- Many entrepreneurs and small business owners in Illinois may consider starting a limited liability company (LLC) to help give their business legitimacy, simplify their taxes, and provide them with personal liability protection.
- An LLC is a popular business structure for small businesses and startups.
- Illinois has specific rules on starting an LLC, but by following our step-by-step guide, you’ll be ready to incorporate your business in no time.
- Read on for 12 steps to start an LLC in Illinois.
Why Start an LLC in Illinois?
Starting a limited liability company (LLC) in Illinois can be a good idea for small business owners for a number of reasons. All LLCs protect owners and their personal assets from lawsuits and debts incurred by the business.
As a business entity, LLCs are required to comply with fewer legal regulations than corporations. They also offer flexibility when it comes to federal tax time — unlike C corporations, LLC earnings aren’t double taxed and owners can choose to be taxed as pass-through entities, meaning the individuals in the business pay their income taxes rather than the business itself paying. In Illinois, LLCs are also subject to lower personal property replacement taxes than other business structures.
There are some cons to owning an LLC in Illinois, though. For instance, the LLC formation fees are higher in Illinois than in other U.S. states. And LLCs in Illinois are subject to self-employment taxes. Also, LLCs aren’t as attractive to investors as other business structures because they can’t issue stocks. LLCs are also held to different legal requirements in terms of their company names in Illinois than in other states (more on that below), so you have to make sure you’re in compliance when naming your business.
12 Steps to Starting an Illinois LLC
1. Name your LLC
Whether you’re in Chicago or Champaign, your business must have a unique, recognizable name different from other companies who have filed with the Illinois Secretary of State. When choosing your LLC name, you can do a name search in the name database with the Secretary of State Business Services to check on business name availability. You can also apply to reserve your name for $25 for up to 90 days here. Make sure you include any aliases your company may go by, also known as trade names, fictitious business name (FBN), or doing business as (DBA) names, because you’ll need to file these, too.
Also make sure that you include the words “limited liability company,” “L.L.C”, or “LLC” at the end of your name — it’s the law in Illinois. You also can’t end your business name with the following terms or abbreviations in Illinois by law:
- Limited Partnership or L.P.
Another way that Illinois LLCs differ from those in other states is that if your business requires a professional certification, you must legally include “Professional Limited Liability Company” (P.L.L.C. or PLLC) at the end of your company name. This is true for doctors, lawyers, and other regulated industries, which you can find more about at the Illinois Department of Financial and Professional Regulation.
It’s also your responsibility to ensure that your business name is in line with federal trademark laws, because the Illinois Secretary of State only keeps track of registered business names in the state of Illinois. While checking on the web for your company’s domain name can be a good way to see if another company has the same name as your new business, it’s not an official way to establish that your brand name is unique. You can hire a trademark attorney or professional service to make sure that your name is unique throughout the U.S. if you have any concerns.
2. Get a registered agent
In the state of Illinois, you must have a registered agent in the state to accept service of process (lawsuit papers) on your behalf. They can also help file your paperwork for you, receive legal documents and correspondence from the state on behalf of your company, and you can even use their mailing address as your business address. They must have a physical street address (not a P.O. box) in the state and, if they’re a corporation rather than an individual, they have to have articles of organization that authorize it to serve as a registered agent. You can find registered agent services to help you handle business formation.
You or another owner of your company can serve as your own Illinois registered agent if you’re over 18, a resident of Illinois, and meet the physical address requirements. But this can be a hassle for your company if you ever want to take time off or have weird business hours. We highly recommend that you use a registered agent service, such as a certified public accountant (CPA) or business formation service.
3. File “Articles of Organization”
Your business’s articles of organization are what make you an LLC in the eyes of the state. To file articles of organization in Illinois, you’ll file a Form LLC-5.5 with the Illinois Secretary of State Department of Business in order to get your certificate of incorporation. You can file online or by mail, and you’ll pay a filing fee of $150. If you file online, you’ll have your LLC within 24 hours.
Your articles of organization must include:
- Your business’s name as an LLC and any DBAs or FBNs
- The address of your principal place of business in Illinois
- Effective date (if it’s later than the filing date)
- Your registered agent’s name and address
- Your LLC’s purpose
- Whether your LLC will go on in perpetuity or until an end date
- Names and addresses of managers (whether your LLC will be member-managed or manager-managed)
- The names, addresses, and signatures of any organizers
You can also form a series LLC in Illinois, which allows different divisions within your business to operate as separate entities. While it costs $400 to file for a series LLC, you may consider this option if you have a lot of different services or products to offer and want to keep the income streams separate.
If you have already formed your LLC in another state and want to register in Illinois, you will pay $150 and file an Application for Admission to Transact Business. This application is sent to the Secretary of State Department of Business Services and must include a certificate of good standing from your original operating state.
