Do you want to start a business in Illinois and want to form an LLC? If YES, here is how much it cost to form an LLC in Illinois successfully. This article will help you understand how to form an L.L.C. in Illinois. We will show you a step-by-step process on how to create an L.L.C. in Illinois and what you need to do after forming an L.L.C. in Illinois. Without any further ado, let’s begin:
What is an L.L.C.?
L.L.C. is the abbreviation for Limited Liability Company. Creating an L.L.C. is one of the easiest ways to build a wall between your private assets and your company financial liability. It helps protect your personal assets if someone sues your company. An L.L.C. offers you the protection you simply can’t get as a sole proprietorship or General partnership.
An L.L.C. also has some tax advantages; the business itself is not responsible for taxes on its profit. Instead, the members of L.L.C. report their share of business profit and loss on their personal tax returns just the way taxes are reported for a general partnership; this is called “pass-through taxation.” This means a lower tax rate on company profits along with asset protection and tax flexibility. The L.L.C. business structure has a number of other advantages
No Residency Required
Owners of an L.L.C. don’t have to be U.S. Citizens or permanent residents.
Owners of an L.L.C. are given limited liability for business debts.
Partners, suppliers, and lenders may look more favourably on your business when you formed an L.L.C.
There is no limit on the number of owners an L.L.C. can possess. Additional members can buy equity in the company.
Less Record Making
With an L.L.C. no annual meeting or minutes books are required.
An L.L.C. combines the assets protection of a corporation with the simplicity of a partnership, which makes it one of the most popular entity structures for small business.
Where is the Best Place to Form an LLC?
People venturing into the business for the first time always ask which is the best State to form an L.L.C. There is a lot of hype about creating an L.L.C. in Florida, Alaska, Montana, and Indiana; however, one of the best but less hyped state is Illinois. But it is best you form an L.L.C. in the state where your business will be based.
Starting a Business: How to Form an LLC in Illinois
Forming an L.L.C. in Illinois is a straightforward process and won’t cost you much money. Below are the steps to follow if you want to form an L.L.C. in Illinois.
STEP ONE: Choose a Name for Your LLC
The first step in forming an LLC in Illinois is to choose a name for the business and Under Illinois law, an LLC name must contain as the last words, “limited liability company,” “L.L.C.,” or “LLC.” The abbreviations “Ltd.” and “Co.” are not allowed in Illinois. The name must also not include the words “Corporation,” “Corp.,” “Incorporated,” “Inc.,” “Ltd.,” “Co.,” “Limited Partnership,” or “L.P.”
Your LLC’s name must be recognizably different from the names of other business entities already on file with the Illinois Secretary of State. “>Names may be checked for availability by searching the Secretary of State Business Services name database. You may reserve a name for up to 90 days by filing an Application to Reserve a Name (Form LLC-1.15). The filing fee is $25.
Using an Assumed Business Name
You don’t have to use your LLC’s official legal name registered in your Articles of Organization when you do business out in the real world. Instead, you can use an assumed business name, also called a fictitious business name, “DBA” (short for doing business as), or trade name. To do so in Illinois, you must register your assumed name with the Illinois Secretary of State.
You may register online, or by postal mail by filing an Application to Adopt, Change, Cancel, or Renew an Assumed Name (Form LLC-1.20). The registration is good for up to five years. The filing fee is $30 per year, up to $150. For more on registering business names, see Nolo’s article How to Register a Business Name.
STEP TWO: Hire a Illinois LLC Registered Agent
The Illinois Secretary of State requires you to list a Registered Agent in your LLC’s Articles of Organization. A Illinois Registered Agent is a person or a company designated to receive notices from the state sent to your LLC, as well as any legal mail (called Service of Process) in case your business is involved in a lawsuit.
Please note that your Illinois Registered Agent must have a physical street address located in the state and PO Boxes are not allowed where Service of Process and other documents can be received. People who are Qualified to be Your LLC’s Illinois Registered Agent are;
You have 5 options and they are;
- For you to be your LLC’s Registered Agent.
- For your LLC to be its own Registered Agent.
- To list an office or position within your LLC as the Registered Agent.
- For a friend or family member to be your LLC’s Registered Agent.
- To hire a Commercial Registered Agent. Hiring a Commercial Registered Agent is a good idea if you want to keep your address off public records or if you don’t have an address in Illinois.
STEP THREE: Illinois Articles of Organization, State Business License, and Initial List
To register your Illinois LLC, you will need to file the Articles of Organization with the Secretary of State. You can apply online or by mail. Some states refer to the Articles of Organization as the Certificate of Formation or Certificate of Organization. You are expected to fill Form LLC-5.5 with the Illinois Secretary of State Department of Business Services. The articles must include:
- the LLC’s name
- the address of the LLC’s principal place of business
- when the Articles become effective (upon filing or a later date)
- the name and address of the LLC’s registered agent
- the purpose(s) for which the LLC is organized
- a statement regarding the LLC’s duration (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
- and the name, address, and signatures of the organizer(s).
