How to Start an LLC in Illinois – Step-By-Step Instructions

If you’re seeking information on the process of obtaining an LLC in Illinois, you’re in good company, as limited liability companies (LLCs) have become a widely favored business structure. The surge in LLC formations began in the late 1990s when the IRS revised its regulations, permitting LLC owners to have flexibility in determining their tax treatment.

Creating an LLC may appear intricate, especially if you’re new to the procedure and aren’t familiar with all the necessary steps. In Illinois, the formation of LLCs is regulated by the Limited Liability Company Act. To simplify the process, we’ve conducted research and compiled this straightforward guide to assist you in establishing an LLC in Illinois.

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How to Start an LLC: Illinois 5-Step Guide

Gaining a deeper understanding of the formation of an Illinois LLC can significantly enhance your small business’s credibility and pave the way for its future success. Eager to begin? Simply follow this comprehensive 5-step guide.

Step 1: Choose a Name for Your Illinois LLC

The process of finding the perfect business name is one of the most enjoyable aspects of launching an LLC in Illinois. The state mandates that your company name must be original and easily distinguishable from names used by other registered corporate entities within the state, including corporations, partnerships, and other LLCs. You can verify the availability of an Illinois LLC name you’ve chosen by conducting an LLC lookup in the Illinois name database.

How Do You Make Sure Your Choice Isn’t Already Used?

• Check Availability.
• Perform a basic internet search to determine if anyone is informally operating under your chosen name; even if it appears to be technically available, such a situation could lead to confusion.
• Review the federal patent and trademark database to confirm that another company hasn’t trademarked the name.

Illinois imposes several naming requirements and restrictions on acceptable LLC names. To begin with, your LLC’s name must incorporate:

• The words “limited liability company” or an abbreviation thereof (e.g., “L.L.C.” or “LLC”).
• Only letters from the English alphabet, Arabic or Roman numerals, and symbols can be reproduced by the Department of Business Services.

Secondly, your Illinois LLC’s name must not include:

• Terms like Ltd., Limited Partnership (or L.P.), Incorporated (or Inc.), Corporation (or Corp.).
• Words that could lead to confusion with a government agency, such as “treasury” or “FBI.”
• Words that create an “association that’s offensive to good taste and decency.”
• For a comprehensive list of guidelines, you can refer to the Illinois naming guidelines, which offer clear insights into naming constraints applicable to your corporation.

Selecting an appropriate name is a crucial step in forming an Illinois LLC. After you’ve narrowed down a few potential choices, you can submit a corporate name availability inquiry form to the secretary of state. They will perform an internal search and respond via email to confirm the availability of your chosen company name. You can inquire about up to three names on a single form.

Insider Tip: If your desired name is available, but you’re not yet ready to commence your Illinois LLC, you can reserve your chosen name for a 90-day period by submitting a reservation form. The form must be submitted via mail, including the original form and one copy, along with a $25 check payable to the Illinois Secretary of State (expedited filing is available for an additional $25).

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Step 2: Choose Your Registered Agent

Subsequently, you’ll be required to appoint a registered agent to serve as the official point of contact for potential legal matters concerning your LLC. Illinois law mandates that the agent must either be an individual residing in Illinois or a corporation authorized to conduct business in the state. A P.O. Box located within Illinois do not meet the requirement. 

Furthermore, the registered agent must maintain a physical street address in Illinois and be available at that location during regular business hours to receive crucial documents on your behalf. It’s the registered agent’s responsibility to forward these documents to you, which may include:

• Legal service of process (if your LLC becomes involved in a lawsuit)
• Tax-related documents
• Court summons

Alternatively, you can explore the option of employing a professional registered agent service. This service is offered by a business entity that accepts tax and legal documents on behalf of your LLC. Opting for a professional registered agent service in Illinois provides a sense of security, as a specialized company is responsible for handling these critical tasks. This choice is particularly advantageous if your business operates from another state or if you frequently travel.

