Starting a business involves plenty of legal obligations. You’ll need to pick which sort of corporate structure is appropriate for your firm from the start, and business-friendly LLCs are a common choice.
If you are unfamiliar and do not understand all of the steps, forming an LLC can seem daunting. The Limited Liability Company Act governs LLCs in Illinois. We’ve done the legwork and compiled this easy-to-follow guide on incorporating an LLC in Illinois. If you’re looking for information on how to start an LLC in Illinois, look no further, here is the complete step-by-step guide on how to start an LLC in Illinois.
This step-by-step guide to forming an LLC in Illinois includes instructions on how to file formation documents, receive tax IDs, and set up business records. Before you take that step, be sure you’re familiar with all of the requirements for incorporating an LLC in Illinois.
Table Of Contents
The process of forming an LLC is a step-by-step procedure that begins with research and concludes with the submission of the proper documentation and fees. If you want to get more information on how to start an LLC in any state, you can read our complete guide on How To Form An LLC.
Before we start, here are the top picks for LLC formation services in Illinois :
What Are The Benefits Of An LLC In Illinois?
- For company debts and lawsuits, owners are not personally accountable.
- Corporations must comply with more regulations than LLCs.
- Profits from an LLC are not taxed twice as much as earnings from a C-corporation.
- LLCs have the option of being taxed as a corporation or a pass-through business.
- Corporations in Illinois pay a higher property ownership replacement tax than LLCs
Setting up your firm as an Illinois LLC, or limited liability company, has both advantages and downsides, just like any other business form. The sort of business structures you’re considering may determine whether a certain aspect is an advantage or a disadvantage. Here are the following benefits of how to form an LLC in Illinois. Let’s have a look at some of the reasons why Illinois is the best place to start a business:
1. Pass-through taxation
If you form a new company as an S corporation in Illinois, the company or firm will not have to pay any taxes. Instead, the corporation’s profit or loss will be distributed to its stockholders. Earnings are taxed before being dispersed to owners, and profits are taxed again when owners declare their part of the profits on their personal tax returns.
2. Limited Liability Protection
“Personal liability protection” is one of the most significant benefits of forming an Ilinois LLC. As the proprietor of an LLC, you will not be held personally liable for any of the company’s debts. Your personal assets, such as your automobile, property, and bank accounts, will be protected from LLC creditors.
3. Independent life
When you set up a new business as a Corporation in Illinois, it will be self-contained. This means that a stockholder’s incapacity or death would not have a serious effect on the company’s activities.
4. Tax Options
A limited liability business (LLC) can pay income tax in one of three ways. Being taxed as an S company is one alternative. An S corporation is a tax structure, not a specific sort of corporate entity.
5. Increased Credibility
Incorporating a limited liability company (LLC) gives your company more legitimacy. A limited liability company (LLC) is considered a more corporate management structure than a sole privately owned company. Customers and partners will recognize you as a respectable company if you include LLCs in your company.
6. Ownership Flexibility
There are limited constraints on how you can arrange the management and ownership of an LLC in Illinois:
- You can form a single-member LLC or a multi-member LLC.
- Members can control a Multi-Member LLC, which is referred to as member-managed.
- Manager-managed LLCs are those that are controlled by a manager who is appointed by the members.
7. Perpetual Existence
A new company incorporated as a Corporation in Illinois will have perpetual succession. This means that a stockholder’s incapacity or death would not have a serious effect on the company’s activities.
Limited liability businesses in Illinois are simple to start and maintain, requiring minimal paperwork and cost. LLCs, unlike C companies, are not obliged to designate formal officer responsibilities, have annual meetings, adopt bylaws, or keep track of business records and decisions.
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Disadvantages Of Forming An LLC In Illinois
- In comparison to other states, Illinois LLC creation fees are on the higher end, especially for series LLCs
- Self-employment taxes apply to all LLC earnings, which do not apply to corporations
- An LLC can’t issue shares, making it more difficult to raise funds from investors
There are various disadvantages while forming an LLC In Illinois, which include the following:
- Since LLCs, like sole proprietorships, are pass-through businesses, LLC owners must pay taxes on their portion of the LLC’s net income, whether or not they get a payout.
