Did you know that everyone’s favorite pharmacy chain, Walgreens, is a business incorporated in Illinois?
Many other large and smaller companies were born in the Land of Lincoln.
So if you too are ready to join the ranks of growing businesses, here’s how to form an LLC in Illinois.
Steps to form an LLC in Illinois (IL)
LLC formation is a crucial step up from sole proprietorship.
Because this business structure protects your personal assets better. If your business is sued, it can only be held liable for the assets of the LLC. Not only that, but LLC is also a better structure for tax reporting. Plus, it’s a future-proof move towards business scalability.
Here are the steps for starting an LLC in Illinois.
- Step 1: Choose a name for your Illinois LLC
- Step 2: Hire a registered agent
- Step 3: File the Illinois LLC articles of organization
- Step 4: Register with the Illinois Department Of Revenue (IDOR) and IRS
- Step 5: Prepare an LLC operating agreement
Step 1: Choose a name for your Illinois LLC
You’ve found the perfect name for your soon-to-be LLC. Now you need to call dibs on it.
Go to the Illinois Secretary of State Department of Business Services website to verify business name availability. If the name is taken, try another combo.
According to Illinois naming guidelines, certain words or abbreviations must appear in the business name or be omitted.
One of the following words or abbreviations in the exact form below must be present in your business name:
- Limited Liability Company
However, you must exclude the following words or abbreviations:
- Limited Partnership
- Any word that implies the LLC is in business for purposes of insurance, assurance, or banking unless permitted by Section 1-9 of the Corporate Fiduciary Act.
- Bank – can be used if permitted under Section 46 of the Illinois Bank Act.
- Banker – can be used if permitted under Section 46 of the Illinois Bank Act.
- Banking – can be used if permitted under Section 46 of the Illinois Bank Act.
Pro tip: You can always apply for doing business as (DBA) later on to legally link your LLC with your actual business name.
Also, if you plan to operate on a national level, verify that your name doesn’t interfere with any registered brand names and trademarks. Do a search at the U.S. Patent and Trademark Office or consult an attorney to prevent a trademark lawsuit.
Step 2: Hire a registered agent
Hiring a registered agent is not mandatory. You, as a business owner, can serve as one. It is an option if you want to cut costs.
You must satisfy the following requirements to be your own registered agent:
- Have a physical street address (not PO Box)
- Be available during business hours all working days of the year.
You must meet this requirement because registered agents must receive all service of process documents such as lawsuits, summons, and subpoenas, among others. Failure to meet this requirement can result in your registration status termination.
To avoid handling all these legal matters (especially if you lack the knowledge to respond as required when you get served), you should hire an LLC registered agent.
The average fee to hire a registered agent in Illinois is $100 to $150. There are many pros of hiring a registered agent and very few cons.
Should you hire a registered agent service?
|Regular Hours (if you’re unable to be available during regular business hours consistently, a registered agent service can assist)||Another added fee ($100 to $150 annually, these small fees add up for small businesses)|
|Privacy (lawsuits and legal documents are often served in person by law enforcement)|
|Expertise (a registered agent service will be knowledgeable in dealing with compliance matters of state and local governments)|
Step 3: File the Illinois LLC articles of organization
You can file the documents in person (expedited), online, or by mail.
If you plan to apply online, the form will first ask you to select between a standard limited liability company or a limited liability company with the ability to establish a series. It’s recommended you consult with an attorney if you’re planning to establish a series LLC.
It typically takes 10 business days for the standard online filing, 24 hours for the expedited service (not available by mail). There’s no official stated timeline for filing by mail.
The basic filing fee for your LLC articles of organization is $150. If a series LLC is requested, then the filing fee is $400. If electing the expedited service for either of these, a $100 expedited service fee will apply.
LLC online filing fee must be paid with a credit card when submitting the articles of organization online. When mailing your articles of organization (Form LLC-5.5), a certified check, cashier’s check, or money order must be included within the envelope.
Step 4: Register with the Illinois Department Of Revenue (IDOR) and IRS
There are two tax authorities to register with when forming your LLC. You’ll file Form Reg-1 with the Illinois Department of Revenue (IDOR) via mail, online, or in-person. Also, file for an EIN (employer identification number) with the IRS via mail, online, or phone.