The filing fee is $150. The articles may be filed online or by mail. Online filings are handled on an expedited basis within 24 hours. Payable to Secretary of State (Non – refundable)
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL 62746
STEP FOUR: Craft Your Illinois LLC Operating Agreement
A Illinois LLC Operating Agreement is a written contract among the partners of the business that clearly state who owns the LLC and how much of the LLC they own. Your Illinois LLC’s Operating Agreement will also document how the LLC is managed, how profits will be shared, and how taxes are to be paid among other related issues.
Please note that an Operating Agreement should be put in place for both Single-Member LLCs and Multi-Member LLCs located in Illinois.
The fact is that having an Operating Agreement for your Illinois LLC helps prove that the company is a separate legal entity from yourself. This helps maintain the personal asset protection provided by your LLC and is very beneficial to have if you ever end up in court.
“Internal Document”: An LLC Operating Agreement is an “internal document”, meaning, you don’t have to send a copy to the Department of Taxation, the IRS, or any other government agency. You just need to keep a copy of the Operating Agreement with your LLC business records and give a copy to the other LLC Members, if applicable.
STEP FIVE: Apply for an EIN for your Illinois LLC
The next step you are expected to take is to apply for an EIN for your Illinois LLC (Don’t apply for an EIN until your Illinois LLC is approved by the Secretary of State). An EIN (Employer Identification Number) is obtained from the IRS after your Illinois LLC is approved by the Secretary of State. An EIN is also called an EIN Number, FEIN, Federal Employer Identification Number, or a Federal Tax ID Number. They all mean the same thing.
You can liken your Illinois LLC’s EIN Number as the company’s “social security number”. It helps identify your LLC to the IRS for tax and filing purposes. Please note that your Illinois LLC’s EIN will also be used when you open an LLC bank account, register your LLC with the Department of Taxation, and to process employee payroll (if applicable).
How is a Illinois LLC taxed: The IRS doesn’t have a specific tax classification for LLCs and instead, a Illinois LLC can be taxed 4 different ways with the IRS; 2 of which occur by default (they occur simply by obtaining your LLC’s EIN), and 2 require a special election be made (a form must be filed after you obtain your LLC’s EIN). We recommend reading how is an LLC taxed before applying for an EIN for your LLC.
Please note that;
- An EIN is free ($0): The IRS will issue an EIN to your LLC at no cost.
- Husband and wife LLC: If you are forming a 2-Member LLC in Illinois you can elect a special type of taxation called a Qualified Joint Venture. This allows a 2-Member LLC owned by a husband and wife to be treated as a Sole Proprietorship instead of a Partnership for tax purposes.
- EIN Responsible Party: This will be the IRS’s “contact person” when you apply for your Illinois LLC’s EIN. If you have a Single-Member LLC, you will be the Responsible Party. If you have a Multi-Member LLC, any LLC Member can be the Responsible Party. For more information, please see EIN Responsible Party for LLC.
- How to apply for an EIN: There are 3 ways to apply for an EIN for your Illinois LLC:
If you have an SSN or ITIN, you can apply for an EIN online. If you apply for an EIN online and you get an error message, you’ll need to apply for an EIN with Form SS-4 instead. If you don’t have an SSN or ITIN, you can still get an EIN for your LLC by following these instructions: how to get an EIN without an SSN or ITIN.
STEP SIX: Illinois LLC Annual Requirements
Illinois requires LLCs to file an annual report with the Secretary of State. This can be done online, by mail, or in-person. You would need to complete the following requirements every year in order to keep your Illinois LLC in operations and in good standing
Both of these must be filed by all LLCs in Illinois, regardless of income or business activity levels. Failure to meet the annual requirements will result in the Illinois Secretary of State placing your LLC into a “Default” status, and then eventually a “Revoked” status.
Fee: $150 Online, $75 By Mail (Nonrefundable)
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL 62756
Due each year prior to the first day of the month in which the LLC was formed. Reports can be filed starting 60 days prior to the due date.
Illinois charges a late fee of $75 by mail and $125 online. In addition, LLCs will be dissolved after 180 days for failure to file an annual report.
Please note that Illinois LLCs may face fines and even automatic dissolution when they miss one or more state filings. When this happens, LLC owners risk loss of limited liability protection. A quality registered agent service can help prevent this outcome by notifying you of upcoming filing deadlines and by submitting reports on your behalf.
Step SEVEN: Illinois Municipal and Regulatory Licenses and Permits
Apart from the State Business License mentioned above, your Illinois LLC may also need to apply for municipal (county or city), as well as regulatory licenses and/or permits. Nature of business and location: These two factors will determine which licenses and permits your Illinois LLC may need to apply for.
