Are you looking to form a limited liability company (LLC) in the state of Illinois, but you’re not sure how the formation process works? There are several important steps when it comes to creating an Illinois LLC that is compliant and able to do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is an Illinois LLC?
The Illinois LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes personal asset protection that's lacking from sole proprietorships and general partnerships.
LLCs in Illinois have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Forming an LLC in Illinois (in 6 Steps)
Step One) Choose an LLC Name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Illinois, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Illinois, or you’ve officially formed your business. Illinois makes this process rather easy, as you can search existing business names at this link, and if you’re not yet ready to form your LLC, you can reserve your desired name with the Application to Reserve a Name form. This reservation protects your chosen name for 90 days, giving you time to get all your LLC’s affairs in order.
Step Two) Designate a Registered Agent
Every LLC in Illinois is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Illinois Secretary of State,
Each limited liability company is required by the Limited Liability Company Act to establish and maintain a registered agent and registered office in Illinois to provide a public record of the name and address of a person upon whom all process on the company may be served.”
Without a registered agent, you could lose your good standing with the state of Illinois, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Step Three) File Formation Documents with State
Once you are ready to form your Illinois limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of Illinois charges a $150 fee to form an LLC.
Processing Time: It can take up to 10 business days for the state to process your Illinois LLC formation paperwork and get your finalized documents in the mail to you. However, for an additional $100, you can pay an expediting fee to receive everything back within one business day. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC in Illinois, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Illinois levies these taxes based on the nature of your business. The most important of these is income taxes. If your LLC is considered a pass-through entity—usually a sole proprietorship or partnership—you’ll pay income taxes on your individual tax returns. However, LLCs which choose to be taxed as corporations will be subject to the state’s corporate income taxes. You can learn more about corporate income taxes in Illinois here.
Every Illinois business must register for taxes with the state using MyTax Illinois or completing and mailing in Form REG-1 (not recommended if you want to be in business quickly, as processing can take 6 to 8 months).
A common tax for Illinois LLCs is the sales tax. This tax is levied on retailers for the sale of tangible items, and the current rate is 6.25%. You can learn more here.
In addition, any business with employees is required to pay taxes for income withholding and unemployment insurance. The state’s unemployment insurance is funded by these taxes, which you can learn more about at the Illinois Department of Employment Security. For withholding taxes, you can choose to pay on a semi-weekly or monthly filing schedule. All the due dates for 2019 withholding taxes can be found here.
And that’s not all—you may also need to pay industry-specific taxes. Some of these include watercraft usage, gas taxes, and automobile rentals, to name a few. You can browse a listing of taxes in Illinois to get an idea of what taxes may apply to your LLC.
Determining which taxes you need and then registering for them can be a huge headache, so Illinois highly recommends using MyTax Illinois. This portal greatly helps in streamlining the taxation process.
Depending on where in Illinois your business is located, you could also need to pay some local taxes. For example, some counties charge additional sales taxes, sometimes totalling 11% with the state tax! You’ll also be responsible for property taxes and a wide variety of other taxes that you can find here. These local taxes can be crucial, so you won’t want to overlook them.
Step Six) Obtain Business Licenses and Permits
The state of Illinois does not have a general business license that each LLC needs to acquire in order to do business.
However, Illinois upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
Illinois also has state licenses and permits that are required for businesses in certain industries. These industries include a huge variety: taxidermy, aquatic centers, animal health, and more. Illinois has hundreds of these licenses, so there’s a good chance at least one of them applies to your LLC.
We recommend that every LLC owner search through the state database of occupational permits and licenses, and don’t forget that your local government may require licenses or permits as well. We recommend that you contact your city or county clerk to verify if you need any licenses or permits unique to your location.
Next Steps: What to do After Creating an Illinois LLC
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Illinois business with employees is strictly required to acquire workers’ compensation insurance. (Note that unemployment insurance is technically covered by taxes; see step 5). In Illinois, employers have two options for workers’ compensation insurance: they can purchase a policy or they can apply to self-insure. You can find more information about self-insuring here, or you can gain more general information for workers’ compensation at the Illinois Workers’ Compensation Commission. In Illinois, a liability insurance policy is especially advised because the state is notorious for expensive litigation and lawsuit abuse. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The state of Illinois has an online portal that you can use to register for and manage your income reports and taxes. Access it here.
Understand annual reporting
Illinois requires that all LLCs submit an annual report. You can file it online here. Please note that there is a $75 fee. Your annual report will essentially serve to update the state on any pertinent information regarding your business that has changed over the course of the year.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.