- High registration cost compared to sole proprietorships and general partnerships
- An LLC, unlike a corporation, cannot raise funds by issuing stock
- Members of an LLC found it more difficult for obtaining loans compared to a corporation
Steps For How To Start An LLC In Illinois
Illinois’s LLC formation process is similar to that of most other states, so entrepreneurs shouldn’t have too much trouble beginning a firm in the state. An Illinois LLC combines a corporation’s limited liability with a partnership’s or sole proprietorship’s flexibility and lack of formality. Let’s get started with how to set up an LLC in Illinois.
Here are the steps you need to take to form an LLC in Illinois which will get you started today:
1. Choose A Name For Your Illinois LLC
The first step in forming an LLC in Illinois is deciding on a name. You won’t be able to proceed without a name because it will appear on all of your formal formation documentation. Every LLC operating in Illinois is required to have a distinctive name. For branding considerations, your business name should be distinctive, as well as legal. The name of your LLC must be distinct from the names of other businesses registered with the Illinois Secretary of State. For more information, visit the Illinois Department Of Financial and Professional Regulation.
If you search the company database and discover that a name is available, Illinois allows you to reserve it for up to 90 days. The filing fee is only $25. Filling out this form ensures that the name you want will be available when you complete the other processes of incorporating an LLC in Illinois.
The following are the Illinois LLC naming guidelines:
- The phrase “limited liability corporation” or one of its derivatives must be in your name (LLC or L.L.C.)
- Your LLC’s name cannot contain any words that could be mistaken for a government department (FBI, Treasury, State Department, etc.)
- Restricted words (e.g., bank, attorney, university) may need additional paperwork and the inclusion of a licensed professional in your LLC, such as a doctor or lawyer
- Your business name must be distinct from any other limited liability company, corporation, limited liability partnership, or limited partnership in Illinois.
- Check Name Availability: Do a name search on the State of Illinois website to be sure the name you choose isn’t already used.
- Reserve Your LLC Name: It’s a great idea to reserve your LLC name with the Illinois Secretary of State as it protects the name from being used by another company before your LLC is formally incorporated in the state.
2. Appoint A Registered Agent In Illinois
Before you can legally file to form your Illinois LLC, you’ll need to choose a registered agent in the state. Your LLC must maintain an Illinois Registered Agent at all times in order to do business in the state. A Registered Agent in Illinois is a person or business that receives legal mail and papers directed to your Illinois LLC. You can act as your own registered agent or hire any professional registered agent service.
Legal documentation and tax notices will be accepted on your LLC’s behalf by your Illinois registered agent. When you submit your Certificate of Formation, you will identify your registered agent.
An Illinois registered agent must meet the following criteria such as:
- The Registered Agent for your Illinois LLC must have a physical address in the state
- If your LLC’s Registered Agent will be a single person, he or she must be at least 18 years old and an Illinois resident
- If a person or company is based outside of the Illinois business office
- A designated registered agent must provide an address of a registered office in Illinois and must be found during normal business hours
- In order to be eligible as a registered agent in Illinois, the business must already be operating in the state when the LLC is formed.
3. File Your Illinois LLC Articles Of Organization
In Illinois, a limited liability company (LLC) is founded by filing Articles of Organization with the Secretary of State. The Certificate of Organization is the paperwork you’ll submit to the Department of State to formally register your LLC. When you’re ready, submit Articles of Organization to the Illinois Secretary of State to formalize your LLC.
You can either file online or download and send the form. The cost of submitting Articles of Organization in Illinois is $150.
The following information must be included in the Articles of Organization:
- Name of the LLC, address of the principal office, email address (optional), and phone number
- Name and address of the registered agent
- Articles that are out of date are no longer effective (if not immediate)
- Names and addresses of the Articles’ signatories
- A member’s, organizer’s, or their representative’s signature
4. Establish Company Records
Your LLC’s books and records must be accurate and comprehensive. The articles of organization you filed are the initial documents in your LLC’s file. Many more public documents will be created by your LLC, including:
- Minutes of the meeting
- Operating Agreement
- EIN Verification Letter
- Throughout the LLC’s existence, amendments and other filings are made
5. Receive a Certificate From the State
Articles of Organization are often approved quickly in Illinois. Approval applications are only accepted online. After the LLC’s creation paperwork is filed and approved, the state will provide you with a certificate confirming the LLC’s formal existence. The materials for approval will be forwarded to your email address.