Common Business Registration
This tool, located within SilverFlume, will help you determine the licenses and permits your Illinois LLC may need, and which municipality and regulatory agency you may need to contact.
After you complete the Common Business Registration, look towards the bottom of your SilverFlume Dashboard. In the “External Tasks” section, you’ll find the information for the municipalities and agencies you may need to contact. You’ll just need to call them, explain what your Illinois LLC will do, and ask them what licenses and/or permits are required.
STEP EIGHT: Taxes Requirements in the State of Illinois
In Illinois, typically, income taxes are paid on 3 levels:
Please note that unlike most states, Illinois doesn’t have a personal state income tax.
Federal income taxes
By default, a Illinois LLC is a pass-through entity which means the profits and losses of the LLC flow through and will be listed on your personal federal income tax return. If you have a Single-Member LLC taxed as a sole proprietorship, you’ll likely list your business income on a Schedule C as a part of your personal 1040 return.
If you have a Multi-Member LLC taxed as a Partnership, you’ll need to file a 1065 Partnership Return, issue K-1s to each of the Illinois LLC Members, and then the LLC Members will include the K-1 income on their personal 1040 return.
The IRS doesn’t have a specific tax classification for LLCs, therefore, Illinois LLCs are taxed based on the number of Members they have. For more information, please read how are LLCs are taxed. Additionally, an LLC can elect to be taxed as an S-Corporation to save money on self-employment taxes.
Qualified Joint Venture
Since Illinois is a community property state, a 2-Member LLC owned by a husband and wife can elect to be taxed as a Sole Proprietorship (instead of a Partnership) by making a Qualified Joint Venture election with the IRS.
If your Illinois LLC will sell or transfer tangible personal property in the state, you’re required to collect sales tax.
Sales Tax Permit
If your LLC is required to collect sales tax, then your LLC also needs a Illinois Sales Tax Permit. The cost is $15 per location/storefront. Please note that if you need help automating your sales tax filings in Illinois
Commerce Tax Return
All LLCs doing business in Illinois must file this return every year, however, only those businesses that earn $4 million or more must pay the tax. For everyone else, the return will just be “informational” (no tax will be paid).
Other taxes and filings
Your Illinois LLC may also be responsible for filing a Modified Business Tax, Unemployment Insurance tax, payroll taxes, and more.
You’ll need to speak with an accountant to determine all of your Illinois LLC’s tax reporting and filing requirements. Figuring out all of your tax filing requirements can be very complicated and if filed improperly, it can lead to penalties, fines, and interest. We recommend working with an accountant to make sure you properly meet your federal, state, and local tax obligations.
STEP NINE: Open a Illinois LLC Bank Account
Once the IRS has issued an EIN Number to your Illinois LLC, you can open a business checking account. It’s best practice to have a business checking account for your Illinois LLC in order to maintain your personal liability protection. Using a personal bank account for your LLC is called “commingling of assets” and this can lead to personal liability issues if you end up in court.
Please note that having a separate business bank account for your Illinois LLC also makes record-keeping easier for accounting and tax purposes. Since banks in Illinois has their own rules and regulations, it is recommend calling a few places to determine the following:
- minimum initial deposit
- minimum balance requirements
- monthly maintenance fees (if any)
Required Illinois LLC paperwork: In order to open a business bank account for your Illinois LLC, you’ll need to have the following:
- Articles of Organization (stamped and approved)
- State Business License
- Initial List of LLC Managers or Managing Members
- EIN Confirmation Letter from the IRS
- Photo ID (driver’s license and/or passport)
- Operating Agreement (it may not be needed, but it’s a good to bring anyway)
N.B: Call the bank ahead of time and double-check what documents are required.
For more details: Please see the following article: business bank account for LLC.
If you have a Multi-Member Illinois LLC, all Members that want to be on the bank account should be present when opening the account.
Debit card and credit cards
Most banks will provide a business debit card on the spot after the account is opened. If not, they’ll usually mail the debit card in 1 to 2 weeks.
If you are a non-US resident that has formed an LLC in Illinois, you can still open a U.S. business bank account. You can find more information here: opening an LLC bank account for non-US residents.
STEP TEN: Obtain an Illinois Business Phone Number
In Illinois and of course international best practices requires that you obtain a business phone number for your company as against making use of your own private number.
You can get a local Illinois telephone number or you can get a “1-800” number for your business. There are many options to choose from when it comes to official phone number, but just ensure that you choose a telecom company that will better serve your business.
Forming an L.L.C. in Illinois is not a daunting task. Even after forming it, there are still some things you need to put in place before you commence operation. Please, note that the information in this article is provided only for general purpose and it is no way a legal advice. No lawyer – client relationship is established or should any such relationship be assumed. For legal advice, please consult with a professional lawyer.