There’s a lot to like about Illinois. The Prairie State is home to Chicago – one of the largest cities in the United States. It also hosts more than 1.2 million small businesses, and big name brands like United Airlines, McDonald’s, Walgreens, Kraft Heinz and Allstate.
If you’re interested in joining their ranks, you can start an LLC in Illinois and enjoy the tax benefits and liability protection it provides. Forming a new business can be pretty daunting, though – especially if you’re new to the process and don’t know all the steps. But with a little guidance, it’s not as hard as it seems.
This simple guide shares all the important steps, requirements, state fees and costs you’ll need during the LLC setup process so you won’t feel lost along the way.
Why You Should Start an LLC in Illinois
Setting up an LLC involves a lot of moving pieces, but it’s not as complicated as starting a corporation. And, it comes with several benefits:
- It’s easy and inexpensive to form and maintain
- Your personal assets are protected against business debt or lawsuits in most cases
- The business profits and losses pass through each member’s individual tax return
- It avoids double taxation because LLCs don’t have to pay federal corporate income tax
- You spend less time and money on record keeping and filing compliance-related paperwork
- Customers and other businesses will find you more credible and professional
The Seven Steps to Starting an LLC in Illinois
Step One: Name Your Illinois LLC
When choosing a name for your LLC, find something that will work now – and in the future. The wrong name can become a marketing nightmare for your business because it shows up in everything you do.
Ideally, a business name should be short and memorable, clearly describe what you do, and align with your vision and mission statement. Like most states, Illinois also has some business naming guidelines. The business name you choose should:
- Have one of the following abbreviations or words: Limited Liability Company, LLC, or L.L.C.
- Exclude words that imply the LLC is in business for banking, insurance, or assurance purposes unless permitted.
- Not contain terms such as Corp, Corporation, Inc., Incorporated, Co., Limited Partnership, Ltd., or LP.
If you can’t find a suitable name, use a business name generator to help you get the name storming started. Once you find the perfect name for your new business, you’ll need to call dibs on it.
Start by checking the name’s availability on the Illinois business search page. If it’s not taken, register it with the state for legal and tax purposes. Registration also protects the business name and prevents others from using it.
If you’re not ready to form your business yet, you can reserve the name for 90 days by filing Form LLC 1.15 through the Illinois Secretary of State (SoS), and paying the $25 filing fee. You can also register your LLC’s name as a domain name for your company website.
Some business owners prefer to conduct business under a name other than the LLC’s legal name. In such cases, you can apply for a “doing business as” (DBA), which is a trade, assumed, or fictitious name besides your own name.
For instance, if your business’s legal name is Knight & Day LLC, you can register it under a DBA like Knight’s Contracting. DBAs don’t provide legal protections, so you can’t use it like a trademark. However, a DBA can help you when setting up a business bank account and filing business taxes.
Step Two: Appoint a Registered Agent
Under Illinois law, you must designate a registered agent for your LLC, who will receive service of process, legal notices, and other official documents on your company’s behalf. You can be your own registered agent or choose a trusted person to act on behalf of your company.
Many entrepreneurs, particularly single-member LLCs, consider acting as their own registered agent for their business. However, you must meet the following requirements:
- Be 18 years or older
- Reside in the state of Illinois
- Have a registered physical address (not a P.O. box) in Illinois
- Keep regular business hours at the provided address to accept legal documents and notices
But there are downsides to being your own registered agent. For instance, you’ll receive lawsuits at your place of business, which is potentially embarrassing when your clients or customers are present. Plus, your business address will be publicly available so anyone can access it.
Thankfully, you can avoid handling all these legal matters. How? By hiring a commercial registered agent service. They’re not only available during regular business hours, which frees you up to focus on building your business, but they also ensure prompt compliance with the state and local governments, and protect your privacy.
Most professional registered agent services cost about $50-$300 per year in Illinois, but the benefits significantly outweigh these costs. If you decide to change your registered agent, file a Form LLC-1.36/1.37 with the Illinois SoS notifying about the change. If the registered agent resigns, you’ll file a Form LLC-1.35 to inform the state about the resignation.
A $100 fee applies if you don’t submit the Resignation of Registered Agent form within 60 days of the resignation. Worse still, the state can terminate your registration status if you fail to meet these requirements.
Step Three: File Your Illinois LLC Articles of Organization
Next up, you’ll need to file your Illinois LLC Articles of Organization, which provides basic information about your company.
Although it sounds intimidating or complicated, you’ll simply fill out an online form with the Illinois SoS or send it by mail, and pay a $150 filing fee. If you’re forming a foreign LLC, you’ll fill an Application for Admission to Transact Business form (LLC-45.5) and pay the $150 filing fee.
To prepare your Articles of Organization, you’ll usually need to include:
- LLC’s name and principal place of business (physical address)
- Purpose of the LLC
- Effective date of the LLC
- Registered agent’s name and address
- Name and address of the manager(s)
If you file your Articles of Organization online, approvals take up to 10 business days. There’s no stated official time for mailed-in applications.
