Starting an LLC in Illinois is easy, but it also will require some time and patience on the part of the small business owner or the lawyer hired to complete the process.
Naming your LLC, for example, may take more time than you thought because your favorite business name is already taken.
An LLC, or limited liability company, provides liability protection and tax advantages that save money, among other benefits for small business owners. It protects the owner's personal assets against most claims against the business.
Here's more information on how to start an LLC in Illinois.
Popularity of LLCs
LLCs continue to be a popular option for small business owners. According to the Internal Revenue Service (IRS), limited liability companies (LLCs) in the U.S. accounted for the majority (71.7%) of all partnership returns for 2021. This is the 20th consecutive year that LLCs surpassed the number of partnership returns filed, the IRS reports. LLCs were responsible for 25.5% of overall profits for partnerships, an increase of 23.1% over 2019.
Can you really get an LLC for free?
There are a lot of claims online that you can get an LLC for free. Technically, you can get an LLC for free by doing the LLC paperwork to create a limited liability company yourself. However, the state registration fee in Illinois is $150. To maintain the LLC, Illinois law requires an annual fee of $75. There's no getting around these state requirements, despite what you may see online.
LLC formation in Illinois is easy. Just follow these eight steps, and you'll be on your way.
What businesses are best suited for LLCs?
Traditionally, finance, real estate, and insurance make up the largest sector of partnerships in general. However, the LLC business structure can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want protected, and owners who want to pay a lower tax rate than they would with a corporation, according to the U.S. Small Business Administration (SBA).
Startups, ecommerce companies, freelancers, and professional service providers (for example, doctors, accountants, and lawyers) typically find value in LLC formation.
Small business owners choose the business structure of LLCs for practical advantages like personal liability protection as well as the elevated status of having a business with the LLC designation.
How long does the Illinois LLC process take?
These are the Illinois LLC processing times.
Illinois LLC by mail:
Seven to 14 business days (plus mail time)
Expedited—24 hours ($100 extra)
Illinois LLC online:
Five to 10 business days
Expedited—24 hours ($100 extra)
How will you find out if your LLC is accepted?
You will receive your filing confirmation via email, according to the Illinois Department of Business Services. Your confirmation will be sent once the document is examined and approved by the Department of Business Services.
Overview for starting an Illinois LLC
- Name your Illinois LLC
- Choose your registered agent
- Prepare and file articles of organization
- Receive a certificate from the state
- Create an operating agreement
- Get an employer identification number (EIN)
- Register your LLC with the Illinois Department of Revenue
- If your LLC has employees, you must comply with these employer obligations
Name your Illinois LLC
Naming your LLC is the first step in the formation of an LLC in Illinois. Before you fall in love with a special business name, do a business name search on the state of Illinois' name search engine to determine its availability.
The state does have some restrictions regarding a business name. It must include the following: Limited Liability Company, LLC, or L.L.C. It also cannot include:
- words like bank, assurance, or insurance
- names in bad taste or decency
- the name cannot contain any of the following terms: "Corporation," "Corp.," "Incorporated," "Inc.," "Ltd.," "Co.," "Limited Partnership," or "LP"
It's important to do a trademark search, too. Research names to ensure your business name cannot be confused with an already established business.
Also, many new small business owners form an LLC but fail to plan for expansion. Thus, a business name can end up being too limiting in terms of future growth.
You may check if a name is available by calling the Secretary of State's Department of Business Services or using the name availability tool on the department's website. The name of an administratively dissolved LLC is available for use by another LLC when three years have elapsed following the date of issuance of the notice of dissolution.
First steps for getting an LLC name
Once you land on a preferred LLC name during your search, it's important to understand that it does not guarantee that the name will be available at a later date. The Illinois Department of Business Services reserves final determination of availability until a name reservation, articles of organization, or an assumed name application is filed.
What if you like a business name that has been used before? The name of an administratively dissolved LLC is available for use by another LLC when three years have elapsed following the date of issuance of the notice of dissolution, according to the Illinois Secretary of State.
