual or service that keeps an office in Illinois and is authorized to accept legal documents on your behalf. They help with various business tasks, such as handling operating agreements and other vital documents.
They also must be willing to stand as the official contact for any lawsuits filed against you, should they arise. The registered agent can either be a company or an individual who meets this requirement.
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.
Step 3: File Illinois LLC Articles of Organization
Articles of Organization must be filed 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 articles requires filling out an online application which includes uploading articles upon submission, or you can file by mail.
The 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.
If you need help filing articles of organization, hiring a business lawyer might be the best option for your LLC incorporation process. The same applies to the operating agreement, which will be discussed below.
Articles of Organization should also state whether your LLC will be manager-managed or member-managed.
Whether you choose to file articles of organization by mail or online, the articles must be accompanied by a check for $150 payable to the Illinois Secretary of State.
The registration of your LLC will usually be completed within 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.
Step 4: Create Illinois LLC Operating Agreement
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 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 LLC operating agreement on their own or hire a professional to do it.
LLC operating agreements represent internal 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 in 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.
Step 5: Obtain Employer Identification Number (EIN)
Owners must 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 EIN, 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.
What to Expect After Registering an Illinois LLC?
Once you set up your Illinois LLC, you have the option to run it as a corporation, limited partnership, or sole proprietorship.
No matter which reason you opt for an LLC business structure, financial and professional regulations will be in place at all times.
Limited liability companies are designed to give you personal liability protection, which means that business debts are not included in your personal assets.
This is why most owners decide on general liability insurance to avoid incurring financial losses if their company faces a legal suit over some kind of damage they have caused.
Annual Filing Requirements for Illinois LLC's
Once your LLC gets off the ground, you will need to take care of annual reports.
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.
If this happens, they may also face additional fines and penalties and lose good standing with the State of Illinois.
In Illinois, LLCs are taxed differently than in other states. The state taxes personal property separately, and these tax obligations are known as a personal property replacement tax.
Unless you elect corporate taxation, you will be taxed at the rate of 1.5 percent of net income.
The state of Illinois requires that if your LLC sells products to customers in the state, you must collect and pay sales tax.
This implies that you'll need to register with the Illinois Department of Revenue and then make sales tax payments for items sold regularly.
The state of Illinois has a 6.25 percent sales tax rate on general items and a 1% food, medicine, and medical equipment tax.
Because some local governments are permitted to impose their own Illinois business taxes, the sales tax rate may be higher in certain counties. To check individual tax rates for Illinois, make sure to check Illinois Tax Rate Finder.
Lastly, state employer taxes are required for LLCs in Illinois. Once you register your Illinois LLC with the Illinois Department of Revenue, you'll have to pay employer withholding tax, either on paper or online.
Make sure to follow the guidelines provided by the IDOR official website.
How Are Illinois LLCs Taxed?
Depending on your taxation election with the Internal Revenue Service, the State of Illinois will tax you differently.
A 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.
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.
A 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.
Licenses and Permits for Illinois LLCs
LLCs can deliver professional services under the laws of Illinois but only under one condition: all LLC members must be licensed or registered to perform the professional service for which the professional limited liability company was created.
The Illinois Department of Financial and Professional Regulation's website (IDFPR) is the ideal location to begin your research.
This page has an alphabetical list of all the regulated professions and links to license applications and assistance so that you can check which business licenses and permits your LLC needs.
- How to Start a Series LLC in Illinois
- Illinois LLC Business Check
- How to Cancel an LLC in Illinois
- Best LLC Services in Illinois
Can an LLC Own Another LLC in Illinois?
Yes, an LLC can own another Illinois LLC through the so-called Series LLC structure.
A series LLC is a normal LLC with the extra feature of being able to create cells or subsidiary LLCs within the structure of one business entity.
This setup is frequently used to shield individuals from personal liability and to shield one company from another's debts and obligations.
Can I Be My Own Registered Agent in Illinois?
Yes, you can be your own registered agent in Illinois as long as you meet the requirements for this designation.
The first thing to note is that not all states allow LLC owners (called "members") to act as their own agents; however, there are a few other requirements and considerations you must take into account before making the decision.
The two requirements for all registered agents are to be of legal age and have an Illinois street address.
How Much Does It Cost to Expedite an Illinois LLC?
If you select the expedited process at a $250 filing fee, your LLC will be approved within the next two business days.
How Do I Add a DBA to My LLC in Illinois?
If LLC owners wish to conduct business under a name other than the LLC's formal name, they must register the secondary name.
The business name is referred to as an assumed name or "doing business as" (DBA).
Fill out a Certificate of Assumed Name form and submit it to the county clerk in the county where your LLC is located.
Each county has its own set of rules regarding the formalities of this procedure, and some counties may even require notarization.
Can a Single Person Form an LLC in Illinois?
Yes, a single person can form an Illinois LLC. These business entities are called single-member LLCs (SMLCCs), and the formation process of single-member LLC is the same as any other.
How Do I Register a Foreign LLC in Illinois?
The Illinois Secretary of State is the office that regulates foreign businesses in the state.
To become a registered foreign business in Illinois, you must file an Application for Admission to Transact business with the SOS and use Form LLC-45.5 if you have a typical LLC.
Setting up an Illinois LLC can be complicated. There are many factors to consider when setting up a business in the state of Illinois, and it is easy to make mistakes that could cost you money or time if not done right.
To help you avoid that, we recommend following tried and true methods for setting up your company as well as avoiding these common pitfalls others often experience when filing their formation documents with the state of Illinois.
We have used ZenBusiness to launch some of our enterprises as well as those of our clients, and we strongly advise using a professional service for business formation.