Starting a Limited Liability Company (LLC in Illinois can be an exciting venture for any entrepreneur. This article is designed to guide you through the process, from choosing a business name to understanding costs and benefits. Whether you're a seasoned business owner or just starting a business, understanding the formation of an LLC is crucial. Remember, starting an LLC goes beyond paperwork; it's about building a stable and profitable business.
How to start an LLC in Illinois in 7 steps
01. Pick your business name
When starting a business in Illinois, the first step is to choose a name for your LLC. This isn't just a creative process, it's a legal one too. Make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company" to comply with state requirements. Your business name should be unique and not too similar to others on record with the Illinois Secretary of State.
Here's how you can create a business name that stands out and meets legal requirements:
Check for availability: Use the Illinois Secretary of State's online database to search for existing business names.
Follow naming guidelines: Avoid restricted words that could confuse your LLC with a government agency (e.g., FBI, Treasury).
Consider your online presence: Use a domain finder if you plan to also focus on creating a website, which can be easily done through platforms like Wix.
Tip: If you're having trouble coming up with a unique name for your business, consider using a business name generator.
02. Choose your registered agent
Every LLC in Illinois must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Illinois.
To choose the right registered agent, consider the following factors:
Reliability: Ensure they are dependable and can handle confidential documents.
Availability: They should be consistently available at the listed address during business hours.
Compliance: Verify that they meet all legal requirements set by the state of Illinois.
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03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in Illinois. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Identify the specific requirements: Check with local and state agencies to determine what permits you need.
Complete the applications: Fill out all required paperwork accurately and submit them to the appropriate authorities.
Pay any fees: Be prepared to pay any associated fees for obtaining your permits.
Let’s say you want to start a pool cleaning business in the state. First, you’ll need a general business license from the Illinois Secretary of State. You may also need additional licenses or permits depending on the specific services your business provides. For example, if you offer pool maintenance services that involve the use of chemicals, you will likely need an Environmental Protection Agency (EPA) certification. If your business also offers plumbing services, you will need to obtain a plumbing contractor license from the Illinois Department of Public Health.
Learn more: How to get a business license
04. File Articles of Organization
The Articles of Organization is a critical document that officially creates your LLC in Illinois. You'll file this with the Illinois Secretary of State, either online or by mail, along with the required filing fee.
These essential actions are involved in the filing process:
Gather your business information: You'll need details like your LLC's name, registered agent information and management structure.
Fill out Form LLC-5.5: This is the specific form used for filing an LLC's Articles of Organization in Illinois.
Submit and pay fees: Complete the submission process by paying the $150 filing fee.
05. Draft your LLC operating agreement
Although not legally required in Illinois, creating an operating agreement is highly recommended for your LLC. This internal document outlines ownership structures, member roles and operational procedures for your type of business.
Here’s why an operating agreement is important:
Clarifies business rules and guidelines: It sets clear expectations for members regarding operations and conflict resolution.
Protects LLC status: Helps maintain limited liability status by proving that your LLC is a separate business entity.
Prevents misunderstandings: Reduces potential disputes among members by detailing policies and procedures for how the business should be run.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is like a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes.
Securing an EIN involves:
Applying online or via mail: The IRS provides free EIN registration through their website or via mail submission.
Understanding your business tax obligations: Learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Illinois for an LLC owner this includes a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Illinois Comptroller's Office website.
07. Organize annual reports
Illinois requires LLCs to file annual reports to keep their information up-to-date with the state. These reports include current contact information and details about your business operations over the past year. Filing an annual report ensures that your LLC remains in good standing with the state government.
To ensure you’re compliant with this make sure to:
Know due dates: Your Illinois Annual Report is required each year before the first day of your LLC's anniversary month.
Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
Submit and pay fees: Complete the submission process by paying the $75 filing fee.
How much does it cost to start an LLC in Illinois
Starting an LLC in Illinois involves various costs, which can vary based on the specific needs of your business. Here's a breakdown of the expenses you should anticipate:
Filing fee for Articles of Organization: The state of Illinois requires a fee when you file your Articles of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $150.
Registered agent fee: If you decide to use a professional registered agent service, they will charge a fee for their services. This fee varies depending on the provider.
Business permits and licenses: The cost for permits and licenses can vary widely depending on the type of business you're starting and where it's located. Some industries require more licensing than others.
Operating agreement: While drafting an operating agreement isn't required by law, it may be wise to hire a lawyer to help with this document, which can incur legal fees.
Employer Identification Number (EIN): Obtaining an EIN from the IRS is free, so there's no cost associated with this step.
Annual report filing fee: Every year, your LLC will need to file an annual report with the state of Illinois, which comes with a filing fee.
