There are many reasons why someone might want to start their own limited liability company (LLC).
The most common reason is to run a business and not have to worry about whether they’ll be profitable.
An LLC is a form of legal business structure popular for small businesses and entrepreneurs since it allows you to keep your personal finances separate from your company finances.
In this article, we’ll give you the information you need to determine if an LLC is right for your business. We’ll explain the benefits of an LLC, the procedure for starting one, and how to register a new Illinois LLC.
Forming an LLC in Illinois: A Step-by-Step Guide
To start an LLC in Illinois, you’ll need to prepare certain business documents and file them with the Secretary of State’s office.
To make sure you’ve met all of the Illinois requirements, get the addresses and phone numbers for two local offices, along with information about their staff.
Methods of Forming an LLC in Illinois
In Illinois, you have two choices for forming an LLC:
- the statutory method
- the certificate of organization.
The statutory method is the simplest way to form an LLC in IL because it simplifies the process by eliminating paperwork.
To start using this method, you’ll fill out Articles of Organization with the Illinois Secretary of State.
You can get help completing them from an online website that offers free fillable forms and instructions, or you can contact your county clerk or visit a business advisor in your area who can help you get them done.
When you file these forms with the Secretary of State, your LLC will begin operating and be eligible for tax treatment benefits.
You can also use the certificate of organization method to form an Illinois LLC. This method requires you to prepare a more detailed document that’s filed with the Secretary of State.
You can get help completing these forms from a business advisor or online form builder, but it’s a bit more complicated than the statutory method.
Step 1: Choose a name for your Illinois LLC
As with other business structures, you must choose a name for your Illinois LLC.
This is the name that’ll be:
- The official name of your LLC. You cannot use any other names in this state. The names may not violate any laws and should not be similar to the names or trademarks of another business or person (if you’re planning to do business in another state, we recommend checking with them first).
- Your LLC’s name should be distinguishable from your personal name. If you’re in the habit of using your last name as your business name, we recommend using it as the name of the LLC. For example, if you’re John Smith and run a small business called Smith Enterprises, LLC, we suggest that you use “John Smith Enterprises” as a name for your Illinois LLC so that it’s legible on business records and other legal documents.
Step 2: Appoint an Illinois registered agent.
Registered agents are individuals or businesses that your LLC designates in advance to receive communications on its behalf, like legal notices and tax documents.
It would help if you named a registered agent at the time you form an Illinois LLC.
Your registered agent does not have to be a resident of Illinois. Still, they do need a physical business address to accept important communication on behalf of the LLC.
Tips on choosing a registered agent service:
- Your registered agent doesn’t have to be a resident of Illinois, but they do need a physical business address to accept important communication on behalf of the LLC.
- Your registered agent must be someone who’s authorized to receive legal documents from the government on behalf of your LLC. If you choose a friend or family member, make sure that they’re available to sign and receive important documents.
- You’re not required to have a registered agent, but it’s strongly recommended.
- You’ll need a registered agent even if you’re planning to form an LLC in the same state as your business.
- Choose someone who can be responsible for managing the day-to-day affairs, like paying taxes and keeping an accurate record of the owner.
- If you choose to form an LLC in partnership, make sure that all partners have a signed power of attorney giving one person responsible for managing the operations of the company.
- If you choose to form an LLC in a state other than Illinois, contact that state’s Secretary of State to see if they want your Illinois LLC to be represented by a registered agent.
- Keep in mind that the registered agent does not have to be the person who’ll be signing official documents on behalf of your LLC, like contracts and tax forms. The person can even be someone who’s listed in your Certificate of Formation as an officer of the company (such as a secretary or treasurer).
- If you’re planning to list a company name in another state, ensure that your Illinois LLC’s registered agent can accept important documents from all other states.
Step 3: Check if you need an Illinois business license
You may not need an Illinois business license; the registration process includes a step to determine whether you need to apply for one.
If you need to apply for a business license, the Secretary of State’s office will provide a checklist to help you complete and submit all the necessary forms.
If you are running a home-based business, your city or county may require you to get a business license. Check with your local government offices to make sure you are complying with local laws and regulations.
Step 4: File articles of organization
For the statutory method, you’ll fill out Articles of Organization that will be filed with the Secretary of State.
You’ll prepare a more detailed document filed with the Secretary of State for the certificate of organization method.
This document must include:
- The name and address of your registered agent or agents (the business entity that serves as the point person for your company).
- The date and location at which your company was formed and where it intends to register.
- The name and street address of your LLC’s members.
For both the statutory and certificate of organization methods, you’ll pay a fee to the Secretary of State by money order or bank check.
The Secretary of State provides payment information on its website. The filing fee is $500 for businesses, but the cost may be higher for online submissions or if additional documents are needed to complete your filing.