The LLC will be able to obtain an Employer Identification Number (EIN), business licenses, and a business bank account with the help of this certificate.
6. Obtain A Illinois Business License
In order to operate in Illinois, certain sectors will require a company registration. You may require one or more types of licenses, including:
- Licenses issued by your city or county.
- Certain skilled vocations require professional licenses.
- Environmental permits.
- Licenses for health and safety.
- Permits are required by zoning.
- Liquor licenses, for example, are regulatory permits.
- Sales tax exemptions are available.
7. Prepare Illinois LLC Operating Agreement
Although preparing a detailed LLC operating agreement is not a legally required step for incorporating an LLC in Illinois, it is strongly suggested for all emerging limited liability businesses. You should consider developing an operating agreement as part of your LLC strategy. The purpose of this paper is to establish how your firm will operate.
The operating agreement is the basic document that spells out the members’ rights, powers, responsibilities, debts, and obligations to one another and to the LLC. The agreement is strictly internal and has not been lodged with the Secretary of State.
If an LLC does not establish an operating agreement, the articles of organization, rules, and/or member control or limited liability company agreement will serve as the operating agreement.
The following should be included in the operating agreement:
- Define the business structure of the LLC.
- Determine each LLC member’s particular roles and obligations.
- Describe how the LLC will be managed.
An LLC may suffer substantial legal and operational challenges if it does not have an operating agreement that spells out the precise responsibilities of its members.
8. Hold The Organizational Meeting
The organizational meeting is the LLC’s initial gathering of members. To hold this meeting, you’ll need your filed articles of incorporation and your operating agreement. This meeting’s minutes should be kept and filed in your company’s record book.
9. Get A Illinois LLC EIN
In the United States, all newly created LLCs must get an Employer Identification Number (EIN) from the Internal Revenue Service. The nine-digit EIN is a company’s equivalent of a social security number, and it’s required to pay income taxes, submit tax returns, open corporate bank accounts, and do a variety of other activities. Your Illinois LLC’s “social security number” is a Federal Tax ID Number. For taxation and reporting purposes, the IRS uses it to identify your LLC.
You can apply for EIN online, by fax, or by mail. Federal tax ID numbers are free and don’t charge anything.
You will need an EIN number for the following:
- Open a business bank account
- Register for business licenses and permits
- Transact business with other companies
- Taxes are filed and managed at the federal and state levels
10. Comply With Illinois Employer Obligations
In addition to the steps outlined so far, Illinois LLCs with employees must also comply with the following requirements:
- Employers are required by state and federal law to report new employees to the Illinois Department Of Employment Security within 20 days of their hire date.
- Employers in Illinois are required to withhold state and federal income taxes from their employee’s paychecks. Employers must remit withheld taxes to the state on a regular basis.
- Employers are liable to compensate unemployment taxes Illinois. Every firm is allotted a tax rate depending on its age, industry, and history of unemployment insurance claims.
- A small-business owner in Illinois is required to acquire workers ’ compensation as soon as they recruit their first employee. Employers can self-insure or obtain workers’ compensation coverage from a private insurer or the state insurance fund.
11. Comply With Federal Requirements
In Illinois, LLCs must follow both state and federal regulations. Most LLCs are treated as pass-through entities under federal law, just as they are in most states. On their personal income tax returns, LLC members disclose their portion of LLC income. The LLC does not have to pay federal income taxes.
An LLC’s members can choose to have it taxed as a C-corporation at the federal level, in which case the LLC will pay a flat federal corporate tax of 21%.
Important Steps After Forming The Illinois LLC?