An available name may be reserved for 90 days for a $25 fee by filing Form LLC-1.15. Name reservations may be renewed by repeating this process. Filing of Form LLC-1.15 is not required and does not establish an LLC. The $25 fee cannot be applied to the fee required to register the LLC.
Choose your registered agent
A registered agent is a person or company authorized to receive service of process and other official legal documents and notices on behalf of your LLC. In other words, a registered agent will be the main contact person for documents sent from the state of Illinois relating to the Illinois LLC.
If you are sued or subpoenaed, for example, a registered agent must be available to receive and reply to notices in a timely manner.
You can appoint yourself as your own registered agent or enlist an employee as a registered agent. You can also use a registered agent service.
Registered agents must meet the following criteria:
- Entities (or companies) must provide registered agent services
- The registered agent must have an address in Illinois
- The registered agent must be on-site and available to accept documents during regular business hours
Prepare and file articles of organization
Every small business owner will need to file LLC articles of organization. You can find the form online or request one.
The LLC articles of organization may sound a little foreboding, but it's actually a simple, fill-in-the-blank document that lists the purpose of the business for the Illinois Secretary of State. The purpose can be described in general terms, or it can outline specific purposes of the business.
The name of the business, names of the business owner(s), and the type of business are included in the articles of organization.
The articles of organization will be filed with the Illinois Secretary of State. This is where the $150 fee comes in. A business owner will pay the $150 fee alone or pay an extra $100 (total $250) to expedite the process within 24 hours. Forms of accepted payment are credit card, personal check, certified check, cashier's check, money order, Illinois attorney check, or certified public accountant's check. Make payments payable to the Secretary of State. Cash payments are not accepted.
To prepare your certificate, you'll usually need the following information. If you fill out the form online, you will want to have all the information available to you so you can finish it in one try.
- Your LLC name
- The address of the LLC's principal place of business
- The purpose of the LLC
- The effective date of the LLC
- When the articles become effective
- The name and address of the LLC's registered agent
- Whether the LLC's duration will be perpetual or for a specified period
- The names and addresses of the initial manager(s) if manager-managed; the names and addresses of initial member(s) if member-managed
- The name, address, and signatures of the organizer(s)
Once you file your certificate, the secretary of state will review the filing. If the certificate is approved, the LLC becomes a legal business entity.
Receive a certificate from the state
The business owner will receive a certificate from the state upon approval by the Illinois Secretary of State.
The certificate proves the LLC formally exists.
After receiving the certificate, you can get an employer identification number (EIN). The EIN is a unique, nine-digit number the IRS gives to companies for tax reporting purposes. The EIN is also called a federal tax identification number.
Create an LLC operating agreement
An LLC operating agreement can be described as a blueprint for your business.
The state of Illinois doesn't require you to create an LLC operating agreement, but it is recommended for small business owners. Some states, such as New York, require an LLC to have an operating agreement.
Even a single-member LLC in Illinois will likely benefit from an LLC operating agreement. The document will help single-member LLCs to anticipate both growth and obstacles in the future of the business.
Get an employer identification number
The purpose of an EIN is to assist with the following:
- File and manage taxes at the state and federal level
- Open a business account at your bank so that you can keep your business account separate from personal banking needs
- Hire employees
Register your LLC with the Illinois Department of Revenue
All Illinois LLCs are required to register with the Illinois Department of Revenue.
If your LLC has employees, you must comply with these employer obligations.
LLCs can have an unlimited number of employees. The LLC must follow federal law, like hiring employees who are eligible to work in the U.S. and have a Social Security number.
What are common reasons for an LLC application to be denied?
According to the Illinois Secretary of State Office, these are the common reasons for an LLC to be rejected:
- Documents. Documents are incomplete.
- Fees/checks. The fees submitted are not in the correct amount, the check is not signed, and/or the check is not made payable to the Illinois Secretary of State.
- Signatures. The Department of Business Services cannot decipher the signatures on the document, the names have not been typed or printed below the signatures, or the document is otherwise illegible.
- LLC name confusion. The name chosen for the LLC is not distinguishable from a name already on file with the Department of Business Services and, thus, is unavailable for use.