You can pay your filing fee by credit card, but you’ll be charged a convenience fee for doing so.
Step 5: Draft an LLC operating agreement
The Illinois statute requires that every LLC have a written agreement that sets out the rights and duties of the members. This document is called an operating agreement.
You’ll prepare an operating agreement for the statutory method and file it with the Secretary of State as part of your Articles of Organization.
You’ll need to complete and sign a short operating agreement for the certificate of organization method when you file your official documents with the Secretary of State.
Step 6: Comply With Employer Obligations
If your LLC has employees, it must meet the state and federal requirements for employers.
Rules for employers:
- You’ll have to deduct payroll taxes and state unemployment insurance from your employees’ wages and send them to the government on schedule. You can use our employer withholding calculator to determine how much money you should withhold from each paycheck.
- You’ll also have to pay and report your employees’ federal and state income taxes. You can use our employer tax calculator to determine how much you should withhold from each paycheck.
- You may need to register or renew licenses required by your state, county, or city. Contact your local government offices for more information.
Step 7: Pay Illinois business taxes
You’ll need to register for an Illinois sales tax license and pay the taxes that you owe on business purchases.
The sales tax rate in Illinois is 6.25%. Depending on where you live, your city or county may add additional local taxes to that amount.
You can register for a Business Personal Property Tax Rebate Account with the Illinois Department of Revenue if you make a qualifying purchase like machinery and equipment. This will allow you to deduct those taxes from your income tax liability.
- In Illinois, you’ll pay a franchise tax of $800 for LLCs that aren’t owned by corporations or partnerships. You’ll also pay an annual LLC fee of $300.
- You must also pay taxes on the profits that your LLC makes every year.
- Depending on the amount of income your business earns in a year, you may be required to file an annual report or pay an annual state fee with the internal revenue service (IRS).
- Many local governments require business owners to register for licenses and permits before starting operations. Contact your city or county clerk for information about any local licenses that may be required.
- You’ll also need to register for a state sales tax or retail license if you plan to make retail sales in Illinois. The rules for operating a business at wholesale are different, and you’ll need to contact your state and city governing bodies for more information.
- As an LLC in Illinois, you may have to pay corporate taxes on the amount of money you make from a business’s operations every year. There is no LLC income tax, however.
- If you need to do quarterly reporting, you should consider using QuickBooks or any other accounting software because it will keep track of your LLC’s income and liabilities more efficiently.
You should also make a record of all benefits or profits from a business that you own. You may be able to deduct these expenses on your federal tax return if they’re related to your business.
Step 8: Comply with federal requirements.
You must comply with federal tax and employment laws, and you might also have other requirements from your state government. For example, as a sole proprietor or LLC owner, you’ll need to register with the IRS as an employer.
- If you have employees, you’ll need to register with the IRS for employment taxes and Social Security and Medicare withholding. You can use our employee registration page to learn more about this process.
- You must also pay your employees’ federal and state income taxes through withholding or making tax deposits using Form 1099-MISC.
- If you’re a sole proprietor or home-based business, the IRS requires you to file Schedule C with your income taxes each year. The form is used to report the income that you earned as a business owner.
The Schedule C calculates your profit or loss on all the products or business services you bought and sold during the tax year. Each state also has its own reporting requirements for sole proprietors.
Benefits and drawbacks of forming an Illinois LLC
The benefits and drawbacks of setting up an Illinois LLC will depend on your individual circumstances.
Before making your decision, speak with a lawyer or tax professional to learn about the obligations and legal effects of creating an LLC in Illinois.
- Limited liability protection. LLC members are not personally liable for the company’s debts, and creditors are limited in their ability to collect from members’ personal assets. LLC members are not personally liable for the company’s debts, and creditors are limited in their ability to collect from members’ personal assets.
- Tax flexibility. LLCs enjoy a number of tax advantages over traditional corporations, including pass-through taxation in which business income is “passed through” the company to its owners and recorded on their personal tax returns.
- Ownership protection. LLCs enjoy a number of tax advantages over traditional corporations, including pass-through taxation in which business income is “passed through” the company to its owners and recorded on their personal tax returns. LLC members have limited personal liability for the debts of the company and are not personally liable for potential debts that other members of the LLC own.
- Real estate protection. LLCs can purchase real estate and obtain homes, auto, or other personal loans. LLC members have limited personal liability for the debts of the company and are not personally liable for potential debts that other members of the LLC own.
- LLCs can purchase real estate and obtain homes, auto, or other personal loans. Written agreement protection. Unlike a corporation’s bylaws and articles of incorporation, the operating agreement of an LLC is a private document that provides much greater control over the operation of the company to its members (as compared to shareholders in a corporation).
