The Limited Liability Company (LLC) is a popular business structure for many start-up businesses in Illinois. The LLC provides personal liability protection and has the potential to save money on taxes. With a little research, you can learn how to form an LLC in Illinois yourself and save a lot of money.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form an Illinois LLC
The following steps are to create a domestic LLC, which is the most common filing. We have more information about forming a foreign LLC (an out-of-state LLC wanting approval to operate in the state) or a professional LLC (designated for LLCs offering professional services).
Total Time: 10 minutes
Step 1: Choose the type of LLC
Indicate whether you wish to establish a “standard” or domestic limited liability company or a limited liability company that has the ability to establish as a series LLC.
A limited liability company with the ability to establish a series, commonly referred to as a “Series LLC,” has the ability to essentially create a mini LLC within the larger LLC umbrella. Real estate investors will often use the Series LLC to protect each property individually.
Step 2: Agree to Provisions
Read over the provisions. Agree to continue.
Step 3: Name the LLC
Enter the name you want for the LLC. The name of the LLC also has to differ from other entity names in the state of Illinois. Learn how to check LLC name availability in Illinois.
The name of the LLC must include one of the following designators at the end of the business name:
– Limited Liability Company
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is a name you want but are not ready to register the LLC, you can file the Application to Reserve a Name (Form LLC 1.15) with the Illinois Secretary of State. The name reservation will hold a name for up to 90 days, at the cost of $25.
Step 4: Enter the Principal Place of Business
In this section, enter the street address, city, state, and zip code of the initial principal office (sometimes referred to as the registered office address). This address can be the LLC’s physical address, the address where the business records are stored, or the address of the registered agent.
Step 5: Appoint the Registered Agent
To have an LLC in Illinois, an Illinois Registered Agent must be identified for service of process. This can either be a resident of Illinois or a commercial registered agent service and must have a physical street address in the state to act as a point of contact to receive legal documents, tax notices, summons, subpoenas, etc. on behalf of the LLC. A PO Box is not allowed.
You can act as your own registered agent in Illinois and you are not required to pay for a registered agent.
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
Related: Do I Need a Registered Agent in Illinois?
Step 6: Add the Names and Addresses of Managers and Members
This section is looking for the names and addresses of managers and/or members with the authority of manager.
Member-Managed LLCs have members (owners) that are active in the day-to-day operations of the business.
Manager-Managed LLCs have managers hired by the LLC members to run the business, similar to a CEO of a corporation.
If the LLC is Member-Managed, all of the members would typically be entered. If there is only one member, enter that member’s information. Member-Managed LLCs would enter the name of the manager(s).
Step 7: Obtain the Organizer’s Signature
The Organizer is someone who is involved with the LLC formation. The Organizer may or may not be a member, such as a mentor, attorney, or accountant, but the initial member(s) could be listed as an organizer.
If the organizer agrees to the terms, they will sign and provide their contact information.
Related: Who can be an LLC Organizer?
Step 8: Review the Entries
Review the information to ensure it is all correct.
Step 9: Select Processing
Choosing “no expedited service” saves $100, in filing fees, but the application won’t be reviewed for 10 business days, resulting in a total processing time of 3-4 weeks. Requesting expedited service will reduce the time of reviewing the application down to 24 hours, resulting in the LLC’s total processing time to 1-2 business days.
Step 10: Pay and File the Articles of Organization
Pay and file the Illinois Articles of Organization.
If mailing the LLC form, send 2 copies of the Articles of Organization and payment of state fees to:
Secretary of State
Department of Business Services
Limited Liability Division
501 S 2nd Street, Room 351
Springfield, IL 62756
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
Tasks After Forming Your Illinois LLC
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare an Illinois LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, the process of adding new members, member responsibilities, how profits and losses are distributed, and more.
Illinois does not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, an LLC’s taxation is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you as there may be significant downsides for some people (such as double taxation with the C-corp).
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the bank account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Depending on the LLC age, an Illinois Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some states and several cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed with the Illinois Department of Financial and Professional Regulation (IDFPR).
- Sales Tax Permit – To sell products and certain services, registration with the Illinois Department of Revenue through MyTaxIllinois will be necessary.
File Annual Reports
LLCs are required to file an annual report with the Illinois Secretary of State. The annual report is due each year before the first day of the month in which the LLC was created. For example, if the LLC was created on November 5th, 2021, the next annual report would be due November 1st, 2022. A penalty of $100 is assessed if the report is more than 60 days after the due date.
Related: How to File an LLC Annual Report
Common Questions To Starting an LLC in Illinois
How much does it cost to start an LLC in Illinois?
There is a filing fee of $150 to start an LLC in Illinois.
Is there a yearly fee for an LLC in Illinois?
An annual report will need to be filed each year, in addition to a $75 fee.
How long does it take to start an LLC in Illinois?
It normally takes 3-4 weeks for an LLC to be approved in Illinois, though for an additional fee, one business day processing is available.
Can I be my own registered agent?
Anyone can act as a registered agent, provided they are a resident of the state, and are generally available during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
An LLC that is physically operating in states outside of where it was formed. Physically operating means having a presence such as having an office or employee. The LLC will need to register as a foreign LLC in each state that it plans to operate.
What is a Professional Limited Liability Company?
Businesses that require state licensing and offer professional services such as accountants, attorneys, podiatrists, physical therapists, acupuncturists, etc. often must file as a Professional Limited Liability Company (sometimes referred to as a Professional LLC or PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.