After registering your Illinois LLC, you need to follow some important responsibilities. Here are some important steps you need to consider, after forming an LLC in Illinois:
- Open a business bank account: A business bank account lets you keep personal and business costs separate, which is necessary to keep your LLC’s corporate entity intact. In the event that your LLC or business is sued, a corporate veil shields your personal assets from creditors. Also read, How To Open A US Bank Account As A Non-Resident?
- Get a business credit card: A company credit card will help you separate personal and business costs while also creating a credit record for your firm.
- Hire a business accountant: An accountant for your business can help you save money on taxes and prevent penalties and fines. Accounting and payroll are made easier with the help of an attorney.
- Get Business Insurance For Illinois LLC: Risk management is aided by business insurance. General liability, professional liability, and workers’ compensation are the most prevalent types of business insurance.
Keep Your Company Compliant
- You need to research and get an Illinois license and permits
- File your Illinois annual reports statement online with the Illinois Department of State at the end of the month in which the LLC was formed
- In the next step, you need to understand Illinois sales tax requirements and seller’s permits
- Understand the federal tax requirements to report income to the IRS each year using Form 1065 Partnership Return
In Illinois, forming an LLC is one of the easiest procedures that can be completed in a couple of moments. An LLC is a better and less expensive alternative in Illinois than other business structures. Personal liability is minimized, and individual goals are secured and accomplished when business owners form a limited liability corporation.
Many businessmen may have inquired about how to get an LLC in Illinois. You must follow a multi-step approach that covers everything from choosing a company name to acquiring a registered agent, as well as a multi-member operating agreement.
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Are you ready to form a limited liability company in Illinois? If you have any further queries, feel free to post them in the comments section below. Our professionals will contact you as soon as possible!
Frequently Asked Questions (FAQs)
1. How much does it cost to get an LLC in Illinois?
The filing of the Articles of Organization with the Illinois Secretary of State costs $150. For $25, you can reserve the name of your LLC with the Illinois Secretary of State.
2. Is an LLC free in Illinois?
In Illinois, the filing fee for forming a domestic LLC is $150. In Illinois, forming a foreign LLC costs the same as forming a domestic LLC is $150. After forming your LLC, you must pay a $75 yearly filing fee.
3. Do LLCs pay taxes in Illinois?
The tax rate for most LLCs (those that do not elect to be taxed as corporations) is 1.5 percent of net income. The Illinois Department of Revenue collects the tax (IDOR). To pay the tax, fill out Form IL-1065. The owners of an LLC may elect to have their business regarded as a company for tax purposes in particular instances.
4. Should I form an LLC in Illinois?
If you’re just getting started in business or have been running as a sole proprietor for a while, you might think about incorporating an LLC. LLCs limit an owner’s personal liability for business debts and lawsuits, and they provide a great deal of flexibility in terms of corporate ownership, management, and taxation.
5. Do I need an operating agreement for my Illinois LLC?
Operating agreements are not required in Illinois for LLCs, but they are strongly recommended. An operating agreement will assist protect your limited liability status, eliminate financial and managerial misunderstandings, and ensure that you, not state law, choose the rules that govern your business.
6. Do I need a business license in Illinois?
The IDOR requires most businesses in Illinois to be listed and/or registered. You must register with the IDOR if you intend to recruit people, buy or sell things wholesale or retail, or create goods.
7. How long does it take to get an LLC approved in Illinois?
Approval of postal filings for Illinois LLCs takes 3-4 weeks in total. This includes the processing period of 10-15 business days as well as the time your documents are in the mail. Approval of online filings for Illinois LLCs takes 7-10 business days in total.
8. How much is an EIN number in Illinois?
It is entirely free to apply for an EIN for your Illinois LLC. The IRS does not charge a fee for obtaining an EIN.
9. What are some advantages of forming an LLC?
LLCs are common business structures because they protect members from being held accountable for debts owed to the company or, in some cases, being held personally liable in the event of legal. You can also choose whether you want to be treated as a partnership or a corporation.
10. Can I act as my own registered agent?
In Illinois, you can serve as your own agent if you live in the state and have a physical address there. You can also employ a person or a business to serve as your registered agent.