If you’re reading this then you’ve either already decided to form a Limited Liability Company (LLC) in Illinois or you’re considering forming an Illinois LLC and want more information on the formation process. So congratulations! Creating a new business formation is always an exciting decision for any small business owner to make.
I’ll break down all of the steps on how to form an LLC in Illinois but first I’m going to explain what a Limited Liability Company is, as well as the benefits of choosing to form an LLC rather than other business structures like a sole proprietorship or a corporation.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is An Illinois LLC?
An Illinois LLC is a Limited Liability Company formed in the state of Illinois that is governed by the laws, regulations and statutes of the state of Illinois.
Why choose An LLC?
There are many benefits to choosing to form an LLC rather than choosing another business type like a corporation, sole trader, partnership, sole proprietorship C corporation or S corporation. But here are the three main benefits that typically influence many small business owners’ decisions to form a Limited Liability Company (LLC).
1. Limited Liability And Asset Protection
The first benefit I’ll discuss is one that many business owners consider the most important: personal asset protection. Small business owners who form LLCs cannot be held personally responsible for their LLC’s debts or liabilities.
This means that in the event that your Illinois LLC is met with a business catastrophe (like lawsuits and bankruptcy), the creditors of your LLC in Illinois can’t come after your personal assets (such as your house, car or personal finances) as financial compensation. The only option they have to redress the issue is to receive compensation through the LLC’s assets and finances, not yours.
This may not seem like much because creditors still have the option to come after the assets of the LLC, but personal asset protection means that even if you lose some of the money that you earned or part of the business you established, you won’t lose everything.
Everyone across the globe has recently been made aware that it only takes one unexpected event (like the global viral pandemic) to completely cripple even the most successful and prepared businesses. So many small business owners greatly value any sort of protection they can get. This makes forming an LLC in Illinois a great idea for anyone who values their personal assets as well as all the hard work that they’ve put into creating and establishing their business.
The second benefit I’ll discuss is the protection of your personal information when you form a Limited Liability Company (LLC) in Illinois.
Unfortunately, for thousands of people who have their identites stolen every year, cyberpunks and con-artists have become masters of their craft over the past few years. With the most seemingly insignificant bits of information (like your name and address) they can steal your identity and amass debt in your name worth thousands of dollars, with alarming speed.
If you use another business type like a sole proprietorship, corporation, sole trader or partnership, you’ll be forced to register your personal information with the Illinois Secretary of State, Department of Business Services Limited Liability Division. When you register your own name and address for your business, it’s available on the public record and put on the Secretary of State’s website for anyone to access.
But when you choose to form an LLC in Illinois you can protect your personal information from those who would access it with villainous intent.
To protect your personal information you need to hire an LLC formation service. Rather than registering and listing your personal information on the Illinois Secretary of State website, they register their own information. And don’t worry – you’ll still retain ownership of your Limited Liability Company (LLC) while keeping your information secured so it’s well worth the cost if you want to ensure your information remains secure.
The last benefit I’ll discuss is the tax benefits that LLCs in the state of Illinois enjoy but other business types (like a corporation) don’t.
If you choose a corporation as your business structure, you’ll be at the mercy of a tax phenomenon known as “double taxation”.
Here is an explanation of “double taxation”. A corporation has its profits taxed at corporate rates, then they are dispersed among shareholders as dividends which are taxed differently from personal income. So because the profits are taxed twice, it’s called “double taxation”.
LLCs in the state of Illinois avoid “double taxation” entirely. Profits from LLCs are taxed at company rates and not corporate rates, which are then dispersed to LLC members as personal income (not dividends) which are taxed at personal income rates. So they’re not taxed twice immediately the same way that profits from corporations are.
Believe it or not there are even more tax benefits for LLCs.
The 2017 Tax Cuts and Jobs Act created tax benefits for LLCs called the Qualified Business Income Deduction. This means that LLCs get a 20% discount on their taxes, which other business types don’t receive.
How To Start An LLC In Illinois
Now that you know more about what a Limited Liability Company is and some of the benefits of forming an LLC, it’s time to decide if this is the right structure for your business entity. If you’re comfortable with the idea of your business being an LLC then here are the steps you’ll have to take to form an LLC in the state of Illinois.
*IMPORTANT* If you’d like an experienced professional to guide you through all of the red tape and form filing associated with forming an LLC in the state of Illinois then you would likely benefit from an LLC formation service. An LLC formation service helps with obtaining and filing all of the forms you must file to form your LLC, establishing your LLC and also keeping your identity and personal information safe. You can read my guide on the best LLC formation service here: Best LLC Service
Many LLC formation services in Illinois charge fees as low as $0 plus the state filing fees. However, my personal favorite LLC formation service is ZenBusiness and they charge $49 plus state filing fees.