- LLC with an unacceptable name. The name of the LLC contains a word with a restricted use, and that restriction has not been satisfied (e.g., the word "trust").
- Missing LLC info. The name does not contain one of the required LLC designators: Limited Liability Company, L.L.C., or LLC. (This requirement does not apply to assumed names voluntarily adopted by the company.)
- Invalid address. The physical address of the registered office is not a valid street address. A P.O. Box number alone is not acceptable.
- Unacceptable purpose clause. The purpose clause contains one or more provisions that are not acceptable (e.g., the purpose is too broad, the purpose indicates the practice of banking, or the purpose implies the company will be in the business of insurance or underwriting without indicating that it will be acting as an agency).
Annual report requirements for LLCs
All Illinois LLCs must file an annual report to maintain its existence, according to the Illinois Secretary of State.
Your due dates for annual reports will be different than other LLCs. The annual report is due before the first day of the LLC's anniversary month each year. The anniversary month is the month in which the LLC was organized.
For example, if the date of organization was Sept. 15, the annual report is due before the first day of September every year. A pre-filled version of the annual report will be sent to the registered agent approximately 60 days before the due date.
Failure to file an annual report by the due date will put the company in delinquent status. Failure to file an annual report within 60 days of the due date will put the company in penalty status, and it will be assessed a late filing penalty of $100. Failure to file an annual report within 120 days of the due date will cause the company to be administratively dissolved.
Most LLC annual reports may be filed online on the department's website.
Tax facts for Illinois LLCs
Paying taxes is part of every business endeavor. Here's what you need to know about paying taxes with an Illinois LLC.
A single-member LLC (SMLLC) is taxed as a sole proprietorship by default. A multi member LLC is taxed as a partnership by default. To file federal taxes as either type of LLC, you need to file one of these forms:
- Single member LLCs—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi member LLC—Form 1065
Sales and use tax
Every business that sells products in Illinois is required to obtain a certificate of registration or license or a sales and use tax license. This license allows your business to collect the 6.25% state sales tax. The 6.25% state sales tax that your business collects from customers will need to be paid to Illinois every quarter.
Franchise taxes: Franchise tax is assessed to each domestic and foreign Illinois Corporation at the time of filing its first report of issued shares (Articles of Incorporation or application for authority) for the privilege of exercising its franchises in the state of Illinois. The state will likely impose a minimum annual franchise tax, typically $100 to $800 per year.
Choosing a tax status: An LLC can choose an S corporation tax structure because an LLC is a business entity defined by state law.
Self employment tax: Each member of the LLC pays self employment taxes (12.4%for Social Security. LLC members will also need to pay Illinois state income tax (4.95%).
Changing your LLC name
It's possible to change the name of your LLC in the future, but it does come with some paperwork. A name-change amendment may be filed online, according to the Illinois Secretary of State's office. Non-expedited service will be reviewed within 10 days of submission. Expedited service submissions will be reviewed for compliance within 24 hours (excluding weekends and holidays).
- The name of an administratively dissolved Illinois LLC is not available for use by another LLC or Corporation until three years have elapsed following the date of issuance of the notice of dissolution.
- To effect a name change online, the LLC:
- must be an Illinois LLC
- must be in good standing
- may not be authorized to establish series and
- does not require a post-effective date
- Companies cannot file a name-change amendment online if they:
- were organized under a jurisdiction other than Illinois
- are not in good standing
- are authorized to establish series
- desire a post-effective date or
- must execute the report using "layered signatures" or by power of attorney
- Only amendments affecting the name change of a domestic LLC can be filed online. Articles of amendment seeking to make any other change must be filed using LLC-25.
There will likely be fees associated with the online filing of a name-change amendment.
An email acknowledgment will be sent upon review and acceptance of the required forms.
In the case of a proposed name not being available for use or other issue, you will be notified by email and the associated charge will be reversed.
Registrations, licenses, and permits
The state of Illinois website has more information about business registrations, licenses, and permits in the state of Illinois.
How does starting an LLC in Illinois compare to other states?