Want the process to move faster? Illinois offers an expedited processing service with a turnaround time of 24 hours during regular business days. The service costs an additional $100.
From here on, you’ll pay $75 once per year to file your LLC’s annual report with the Illinois SoS online or by mail. That way, your business remains compliant and in good standing with the state. Failure to file on time attracts a $100 late fee, or the state could dissolve your LLC.
Step Four: Register with the Internal Revenue Service (IRS) and Illinois Department of Revenue (IDOR)
Great job! You’ve officially created your Illinois LLC. We’re not done quite yet. You’ll need to register with the IRS and Illinois Department of Revenue.
The IRS requires you to get an Employer Identification Number (EIN). This is a 9-digit number, which acts as a Social Security Number for your business.
An EIN makes it easier to:
- Identify your LLC
- Hire employees
- Open an Illinois business bank account
- File employment tax returns or withhold taxes from employees’ pay
It takes about 15 minutes to complete the online application and you’ll get your EIN immediately – for free! Before you make any sales or hire an employee, you’ll need to register with the Illinois Department of Revenue.
You can do this by filling a Form Reg-1 Business Registration Application online, in-person, or via mail. It takes about 1-2 days to process your online application and 6-8 weeks if you mail your application to the Illinois SoS.
Step Five: Prepare an LLC Operating Agreement
You’re probably thinking, “Oh no! More paperwork.” Before you run off, let me explain why it’s good for you and your company.
Along with your EIN, you’ll need an LLC operating agreement. Illinois doesn’t require you to have an operating agreement during business formation. But, it’s highly advisable to have one as it:
- Outlines how you conduct your company’s daily operations
- Establishes your LLC as a separate legal entity
- Lends credibility to your business
- Lays out a succession plan for your business
- Preserves your liability protection
- Helps prevent or resolve disagreements or conflicts without invoking Illinois law
You can draft your own operating agreement, use an online template, or get your attorney to create one for your business.
Typically, your LLC operating agreement should include:
- General information about the LLC’s formation, purpose, ownership, and its member(s)
- How the LLC is managed (member- or manager-managed)
- Members’ financial contributions
- Each member’s ownership stake, profit and loss distribution and voting rights
- Procedure for admitting and dismissing members
- General provisions such as meeting schedules, voting, and documenting decisions
- Dissolution procedures
Step Six: Open an Illinois Business Bank Account
Under Illinois law, you must open a bank account solely for business purposes. A business bank account helps you:
- Avoid commingling funds
- Maintain your liability protection from lawsuits and business debts
- Track your business income and expenses
- Sort out your finances at tax time
You’ll need a copy of your filed Illinois LLC Articles of Organization, EIN, a copy of the fictitious business name statement (if you use a DBA), ownership agreements, and a copy of your business license.
Shop around before deciding where to open your business bank account. Consider the services you’re looking for and how much you’re willing to spend on monthly fees.
Many banks offer free accounts or at a minimal cost for small businesses. Compare the fee schedules for the banks you’re considering so you can make the best decision for your business.
Step Seven: Obtain the relevant business licenses and permits
Before you can start operating your LLC, you’ll need to get the relevant Illinois business licenses and permits. There’s no statewide general business license, but you might need a special license or permit depending on the goods or services you provide.
If you’re in a professional (regulated) industry such as medical, legal, accounting, or teaching, you’ll need to obtain a certification of registration from the Illinois Department of Financial and Professional Regulations (IDFPR).
License and permit costs also vary based on your industry. For example, a business that sells liquor requires a liquor license that costs $750 while a Ginseng grower’s license costs $25.50.
Do LLCs in Illinois Pay Taxes?
Illinois LLCs don’t pay income taxes. However, other taxes apply as follows:
- Each owner or member pays taxes on their share of the business profits.
- A separate personal property replacement tax is levied on multi-member LLCs at 1.5% of the LLC’s income. This tax falls due once per year.
- You can file paperwork with the IRS or Illinois state to elect your LLC to be taxed as an S Corp or C Corp.
- If you have employees, you must withhold payroll taxes from their wages and pay your company’s share of payroll taxes – part of which goes to the federal government and a portion to the state.
- If your business collects sales and use tax, you’ll report it to the state every month.
Illinois LLC Costs
In summary, here are the fees you should expect to pay when forming your Illinois LLC:
- Online filing fee: $150
- Annual report: $75
- Registered agent service: From $50
- Name reservation: $25 (90 days)
- EIN application: $0
- Business licenses or permits: Varies by industry/profession
Begin Your New Business in Illinois
Congrats! You now know how to form an LLC in Illinois. If all the steps, forms, fees, and costs sound like too much work, don’t worry.
Collective offers a smarter and more affordable way to get your LLC set up and running. We take care of your LLC formation, monthly bookkeeping, accounting, taxes, and more. Start your LLC with Collective and find out how much you could save.