1. Obtain An Articles Of Organization Form
The first step to form your LLC in Illinois is to get your hands on an Articles of Organization form from the Illinois Secretary of State Department of Business Services Limited Liability Division.
You can get the Articles of Organization in PDF form from the Illinois Secretary of State’s website here. You also have the option to file and submit your Articles online on the Secretary of State’s website here.
Since this is the main form you’ll need to file to form your Illinois LLC, the other steps will refer back to the Articles of Organization form.
2. Choose Your Business Name
Now that you have the Articles of Organization form for your Illinois LLC, the next step in the LLC formation process is to choose a name for your business entity.
Unfortunately, you can’t just register the first business name that you think of. Every business in Illinois needs to have a different name, so your LLC name needs to be unique to your business. Luckily, all you have to do is run a quick online search via the name database on the Secretary of State Department of Business Services website.
If you discover that the LLC name that you’ve chosen has been taken, don’t worry. You can always add some suffixes to the end of the name like “Limited Liability”, “L.L.C.”, “Ltd.”, “Co.”, “Incorporated”, “Inc.” or “LLC”. It’s a bit like adding numbers to the end of an online screen name once you’ve discovered that the screen name you originally chose isn’t available.
Once you’ve decided on a name just fill out the Application to Reserve a Name form, which you can mail in along with the state filing fee.
If you don’t like the LLC name that you register then you can register for what’s known as a trade name, assumed name or DBA (Doing Business As) name. This is the name you’ll show to the world through signs, flyers and advertisements.
You can get the Application to Adopt, Change, Cancel or Renew An Assumed Name in PDF form here. You can submit the form by mail or online here along with the state filing fee which can cost between $30- $150.
3. Choose A Illinois Registered Agent
Next, you’ll need to choose a registered agent for your LLC business in Illinois. Every LLC in Illinois is required by the Illinois Secretary of State Department of Business Services Limited Liability Division to have what is known as a “registered agent”
A registered agent is a person or business service that is available during normal business hours to accept mail and legal documents (like service of process) on behalf of your LLC business in Illinois.
You have two registered agent options for your LLC in Illinois: you can take on the task of operating as your own registered agent or use a professional registered agent service. Here are the pros and cons of each choice so that you can make an informed decision about the best option for you to go with regarding a registered agent for your LLC.
If you choose to take on the task yourself, it’s worth noting that you’ll expose your personal information to hackers and scam artists. In the role of registered agent, you’ll need to register your name and address with the Illinois Secretary of State to be listed on the public record on their website where anyone can find it with a quick search. This exposes you.
Being the registered agent for your LLC is quite time-consuming. You’ll need to be available during regular business hours on business days which can be problematic because most LLCs also operate during the same hours and you can’t be in two places at once. And the worst part is that you could miss important legal notices or a service of process if you aren’t there to receive them and then your LLC could be sued and you won’t even have a chance to defend yourself.
The only upside of assuming the role of registered agent for your business in Illinois is that you won’t have to pay the fees of a registered agent service.
Choosing a registered agent service means less work on your part plus your personal information will be protected. You’ll be guaranteed to never miss any important mail, legal documents or notices or service of process. The only downside to using a registered agent service is that you should expect to pay a fee between $99-$299 per year for this service.
But since missing an important legal notice (like service of process) could result in a default ruling that you can’t defend yourself against, it’s worth it to pay that fee so that you don’t have a bunch of legal problems on your hands. I always recommend that new LLCs use a registered agent service.
Furthermore, if your registered agent resigns, the Secretary of State will notify you and then you’ve got 60 days to register a new registered agent. If you fail to register a new registered agent with the Secretary of State within 60 days, you’ll have to pay a $100 penalty fee.
If you want to protect your identity as well as your business by using a registered agent service you can read my guide on the Best Illinois Registered Agent.
4. Choose Your LLC Address
The name of your LLC isn’t the only bit of important information that you’ll have to add to the Articles of Organization form. You’ll also need to register an address for your business entity which will be listed on the public record with the Secretary of State. The address you choose will be made available online for anyone to access on the Secretary of State’s website.
If you aren’t using a registered agent service then you’re going to have to list the physical address of your business entity here. If your business doesn’t have a physical business address then you’ll be forced to register the address of your home or office here, which will leave your information vulnerable to cyberpunks and online thieves who have only to perform an online search to find it.