An EIN is a 9-digit number the Internal Revenue Service (IRS) uses to identify your LLC. It’s required if answering “yes” to any of these questions.
How to get an EIN for an Illinois LLC
You can submit an EIN application online. It takes about 15 minutes and must be completed in one sitting. You’ll get your EIN immediately after submitting the online application.
Download a PDF copy of your application and save it for future use. The name of this document is Form SS-4 and will be seen in the upper right portion of the page after downloading.
Step 5: Prepare an LLC operating agreement
An operating agreement outlines how a small business conducts daily operations.
Illinois doesn’t require to provide an operating agreement as part of the LLC formation process. But it’s still good to create one. Because this is the first document, an attorney will request in case of a dispute with a customer or business partner. Along with the business bank account and EIN, these formalities give a business owner assurance that they have limited liability protection.
Here’s what to include in an operating agreement for your LLC:
- All LLC member(s)
- Percentage interest in the business
- Allocation of profits and loss
- Capital contributions
- Voting power
- Procedures for admitting new members and member withdrawal
The operating agreement can be created or amended at any time over the life of the business.
Open an Illinois business bank account
All LLCs are legally required to open a business bank account.
Many banking institutions will open a business checking account for free or at a minimal cost.
For example, Bank of America charges $10 monthly for a business checking account. You can avoid this fee by maintaining an average monthly balance of $5,000 or more, spending $250 on the business debit card for qualified purchases, or becoming a preferred rewards member. It’s recommended to explore various banking options to see what’s best for your business.
The most significant benefit of opening a business bank account is keeping your personal finances separate from your business. If your LLC is ever audited, there’s a clear paper trail of what is private and what relates to the business entity. Without a business account, the auditor will have difficulty separating personal versus business, which can jeopardize your limited liability protection.
Chase offers similar terms. The Chase Business Complete Banking has a $15 monthly service fee. Nonetheless, you can avoid this fee by keeping your Chase Ink Business Card loaded with $2,000 minimum daily purchases or by maintaining a $2,000 minimum daily balance.
The US Bank doesn’t charge a service fee. With their basic business account, you get 125 free transactions monthly which include 25 deposits. Small fees apply when going over these volume limits.
Items needed to open a business bank account
- Articles of Organization
- Ownership Agreements
- Business license or permit
Illinois LLC taxes
LLC is a business entity type. When it comes to taxation, however, you can file businesses taxes as a:
- Disregarded entity
A disregarded entity is an official term for single-member LLC. In this case, you’ll report the income, expenses, and other items on Schedule C of her personal tax return.
A partnership files Form-1065 to the IRS to report business activity. Also, every partner will need to fill and file a personal K-1 form detailing their share of income, expenses, and other items. For a personal return, you’ll use the data filed in a K-1.
You’ll also need to file a Form IL-1065 (Illinois Partnership Replacement Tax Return) on a state level. It is very similar to the federal Form 1065.
C-corps report business activity to the IRS on Form 1120. In Illinois, c-corporations are not regarded as pass-through business entities. Thus, you’re not required to file a K-1 form. Corporations pay taxes on net income at the corporate rate. Separately, owners will need to file personal tax returns for income obtained from their corporation. On a state level, you’ll have to file form IL-1120 (Corporation Income and Replacement Tax Return). It is similar to the federal Form 1120.
S-corporations file Form 1120S to report business activity. Much like a partnership, the business owner receives a K-1 from the S-corp to report their share of income, expense, and other items. The items reported on the K-1 are then reflected on the personal income tax return (Form 1040). For the state of Illinois, the business entity files Form IL-1120-ST, and it is similar to the federal Form 1120S.
Sales tax in Illinois
If your LLC is subject to remitting sales and use tax, the Illinois sales tax rates are:
- 6.25% on general merchandise
- 1% on qualifying foods, drugs, and medical appliances.
This rate could be higher in certain areas if it’s permitted by law. You can find the local sales tax rate by using this tool.
Also, the Illinois Department of Revenue provides a flowchart to assist business owners with what form(s) is required for sales and use tax.