- Protection from creditors. Unlike a corporation’s bylaws and articles of incorporation, the operating agreement of an LLC is a private document that provides much greater control over the operation of the company to its members (as compared to shareholders in a corporation). LLCs are protected from creditors if they go into bankruptcy.
- Limited liability protection. LLCs are protected from creditors if they go into bankruptcy. The assets and debts of an LLC member cannot be used to satisfy another member’s debt without that member’s consent.
- Copyright protection. LLC members enjoy the protection of copyright ownership in their company trade name, logos, and other intellectual property while they are still active in the company. The assets and debts of an LLC member cannot be used to satisfy another member’s debt without that member’s consent.
- LLCs enjoy the protection of copyright ownership in their company name, logos, and other intellectual property while they are still active in the company. Cooperative management. LLC members can establish formal management rules and make decisions by a majority vote instead of a unanimous vote in a corporation.
- LLCs can establish formal management rules and make decisions by a majority vote instead of a unanimous vote in a corporation. Limited liability protection. LLCs are not liable for the debts of other LLC members, shareholders, or officers who abused their discretion or used their authority to benefit themselves personally (abuse of discretion) from the company’s assets.
- Restrictions in corporate formation. Corporations have to follow more formal processes than LLCs when planning and organizing. LLCs are not liable for the debts of other LLC members, shareholders, or officers who abused their discretion or used their authority to benefit themselves personally (abuse of discretion) from the company’s assets.
- Double taxation on passive income. LLCs are subject to double taxation on income that they earn through investments unless they distribute it to the members. Increased management fees. LLCs require more experienced managers and directors than corporations, which increases your cost of doing business.
- LLCs require more experienced managers and board of directors than corporations, increasing your business cost. Limited management options. If you are a manager in an LLC, your duties and authority might be limited to certain proprietary issues instead of general management in a corporation.
- If you are a manager in an LLC, your duties and authority might be limited to certain proprietary issues instead of general management in a corporation. No voting rights for members that want them. LLC members do not have voting rights when it comes to decisions that call for them, unlike corporate shareholders.
- Personal liability for the debt. If an LLC member does not pay the business debt, the creditor can go after the member’s personal assets in order to pay off the debt. LLC members do not have voting rights when it comes to decisions that call for them, unlike corporate shareholders.
- Taxes on members’ personal income. Unlike members of a corporation, LLC members are taxed on their share of the company’s profits at their personal income tax rate. If an LLC member does not pay the business debt, the creditor can go after the member’s personal assets in order to pay off the debt.
How much does it cost to start an Illinois LLC?
The cost to start an Illinois LLC depends on how many members you have, the type of business you are starting, and what the location of your LLC’s registered business office will be.
There are several different LLC packages available, depending on the location of your LLC’s registered business office and the number of members involved. They are listed below:
- $150 for a single member, $300 for two members, $350 for three members, and $400 for four or more members.
- $300 for a one-member LLC, $350 for a two-member LLC, $400 for a three-member LLC, and $500 for four or more members. This package includes everything you need to start your business, including statutory filing fees.
Packages include filing fees and the document preparation fee.
- $200 per hour. This option must be selected before you create your LLC and is designed to give you direct access to an attorney so that you can have your LLC properly formed and filed.
Open an LLC Bank Account
A business bank account is a necessity for any LLC in Illinois to operate.
The two main options are:
- In most cases, it is better to open a business bank account at your local bank since this will allow you to own the money, making it easier to follow state and federal tax laws. However, there are some instances where it may be best to use an online bank account that allows you to set aside funds in the LLC name.
- If you are an Illinois resident and have a bank account in your own name, then you can transfer the money out of your personal account and into that of the LLC. However, if you have an account in another state, or if the bank that holds your personal account does not allow you to transfer funds directly into its own business account, then you may not be able to use that method.
You can also set up a bank account for the LLC using payroll deductions from workers. Since this is a withdrawal directly from an employee’s paycheck, it does not affect the tax status of the LLC. You can establish an account at any bank or credit union that accepts payroll deductions.
However, keep in mind that this option is only available to small businesses that have no more than three employees who also authorize the deductions from their paychecks.
Whenever you open a bank account for your LLC, it is important that you follow state and federal tax laws.
The above methods should help you to avoid unnecessary fees or penalties, but it is always best to consult an attorney on any legal matters.
Apply for Business Licenses and Permits
If your small business is not directly related to any government service, then you are not required to get a business license from the state of Illinois.
However, the city or county may require you to get one. For example, if you live in Chicago and plan on starting your small business there, then you will be required to obtain a Business Occupation Tax License from the city.