State taxes: Depending on your business activities, you may need to pay state taxes. It's important to understand these obligations as they can impact your overall budget.
Additional costs may include:
Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Establishing an online presence via a website is crucial in today's market. Costs here include domain registration and potentially hiring a web designer or using a website builder like Wix.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Learn more: Cost to start an LLC
Who can start an LLC in Illinois
To form an LLC in Illinois, there are specific eligibility criteria that need to be met. It's crucial to understand who can start an LLC in the state before you begin the process.
Age requirement
You must be at least 18 years old to form an LLC in Illinois.
Residency
There is no residency requirement to start an LLC in Illinois. You don't have to live in the state or even in the United States to form an LLC here.
Legal status
You must have the legal capacity to enter into a contract. This means you cannot be barred from doing so due to any legal reasons.
Business type
Most types of businesses can be structured as an LLC but certain professional services may require a different business structure, such as a Professional Limited Liability Company (PLLC).
Number of members
Illinois allows for single-member LLCs (one owner) or multi-member LLCs (more than one owner). There is no maximum number of members.
No criminal restrictions
Unlike some licenses and permits that may have restrictions based on criminal history, there is no such restriction for forming an LLC itself.
Benefits of starting an LLC in Illinois
Forming an LLC in Illinois offers a range of advantages that can greatly appeal to business owners. These benefits encompass legal protections and tax advantages, making it a popular choice among entrepreneurs.
Limited liability protection
As the name suggests, an LLC provides limited liability protection to its owners (members). This means your personal assets are typically protected if your business faces lawsuits or debts.
A limited liability company—or LLC—is a type of business entity that offers some of the benefits of a corporation with less formality. One key benefit of an LLC is that it can protect a small business owner’s personal assets—like homes, cars, and personal bank accounts—from lawsuits against the business. Additionally, LLCs offer the flexibility of filing taxes as a sole proprietorship, partnership, or corporation. Also, you won’t need to worry about some of the same formalities as corporations, such as keeping minutes at shareholder meetings. Shylene D’Addario, VP and associate general counsel at LegalZoom
Pass-through taxation
LLCs often benefit from pass-through taxation where the business income is only taxed once on the members' personal tax returns, avoiding the double taxation that corporations can face.
Flexibility in management
Unlike corporations, LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Ease of formation and maintenance
Compared to other business entities, forming and maintaining an LLC is relatively straightforward with fewer formalities and paperwork.
Credibility with customers and partners
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can then choose an .llc domain for your website to reinforce this credibility.
Disadvantages of starting an LLC in Illinois
When thinking about starting an LLC in Illinois, it's key to weigh the pros and cons. Understanding these downsides helps you decide if an LLC is the right fit for your business structure. Here are some challenges you might face with an LLC in Illinois:
Costs
The initial and ongoing costs of maintaining an LLC in Illinois can be higher than other business structures like sole proprietorships or partnerships.
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits.
Limited growth potential
If you plan to take your company public or issue shares to raise capital, an LLC might not be the best choice as it doesn't allow for issuing stock.
State-specific regulations
Each state has its own rules regarding LLCs, which can complicate moving your business or operating in multiple states.
Why start an LLC over another business entity in Illinois?
Choosing the right business structure is crucial for entrepreneurs. In Illinois, forming an LLC is often preferred due to its unique advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice for your situation.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages:
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
You've formed your LLC in Illinois, now what?
After successfully incorporating your Illinois LLC, the process of building and growing your firm begins. There are various actions you should take to ensure that your LLC runs effectively and maintains in compliance with state rules.
Following the formation of your LLC, these are the following actions to consider:
Open a business bank account
To keep your personal and business finances separate, open a bank account specifically for your LLC. This will also help establish your business's credit history.
Obtain business insurance
Protect your LLC by obtaining the appropriate insurance. Common types include general liability insurance, professional liability insurance, and property insurance.
Comply with employment laws
If you plan to hire employees, ensure you comply with state and federal employment laws. This includes withholding payroll taxes and providing workers' compensation insurance.
Additionally, focus on these areas to manage and grow your LLC:
Understand ongoing compliance requirements: Familiarize yourself with any annual filings or fees required by the state of Illinois to keep your LLC in good standing.
Develop a strong brand identity: Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Implement a good accounting system: Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
Continue learning about your industry: Stay informed about changes in your industry by attending workshops, networking events, and subscribing to relevant publications.
Looking to start an LLC in a different state?
How to start an LLC in Illinois FAQ
How long does it take to form an LLC in Illinois?
The time it takes to form an LLC in Illinois can vary. If you file online, the process can be completed in a matter of days. Mailed applications may take several weeks.