If you’ve decided to use a registered agent service, they will register their address on the form. It will be an address that can’t be directly linked to you or your home so your identity and personal information remains safe and secure.
5. Sign And File Your Articles Of Organization
Once you’re sure all of the information on your Articles of Organization form is filled in and you’ve triple-checked it for accuracy, it’s time to sign and file your LLC’s Articles of Organization.
If you’re using an LLC formation service then they’ll sign and file the form on behalf of your business entity. Of course, you can sign and file the document yourself, but this will register your information to be put on the public record.
Once everything is signed you can file the form by sending it by mail to the Secretary of State along with a check or money order to pay the filing fee to the address below:
Secretary of State
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL, 62756
You can also file by submitting your Articles of Organization online along with a payment for the state filing fee here.
Once you’ve submitted your articles the Secretary of State’s office will process the forms and payment. This can take up to four weeks and once they’ve finished the filing process they will contact you by either mail or email.
If you’d like to speed up the filing process you could use an LLC formation service because they typically offer expedited filing for a fee.
Other LLC Activities
There are a number of other activities that LLCs in Illinois must take part in to obtain and maintain a Certificate of Good Standing from the Secretary of State so that it’s legal for them to operate as a business in the state. These activities are important but have nothing to do with the formation process.
LLCs in Illinois are required to file an annual report every year along with the state filing fee for the report. You’ll have to file the annual report for your LLC before the first day of the month your LLC was organized each year (so if your LLC was formed on June 20th, you’ll have to file your annual report before June 1st). You can file your annual report online here or submit it by mail using this form.
It’s possible that you’ll need to obtain business licenses for legal reasons so that your LLC is able to operate and do business in the state of Illinois. You can check with your county clerk to see if your LLC needs a local business license. For business licenses issued by the state of Illinois, check out the First Stop Business Information site online.
LLCs that sell products and collect sales tax in the state may need to register online with the Illinois Department of Revenue. You also may have to obtain certain permits to collect sales tax.
You can do business in Illinois as a foreign LLC. You’ll need to appoint a registered agent and file an Application for Admission to Transact Business form and pay the $150 filing fee. You’ll also need to send in a Certificate of Good Standing from your home state that’s dated no more than 60 days before filing to start a foreign LLC in Illinois.
Some of the other activities that LLCs are required to perform in order to function as a legal business in the state of Illinois are obtaining a Certificate of Good Standing from the Secretary of State and filing both state and federal taxes.
If this sounds like a lot of work, it’s because it is a lot of work to meet all of these filing deadlines, filling out mountains of paperwork and paying a bunch of different taxes. If you’d like to ease some of the workload you should consider hiring an Illinois PEO service as well as signing up for some online legal services.
Illinois LLC Fee Summary
No matter whether you choose to form your Illinois LLC on your own or if you choose to use an LLC formation service, you’ll have to pay some filing fees. How much does it cost to start an LLC in Illinois? Here’s a look at some of the most common filing fee costs you’ll likely encounter when forming an LLC in Illinois.
Articles of Organization filing fee: $150
Name Reservation filing fee: $25
Registered Agent Fee: $99-299 per year
Annual Report filing fee: $75
State Personal Income Tax rate: 4.95%
State Corporate Income Tax: 9.50%
After Starting Your Illinois LLC
Filing the paperwork to form your LLC in Illinois is a major step toward controlling the future of your business and celebration is in order. So go out and have a nice dinner, go out on the town, enjoy a shopping spree, have a glass of champagne or wine, or enjoy a weekend trip. But don’t celebrate for too long because there’s still work to be done to make sure that you’ve laid the proper business foundations for your LLC.
Here are the three most important steps to ensuring your LLC has the right business foundations to be fully operational.
Step 1. Create An Operating Agreement
It’s not required that LLCs in Illinois draft an Operating Agreement but it is highly recommended that you create one and file it anyway.
Metaphorically speaking if you were to think of your business as an animal of some sort then the LLC would be comparable to its skin or shell because it protects the LLC in much the same way, and the Operating Agreement would be like the creature’s nervous system because it tells it what to do and how to react to things.
An Operating Agreement is an internal document for your business that functions as a contract between LLC members and provides clear-cut instructions for how the business should run. Your Operating Agreement should start by listing each of your LLC members and then go on to establish the managerial, financial, operational and structural aspects of the business.