Illinois is known for its flexible state tax laws. For federal tax purposes, an LLC can choose how it will be taxed.
LLC taxes in Illinois will depend upon the LLC's federal tax election. Unless an LLC elects to be taxed as a C corporation (C corp), all Illinois LLC profits are passed through to the members. The members will pay Illinois and federal taxes, and federal self-employment tax, on their share of the profits, even if they do not actually receive a share of the profits. An LLC taxed as a C corp pays Illinois corporate taxes on its profits, and each member pays state and federal income taxes on any profits that are actually distributed to the member.
FAQs
1. Do you need an LLC to conduct business?
No, a small business owner may choose to create an LLC for its benefits to the company, such as protecting the owner's personal assets from claims against the business as well as tax advantages. The business assets and business debts of the company are separate from those of the business owner. The LLC is considered a separate entity from the owner.
2. How much does an LLC cost?
The filing fee for Illinois is $150. To expedite it in 24 hours, add on $100. State requirements may vary.
3. Can you get an LLC yourself?
Yes, starting an Illinois LLC yourself is very doable. It's essentially an online form to fill out. You go to the website for the Illinois Secretary of State's office, which handles businesses in the state.
Some aspects, like finding an available business name, may take more time than many small business owners think. A lot depends on your comfort level with business formation and how much time you want to spend on it rather than hiring a lawyer to do it for you.
4. Do you need to hire a lawyer to start an LLC in Illinois?
No, you don't need to. Many small businesses form LLCs on their own.
5. What documents or information do you need to form an LLC?
Most of the information will be easy to obtain, like the physical address of your company. Choosing a registered agent or a business name may take more time and consideration, but ultimately it is simple to do.
You will want to have all the information at hand before you attempt to fill out the online form. Every piece of information must be accurate.
6. What is the most common reason an Illinois LLC is rejected?
The most common reason is because the business name is too similar to another established business. That's why when you decide to form an LLC, it's crucial to research what business name is the most appropriate.
7. How do you create an operating agreement?
You can find customizable templates online or create one yourself. Operating agreements outline who has the authority to act and sign contracts on behalf of the company. Once operating agreements are signed, they are legally binding. Operating agreements aren't required in Illinois, but they are still recommended. They will help avoid being subject to default laws in Illinois as well as practical issues such as disagreements with partners while running the business.
8. Who can help with legal and tax advice to form an LLC?
A tax professional such as a CPA or tax preparer can help with tax forms and other issues. A legal expert, such as a lawyer who specializes in business formation, can assist with legal documents, topics like articles of organization, and choosing a registered agent or registered agent service for LLCs.
9. How does an LLC differ from an S Corporation (S Corp) or C corporation?
LLCs are easier to create and have lower business expenses for startups. An S corp, for example, usually has several members, issues stock, and is taxed differently than an LLC.
10. What are professional registered agent services?
Small business owners have the option to hire a professional registered agent service such as LegalZoom to help with business needs. These services offer guidance for everything from creating an operating agreement to growing your business. Common packages range from one-time fees to monthly packages for a few hundred dollars.
11. Is a single-member LLC the same as a sole proprietorship?
Unlike a sole proprietor, which is an unregistered business entity using, for the most part, the single owner's name, a single-member LLC registers the business entity with the state and separates the personal assets of the single owner from that of the business.
12. What's the catch for ads that say "get LLC for free"?
Many websites claim to help you get an LLC for free, but every LLC will require a fee paid to the state. In Illinois, it's $150. What's possible is that you can do the LLC paperwork to start an LLC for free because you can do it yourself rather than hiring a lawyer or legal expert.
13. What is liability protection? Liability protection is one of the main reasons small business owners consider LLC formation or other options such as an S corporation. Your personal assets, such as your house or car, will be protected from seizure if you can't pay the debts you incurred. However, personal liability protection will not cover you for wrongdoing, such as injuring an employee during the course of business.
14. Is a business bank account needed to start an LLC in Illinois?
Yes, LLC owners need to separate their personal banking by opening a business bank account.