Even if you have a single-member LLC, selecting a registered agent service instead of designating yourself can enhance your ability to concentrate on day-to-day business activities and reduce concerns about accidentally discarding important mail.

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Step 3: File Your Articles of Organization

Completing Form LLC-5.5, which serves as the articles of organization, stands out as a crucial and fundamental step in the process of establishing an LLC. Filing the articles of organization with the Illinois Secretary of State is imperative for maintaining official records of your company and recording essential details about your newly formed business entity. Once these articles are accepted, your company obtains the authorization to commence its operations.

For an LLC in Illinois, the articles of organization must encompass the following key information:

• The official name of your Illinois Limited Liability Company
• The business address of your LLC, representing its principal place of operation
• The desired effective date for the articles (if not immediate)
• The identity and address of your chosen registered agent
• A description of your LLC’s purpose (Illinois permits a general statement of purpose)
• A statement concerning the LLC’s intended duration (if it’s not meant to be perpetual)
• The names and addresses of the initial members (for member-managed LLCs) or managers (for manager-managed LLCs)
• The name, address, and signature of the organizer

Insider Tip: If your business operates from your residence, you have the option to use a virtual address for your LLC’s principal place of business, which can help protect the privacy of your home address.

Furthermore, any LLC planning to offer professional services that require licensing from the Illinois Department of Financial and Professional Regulation (IDFPR) must register as a professional limited liability company (PLLC). They must also specify a particular purpose clause that outlines the type of professional service they intend to provide. Additionally, the names of such PLLCs must include “PLLC” or “Professional Limited Liability Company.”

Insider Tip: If you already have an LLC established in another state and wish to conduct business in Illinois, you can apply for a foreign LLC status by completing an application for admission to transact business. This process carries a fee of $150 and necessitates the submission of a certificate of good standing that’s no more than 60 days old from the state where your LLC was originally formed.

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Step 4: Draft an LLC Operating Agreement

In contrast to some states where the formation of an LLC mandates the preparation of an operating agreement, Illinois doesn’t impose such a requirement. However, it’s advisable to contemplate creating one after you’ve completed the process of forming your Illinois LLC. 

An operating agreement serves to document crucial aspects of your company’s structure and its operational procedures. It provides a framework for the management of the LLC and clarifies the rights and responsibilities of both members and managers.

Composing an operating agreement is an effective means of ensuring that all key stakeholders are in alignment on vital matters. Some of the significant details typically covered in operating agreements encompass:

• Ownership rights
• Profit-sharing arrangements
• Daily operational procedures
• Processes for transferring ownership
• Protocols for dissolution
• Voting mechanisms
• Financial accounting particulars

Law in action: Even if your LLC is a single-member entity, it’s still prudent for business owners in Illinois to contemplate having an operating agreement in place. For instance, in cases where your LLC faces allegations of mingling profits, an operating agreement can serve as evidence that your LLC’s assets are distinct from your personal assets. This underscores the importance of establishing a dedicated LLC banking account (further details on this topic are provided below).

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Step 5: Obtain Your Employer Identification Number (EIN)

An EIN can be likened to a Social Security number for your business, serving as a distinct nine-digit identifier used by the Internal Revenue Service (IRS) for taxation purposes. The application process is cost-free and conducted entirely online, resulting in the immediate generation of your EIN upon submission.

While an EIN is mandatory only for businesses that function as employers or multi-member LLCs, it’s advisable for single-member LLCs in Illinois to consider obtaining one. This is because an EIN is frequently required for essential business activities, which encompass:

• Establishing relationships with financial institutions
• Employing staff
• Filing federal taxes
• Collaborating with vendors

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Maintain Your LLC: Illinois Ongoing Requirements

The formation of your LLC marks only the initial stage in building a thriving business. To maintain the active status of your LLC and ensure its readiness for business operations, you’ll need to fulfill obligations such as filing annual reports (due before the first day of the LLC’s anniversary month), settling business taxes, and meeting other licensing requirements.