*IMPORTANT* Before you start drafting your Operating Agreement you’ll need to decide on a managerial structure for your LLC. You can choose to have a single member or multi-member LLC. In a single member LLC one person makes all of the high-level decisions, while in a multi-member LLC a handful of members vote on decisions.*
Operating Agreements should start by listing your LLC members individually, then go on to clarify which members will make high-level decisions, followed by designating the ownership percentages and shares of profits and losses of each member. Your agreement should elaborate on the roles of each member and how they interact with other members or departments. If you design your Operating Agreement this way, your LLC members and employees will know what their jobs are, who they should be closely interacting with, employees will know their superiors and which tasks are handled by each department which should prevent a number of squabbles.
An important section in Operating Agreements is the section that describes what happens when members leave or if a new member joins. Many people leave this part out or don’t think about it, but it’s important to add this section because it clearly spells out what to do in the event of a falling out between LLC members. Logical instructions of this sort are crucial when tempers are running high.
You’ll find that the Operating Agreement is one of the most important formation documents during the infancy of your LLC. This is because it clarifies the job of each member, specifies how much members will be paid and provides vital information about how the business will run.
I’ll make this perfectly clear: the operational instructions laid out in the Operating Agreement are the rules that your business must operate under and will be required to operate according to, so if you write your agreement with poorly-defined rules it could stifle your business growth. It’s easy to mess up your business’s Operating Agreement by simply neglecting to leave room in it for change, innovation or business growth. If you’ve drafted a well-designed agreement then your business should prosper without being held back by the constraints that come from a poorly-written agreement.
If you’ve never written an Operating Agreement before and you’re worried about getting it right (which is a legitimate concern for you and your business), there are a few options available to you.
The first option is the free Operating Agreement template that Northwest Registered Agent provides for LLCs, which you can get here. The second option available to you is an LLC formation service because many of them will draft and file the articles on your behalf as part of their services. And lastly, if you’re keen to draft and file the articles yourself, you can subscribe to online legal services that will guide you through the process.
Step 2. Apply For An Employer Identification Number
If you plan to ever hire employees for your business or open a bank account solely for your LLC then you’ll need to acquire an Employer Identification Number (EIN). Your business’s EIN also qualifies your business for certain licenses or permits. Of course, your business is not required to hire employees to qualify for an Employer Identification Number (EIN) – it’s just an identification number for businesses.
An EIN is a tax identification number that identifies businesses in much the same way that a Social Security Number works to identify individual people. You can apply for an EIN for your business through the IRS (Internal Revenue Service), and it’s a lot easier than you would think.
A lot of Illinois LLC formation services will apply for an EIN for your LLC on your behalf, which of course takes all of the guesswork out of applying for an EIN. But you can also apply for an EIN yourself without the use of an LLC formation service. You simply go online to the IRS website Monday through Friday between the hours of 7 am and 10 pm to fill out the application and submit it to get your EIN.
Step 3. Open A Business Bank Account
The last step you’ll need to complete in order to make sure that you provide your LLC with the necessary foundations to function properly is to open a bank account solely for your business.
A lot of LLC business owners overlook this step but you really shouldn’t because it’s important. They make both business and personal transactions through their personal bank account and assume that having one bank account for both business and personal use is convenient. There are two main reasons you shouldn’t do business this way.
First of all, opening an account that is dedicated to business transactions makes filing taxes a lot easier. A lot of LLC owners assume that they’re going to remember which transactions were for which purpose, but often tax season rolls around several months after these purchases were made and it becomes harder to remember the purpose of the purchases with time. So keeping both a personal and a business bank account makes filing your taxes a lot easier.
The next reason to open a bank account for your LLC is if you run business purchases through your personal account then you make not only your personal information vulnerable but also your personal bank account. Sure, you have a certain amount of personal asset protection when you form an LLC, but if you make business transactions from your personal account then that negates the protection of your personal bank account.
So if you’re interested in making it easier to pay employees and breezing through tax season as well as protecting your personal assets, just open a separate account for your LLC.
To open a bank account for your LLC you’ll need to compile what’s known as a “bank kit”. This includes things like a copy of your Articles of Organization, Certificate of Good Standing, EIN and your initial resolution.
You can collate all of these documents yourself, or use an LLC formation service. Most LLC formation services include preparing a bank kit as part of their service package.
You took control of your business destiny when you made the decision to form an Illinois LLC today, so congratulations!
If you are forming an LLC on your own without the use of an LLC formation service (which typically cost $0 plus state filing fees) here are the five steps to form an LLC in Illinois:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It’s quite easy to become overwhelmed by all of the red tape, form filing and legal jargon you’ll have to learn during the LLC formation process. But when you form an LLC on your own without the assistance of an LLC formation service you’ll get a major boost of confidence and a feeling of satisfaction.
Congratulations again on the decision to form an LLC and good luck with all of your business goals!