Illinois annual LLC costs and fees
Apart from filing your tax returns, you’ll have to pay other recurring fees for your LLC.
In Illinois, you’re required to file an annual report due before the first day of your LLC’s anniversary month. For example, if you formed your LLC on June 20, your annual report is due before June 1.
Annual report filing fees:
- $75 for standard filing
- $125 for expedited filing
- $100 late fee if your report is 60 days past the due date
Illinois business permits and licenses
Depending on what goods or services you provide, your LLC may need specific business licenses and permits.
For example, if your business sells liquor, a liquor license is required. It costs $750 and must be renewed annually.
Another example is the Illinois Department of Natural Resources requires a license to perform taxidermy. The cost for this license is $25.50.
Check the state of Illinois official website for the latest information on permits and licenses.
Pros and cons of forming an LLC in Illinois
Forming an LLC in Illinois is a sound decision when:
- Most of your business comes from this state
- You plan to have a local establishment
- You plan to hire in-state employees
Overall, the state has good company formation and tax reporting requirements for LLC companies.
Illinois LLC pros
- Option of forming a Series LLC, which is only available in a few states
- No ownership restrictions
- No minimal annual tax (franchise tax) is charged
Illinois LLC cons
- The cost of the state filing fee is on a higher-end
- Annual report filing is required
- Charges a separate state tax (personal property replacement tax)
- LLC formation starts with the Illinois Secretary of State – Department of Business Services filing the articles of organization.
- The cost to form an LLC in Illinois is $150.
- The annual report cost in Illinois is $70.
- Illinois imposes sales taxes on LLC (on top of federal taxes).
- Don’t neglect the operating agreement. It’s what protects you.
Illinois LLC FAQs
The following are some frequently asked questions regarding forming a Limited Liability Company in Illinois.
1. How much does it cost to start an LLC in Illinois?
The cost to start an LLC in Illinois (file articles of organization) is $150. Other recurring fees include the annual report ($75 for the standard filing) and the registered agent fees (if applicable).
2. What is the processing time to form an LLC in Illinois?
It typically takes 10 business days to receive approval through the expedited process. Otherwise, it will take on average 4 to 6 weeks.
3. What are the benefits of an LLC in Illinois?
The benefits include no minimum annual franchise tax and the option of forming a Series LLC. Series LLCs are only offered in a few states and allows each of the various “series” to operate with separate members, interests, and liabilities from the LLC itself.
4. How do I know if my LLC name is available?
The Illinois Secretary of State – Department of Business Services website provides a search tool to see if your LLC name is available. After confirming your name is free, you can proceed with filing the articles of organization.
5. Can I be my own registered agent in Illinois?
Yes, you can be your own registered agent. You can also hire a registered agent service.
6. Does Illinois LLC require an annual report?
Yes, the annual report is due before the first day of the month of LLC formation. Otherwise, a late fee of $100 will be enforced if not filed within 60 days of the due date.
7. Can an Illinois LLC do business in other states?
Illinois LLCs are permitted to do business in other states. However, to legally operate in another state, you’ll have to register as a foreign LLC in it. This process involves extra application formalities. Plus, you’ll have to pay filing fees and state taxes. Verify with a target state the registration conditions.
8. Do I need to file an operating agreement with the state of Illinois?
The operating agreement is not filed with the state of Illinois. It’s for the owner(s) of the business when disputes or audits occur.
9. Which licenses and insurance are required for an LLC in Illinois?
Workers compensation insurance is the only insurance required by the state of Illinois if you have one or more employees. Licensing requirements vary depending on what your LLC offers.
1o. Does an LLC need a business license in Illinois?
It depends on the products and services offered. Please visit the state of Illinois website under licenses, permits, and registration.
11. Do LLCs pay taxes in Illinois?
The state corporate income tax rate is 5.25%, and the personal property replacement tax is 2.5% on net income for corporations. Partnerships, s corps, and single-member LLCs only pay the personal property replacement tax of 1.5% on net income because they are pass-through entities.
12. Do I need to renew my LLC every year in Illinois?
You file an annual report to continue receiving a certificate of good standing. It doesn’t look good to customers if you’re out of compliance.