4. Create an operating agreement
While Illinois doesn’t legally require an LLC operating agreement for your business to become an LLC, we highly recommend that you create one. The operating agreement is a document that lays out all the specifics of how your LLC is run, including:
- Rights and responsibilities of all members
- Management structure
- Owner percentages
- Specific steps to dissolve the company
If you don’t specify these internal workings in your operating agreement, your LLC will simply default to the legal governance under Illinois law.
5. Get an EIN or Employer Identification Number
A federal employer identification number (EIN) is like a Social Security number for your business — it’s how the Internal Revenue Service (IRS) identifies your business and determines what taxes you owe. In the state of Illinois, you only need to get an EIN if you have more than one member in your LLC, if you plan to have employees, or if you decide to have the IRS tax you as a corporation (as opposed to a sole proprietorship). We recommend that you get an EIN in order to keep your business finances and taxes separate from your personal tax returns. You can apply for an EIN at IRS.gov or have your registered agent do this for you.
6. Select the right insurance for your Illinois business
While forming an Illinois limited liability company can help you avoid some personal liability for business issues like debt, the protections are limited. You may need business insurance to further protect your business, depending on the type of business you run and what industry you’re in. If you have employees, the state of Illinois requires you to carry workers’ compensation insurance, unemployment insurance, and disability insurance.
Other types of business insurance you may consider for your Illinois LLC include:
- Professional liability insurance
- Commercial property insurance
- Commercial vehicle insurance
- General liability insurance
- Business income insurance
- Data breach insurance
- Commercial flood insurance
Note that carrying business insurance coverage is not the same as maintaining business licenses. As mentioned previously, doctors and lawyers need professional licenses issued by the Illinois Department of Financial and Professional Regulations. If you sell personal property or taxable services in a retail store, you have to register your Illinois LLC with the Illinois Department of Revenue and collect and report sales tax to the state on a monthly basis.
7. Learn about Illinois tax and IRS tax requirements
All LLC owners should learn about federal tax requirements and the state taxes in the state where they principally operate. Throughout the U.S., LLCs are considered pass-through entities for tax purposes, which means that owners or members of the LLC pay taxes at their own federal tax rate on their one tax returns based on their share of the profits instead of the company paying taxes based on their income and losses.
All LLCs are required to pay Social Security and Medicare taxes, and to withhold these taxes from employee paychecks if you hire people to work for you. You’ll also have to pay Federal Unemployment Tax Act (FUTA) obligations if you hire employees.
Some other Illinois state taxes to be aware as an LLC include:
- The annual personal property replacement tax which is 1.5% of the LLC’s income (single-member LLCs are exempt)
- Withholding of payroll taxes from employee paychecks for any LLC with employees
8. Add annual filing dates to your calendar
In Illinois, you are required to file an annual report with the Secretary of State annually to renew your LLC filing. The cost is $75 and you can file your report online or via the mail. You must file the annual report before the first of the month of the anniversary of your original filing, so, for instance, if you originally filed your articles of organization on April 21, your annual report would be due on March 31 every year.
9. Get a business bank account
There are many benefits of having a business bank account, especially when it comes to keeping your taxes organized, monitoring your financial health, and helping you when it comes time to apply for business financing. It’s not legally required in the state of Illinois to keep a separate business bank account from your personal bank account, but there are many banks and financial institutions that do require it.
There are lots of options for business checking or savings accounts, including Nav business checking, which connects with your Nav account to help you monitor your business’s financial health and can help you determine which types of financing you may qualify for.
10. Establish credit for your new LLC
Did you know that businesses have credit ratings with federal reporting agencies, just like people do? Your business’s credit scores are an important part of your LLC’s financial health. It’s also the number one thing that lenders consider when you apply for small business loans or other business financing, such as business credit cards. Nav can help you learn how to establish business credit and improve it over time, which can lead you to more open doors when it comes to business financing.
11. Create a system for managing your business finances
It’s important to keep track of your income and expenses as a business, and as soon as you start your Illinois LLC, you’ll want to establish a system for managing your business finances. Bookkeeping and accounting can get complicated as you grow, so it’s not a bad idea to find professional services to help you with it, although as a startup or small business, you may be able to handle it yourself, especially with the right bookkeeping software or accounting software. The point is: Start managing your finances as soon as possible and build a habit so that you are organized and ready for tax season or financial applications.
12. Secure financing for business growth
No matter what type of business you choose to run in Illinois, you should plan for business growth. Hiring new employees, expanding your market reach, and adding new product lines are all great ways to keep your business fresh and relevant, but they all require money. There are lots of financing options available to LLCs of all shapes and sizes, and Nav can help you find the right one for your business. Sign up for a free account today to start seeing your options.