Opening a Business Bank Account

The primary purpose and advantage of establishing an LLC revolve around the segregation of business and personal assets to ensure liability protection. Nevertheless, if there is any mixing or overlap between a member’s personal assets and those of the LLC, it could nullify the limited liability safeguard provided by an LLC. 

For Illinois businesses seeking to safeguard their personal assets in the event of an LLC lawsuit, it’s crucial to promptly open a dedicated bank account and secure a business credit card for the LLC as soon as the company is organized.

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Getting Business Insurance for an Illinois LLC

Just as you would seek insurance for anything valuable, it’s equally important to insure your business. When you’ve devoted time and financial resources to establishing an LLC in Illinois, it’s essential to ensure you have sufficient insurance coverage in place to safeguard your investment in case of unexpected accidents or incidents.

Paying State and Federal LLC Taxes

The specific federal income tax forms you must submit are contingent on your company’s structure. Here’s a breakdown of the tax treatment for various types of LLCs:

• Traditional LLCs: These are considered pass-through tax entities, which means they don’t pay taxes on their income. Instead, they solely report their income to the IRS.

• Single-member LLCs: They’re treated similarly to sole proprietorships and report the LLC’s income on the member’s personal income tax return (Form 1040).

• Multi-member LLCs: Treated as general partnerships, these LLCs report their income using Form 1065, and each member claims their share of the income from the LLC through a Schedule K-1.

• LLCs opting for S-Corp status: To do this, you’ll first need to file Form 2553 to inform the IRS that the LLC intends to be taxed as a small business corporation. Similar to traditional LLCs, S-Corps are pass-through entities, so the company’s income is reported using Form 1120-S. Each member or employee will pay taxes on the salary they receive from the LLC.

• LLCs opting for C-Corp status: This involves filing Form 8832 to notify the IRS that the LLC seeks corporate tax treatment. Unlike other entities, this election triggers a double taxation structure, meaning the income is taxed at both the corporate level and the shareholder level.

At the state level, you’ll also be responsible for the personal property replacement tax, which amounts to 1.5% of the LLC’s net income. Additionally, any additional state taxes will depend on the nature of your LLC’s business activities, and specific Illinois counties may impose further state taxes based on the nature of your business operations.

Hiring Employees

When contemplating the employment of personnel for your LLC, it’s imperative to be aware of the additional obligations in Illinois to maintain your good standing with the state. These include:

• Securing workers’ compensation insurance right after hiring your first employee
• Within 20 days of recruitment, promptly inform the Illinois Department of Employment Security about any newly hired workers
• Meeting unemployment tax obligations

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Marketing Your LLC

Establishing a customer or client base is a vital aspect when launching your business. Therefore, investing in marketing your LLC is a prudent move. For Illinois business owners, the first step involves creating an online presence for your company.

The initial task is to verify the availability of a domain name closely resembling your LLC’s name. It’s advisable to select a web address that’s pertinent to your business and is short, memorable, and user-friendly, particularly for mobile users.

For instance, the law firm “Skadden, Arps, Slate, Meagher & Flom LLP” employs the domain “skadden.com.” Another option is to consider utilizing your company’s initials (e.g., “sasmf.com”) or a phrase that correlates with your business (e.g., “chicagobusinesslawyers.com”).

You might also opt for a catchy alias that differs from your registered LLC name. This is commonly referred to as a “doing business as” (DBA) name or an “Assumed Name.” It can be beneficial if your registered LLC name is highly technical or challenging for consumers to remember. To formalize this assumed name, you’ll need to submit a form to the Illinois Secretary of State.

Insider Tip: Even if you’re not yet prepared to create your business website, it’s a prudent idea to reserve your desired domain name at this stage. This is a simple and cost-effective process you can handle independently, and it can save you significant headaches in the future if you discover that your preferred domain name is no longer available.

If you’re not quite ready to launch a website, you can begin by establishing a free social media presence on platforms like Instagram or Facebook. This is an increasingly popular approach to develop your following and encourage user engagement with your product or service.

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Applying for LLC Business Licenses and Registration

For your LLC to operate in Illinois, the initial step involves registering with the Illinois Department of Revenue. Depending on the specific products you sell, such as liquor, tobacco products, or gasoline, you might need to submit additional documentation.