You can go to the city’s Department of Revenue Services page for more information regarding this license.
Authorize LLC Members
An LLC member is a person who has been given the right to participate in decisions affecting the LLC and its percentage of proprietorship in it.
The number, location, and percentages of ownership are specified in an Operating Agreement that is signed by all members before an LLC is formed.
In most cases, one member will be designated as the Managing Member. They have the authority to act on behalf of the LLC and manage its day-to-day operations.
The Operating Agreement should indicate whether they are also responsible for making an annual tax payment on behalf of the LLC.
LLC members do not have any ownership in an LLC to the extent that they are personal creditors or assignees of contractual rights. Still, they do have certain protections under bankruptcy law.
Members are not liable for the debts or obligations of the LLC unless they personally guaranteed them.
What should I know about Illinois LLC taxes?
Since LLC members are taxed on their share of profits at their personal income tax rate, it is important to keep records of any business-related expenses that can be deducted from the company’s profit.
You will also have to file an Annual Report when your LLC’s anniversary date rolls around.
This doesn’t have to be filed until June 15th of the following year and merely lists information such as the name of your LLC, its registered office, the names and addresses of members and managers, and any changes to the operating agreement.
You will also have to pay an annual franchise tax that is based on the amount of profit that your LLC makes and the number of employees you have.
Unlike personal income tax, this payment is due on the first day of a calendar quarter, no matter when in the month or year it was due.
Should I be concerned about the nonpayment of debts?
The LLC’s bank accounts are only protected from collection actions if it can show that all its members have been paying their share of dues and expenses.
Once a member misses a payment, the creditors can start going after those assets.
If the LLC’s bank accounts contain any profits, then creditors can tap into these accounts to collect outstanding debts.
So it is important that you make sure that all members have been paying their bills on time and in full.
What if my business is sued?
Like another company, business entity, and any other business, an LLC can be a party to lawsuits. However, it is not liable for any debts if a creditor goes after its members personally instead of the company itself.
How long does it take to start an Illinois LLC?
The process of starting your LLC should take no more than ten minutes. However, it may take up to three weeks for the state to accept your application and issue your Illinois LLC Certificate of Organization.
Your LLC will not be legally recognized until you receive this certificate.
What is a foreign Illinois LLC?
The LLC is a U.S. state business entity limited to its members and managers. However, it is possible to start an LLC in Illinois that is formed outside of the state.
The foreign LLC will be subject to the laws of the state where it is formed or sponsored and will be required to register with the Secretary of State before doing business in Illinois. If you are planning on starting a foreign LLC, then we recommend consulting with an attorney first.
How can I get an Illinois phone number for my LLC?
One of the most frustrating things about running a small business with an LLC is having to use your home phone or mobile for business purposes.
It can be very inconvenient to have to pick up the phone and call your company from your personal cell phone.
The process of purchasing a business phone line for your small Illinois LLC is relatively easy. All you will have to do is go online and visit an online directory such as Small Business Phone Numbers.
Just type in the city and state of your principal place of business, and you will receive a list of businesses that offer phone services to other companies.
These phone numbers are usually very cheap compared to large carriers like Verizon, or AT&T. Most of them allow you to set up online accounts to make changes to your telephone plan whenever necessary.
How to Order LLC Formation Service
The Illinois LLC formation service is provided by the Illinois Secretary of State’s office. You can order your LLC formation packet by phone at 217-785-3000, fax 217-524-9213, email [email protected], or online at http://www.ilsos.gov/business/bui/busforms_formonline/cmfips0801sosstateidx.html.
It can take up to three weeks for the state to approve your LLC application and issue your certificate of organization. Your LLC will not be legally recognized until you receive this certificate.
Do I need an EIN?
As a sole owner, you only have to provide your Social Security number and your state’s employer identification number (EIN) to operate an LLC. If you want to register your LLC as a fictitious business name with the state, you will have to provide your EIN along with some additional information about the LLC.
If you are one of several members managing an LLC and each of you has its own EIN, then all of you will need EINs.
Is there a minimum number of members I need to maintain when starting an LLC in Illinois?
The minimum number of members that you need to conduct business as an LLC in Illinois is one. The Operating Agreement that all LLCs have to file with the state after they are set up should specify the percentage of each member’s interest that is owned by each member and also specify how many votes each member has if any.
An LLC is a very efficient and simple way to incorporate your business. It has a low cost of entry, and there are virtually no filing fees associated with its formation.
All you need to do is fill out an application (available on the state’s website) and pay a $50 fee.
The only caveat about forming an Illinois LLC is that it does not protect personal assets from business-related debts and obligations.
If you are concerned about this, then we recommend you consult an attorney who can help ease your mind and give you the peace of mind that you need.