Furthermore, the State of Illinois Business Services Department and certain local government authorities may mandate that your LLC obtains a business license, contingent on your industry. For instance, if your LLC operates in a professional field like real estate, dentistry, or law, each member may need to secure a permit or LLC license from the relevant state licensing department before commencing business activities.

Various cities and towns have their own distinct business licensing regulations and requirements, including Chicago. Businesses in specific sectors, such as alcohol and cannabis sales, may also necessitate specific sales licenses and certifications before conducting business.

Local Resources

Embarking on the journey of establishing an LLC in Illinois can appear intricate, given the multitude of considerations. To navigate these complexities and uncover valuable insights, it’s advisable to seek guidance from a business mentor. SCORE, a mentorship organization, has chapters throughout Illinois, connecting you with a mentor who specializes in your area and industry.

Additionally, you can consider becoming a member of the local chapter of the U.S. Small Business Administration. This affiliation can offer additional guidance as you navigate the requirements for state and federal compliance. It also facilitates access to various resources, including funding opportunities, educational programs, and local small business initiatives.

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Ways to Create an LLC: Illinois Options

DIY

For those cost-conscious entrepreneurs, the abundance of information provided in this guide and on the Illinois Secretary of State website may lead them to consider the DIY approach as the most suitable way to start their LLC. For uncomplicated and straightforward LLCs, you might find that you can handle the entire process independently.

Using an LLC Formation Service

Specializing in the submission of essential documents required for LLC formation, online LLC services cater to the needs of Illinois business owners, particularly those who are already swamped with the demands of a small business. 

The modest cost associated with hiring an LLC service is often deemed a worthwhile investment, as most packages include benefits such as guaranteed acceptance by the state, EIN application assistance, registered agent services, and the drafting of an operating agreement.

Numerous services are adaptable and offer the flexibility to compare and select the one that best suits your needs.

ZenBusiness

When you partner with ZenBusiness, there’s no need to worry about the complexities of paperwork filing. This company offers a wide range of LLC services dedicated to ensuring that your business is established correctly, with all the necessary paperwork completed and delivered to the appropriate state government department. While ZenBusiness does charge for its services, customers often find that they receive excellent value for their money.

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Northwest Registered Agent

Commencing a business involves a considerable amount of state-mandated paperwork, which can be bewildering for new business owners. Northwest provides business services that assist entrepreneurs in locating the required documentation, filling it out accurately, and submitting it promptly to the relevant government agency. 

Alongside aiding in the establishment of an LLC, Northwest offers a variety of additional services, including registered agent services, which can be invaluable to new business proprietors.

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Incfile

Incfile offers an extensive resource library to assist novice business owners in determining the type of business they should establish. From there, Incfile provides support in navigating the documentation and filing processes, making terms like a registered agent, articles of organization, and EIN more understandable. The company enjoys a strong reputation and receives favorable online reviews as well.

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Hiring an Attorney

While it may not be the ideal choice for every startup, for some, engaging an attorney can be a wise decision. This is particularly true for businesses with investors or intricate financial structures.

Frequently Asked Questions LLC – Illinois

How Much Does an LLC Cost in Illinois?

When establishing an LLC in Illinois, you’re required to remit a $150 fee to the state for the filing of your articles of organization, whether you opt for online submission or the traditional mail method.

Do LLCs Pay Taxes in Illinois?

Indeed, Limited Liability Companies (LLCs) are subject to a personal property replacement tax, which amounts to 1.5% of the LLC’s net income.

Read more: Cost to Start an LLC

What Is a Registered Agent for LLCs?

Consider a registered agent as the vital recipient of your LLC’s important correspondence. The registered agent bears the sole responsibility of maintaining your crucial mail in an organized manner and ensuring its prompt delivery to you. Whether you decide to delegate this duty to a registered agent service or designate an LLC member for the role, it’s essential that the chosen individual or entity possesses responsibility and organizational skills.

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