How to Form an LLC in Illinois
A limited liability company (LLC) is a type of business entity that many entrepreneurs choose for their small businesses. An LLC has advantages such as personal liability protection and flexible tax structures. If you want to set up an Illinois LLC, follow our step-by-step guide.
Steps to Form an LLC in Illinois
Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This process can be complex and time-consuming, but it is essential for the LLC to operate legally in Illinois.
The first thing you have to do is create a great name. Illinois law requires that the name differs from any other company's name to avoid confusion.
Additionally, the name must contain the words "limited liability company" or the abbreviation L.L.C."; "LLC,"; or "L3C" if the entity organizes as a low-profit limited liability company. The name cannot contain any other business entity indication, like "Co.," "Ltd.," "Corp."; etc.
Check Name Availability. Once you have settled on a name, search the Secretary of State Business Services name database to make sure your chosen name is available.
Search Domain Name. You will want to make sure that no one else can use your LLC's name in business on the internet. You do this by searching the internet to ensure that the domain name is available. If it is available, consider registering it for your company website.
Check for Trademark Infringement. Finally, you will want to confirm your name is not infringing on a trademarked name. You can search for your business name with the United States Patent and Trademark Office (USPTO).
Protect Your Name with a Trademark. If your name is available, and you want to do business nationally, you should trademark your name to protect it. This process takes some time and money. The name is still protected as a common law trademark while that application is pending. Once you receive your federal trademark, apply to the Illinois Secretary of State to register it as an Illinois trademark or service mark. You may also trademark the name with just the state, without a federal trademark.
Reserve Your LLC Name. If you have settled on a name but aren't ready to file the articles of organization, you can reserve the business name with the Illinois Secretary of State. Complete the Application to Reserve a Name (Form LLC-1.15) and submit it with a $25 filing fee.
Get a Registered Agent
Illinois law requires an LLC to appoint a registered agent for service of process before filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. An Illinois registered agent can be an individual or a company (domestic or foreign), but it must have a physical Illinois street address. A P.O. Box is not sufficient. Even though a member can serve as a registered agent, a forming LLC will often choose a professional registered agent service.
File Your Articles of Organization
You are now ready to compose and file your LLC articles of organization (Form LLC-5.5) with the Illinois Secretary of State Department of Business Services.
Your Illinois articles of organization must contain the following information:
- The name and the principal place of the business address of the LLC
- The name and address of the LLC's registered agent
- The purpose of the LLC
- Statement regarding the duration of the LLC
- The structure of the LLC - manager-managed or member-managed
- Names and addresses of the initial managers or initial members
You must also submit a $150 filing fee. If you want the process to go faster, you may also pay a $100 fee for expediting the process.
Draft an Operating Agreement
An LLC can be (and should be) governed by an operating agreement. This is similar to the bylaws of a corporate organization. Illinois does not require an operating agreement, but most LLCs will have one.
The LLC operating agreement is a private business formation contract among the members/business owners. You do not file it with the state, but it is an important part of forming an LLC. It should include the following points, according to the Small Business Administration:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Profit and loss distribution
- Meeting schedules and rules
- Buyout and buy-sell provisions
- Procedures for dissolution
The members may manage an LLC or hire an outside manager.
Get an EIN
Most LLCs will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), also called a Federal Employer Identification Number (FEIN). The EIN is an identifying number (similar to a Social Security number) that your business will use to file taxes and employee withholding. Your bank may also require you to have one to open a business bank account or obtain a business credit card. If your LLC has just one member and will not hire employees, an EIN is not required.
Set Up Business and Tax Accounts
When you start any new business in Illinois, you must register it with the Illinois Department of Revenue to pay business taxes. You can do this online by visiting MyTax Illinois or completing and mailing the Illinois Business Registration Application (Form REG-1). You can learn more about your federal tax requirements, especially if you have employees, by visiting the Internal Revenue Service (IRS) website.
Every Illinois business must complete an Illinois Business Registration Application with the Illinois Department of Revenue. If you have employees, you must register for withholding accounts, unemployment insurance, and workers' compensation.
Follow licensing and tax rules to maintain your business operations. Your requirements vary depending on the LLC's location and type of business.
State Business Tax
If you set up your LLC for pass-through taxation, the LLC does not pay corporate income tax. Instead, the profits go on the members' individual tax returns. The individuals pay a state income tax on their income. If you set up the LLC for corporate tax treatment, however, the LLC pays a corporate state tax of 9.5% on the LLC's income.
State Employer Tax
If you hire employees, even if they are also members of the LLC, you must register for an employer account at the Illinois Department of Revenue for withholding taxes.
Additionally, all Illinois employers must do the following:
- Report new hires within 20 days of employment date to the State of Illinois Department of Employment Security
- Register for unemployment insurance by completing the Report to Determine Liability Under the Unemployment Insurance Act (Form REG-UI-1 )
- Provide workers' compensation insurance to employees
Sales and Use Tax
When you register your business with the Illinois Department of Revenue, you indicate if you will sell goods. As a seller, you will need to charge sales tax to your customers and remit the sales tax to the state. You must also submit the Illinois Business Site Location Information (Form REG-1-L) along with your new business registration. There is a general sales tax rate of 6.25% on general merchandise, but it varies depending on local sales tax and the type of goods sold. Check with the Illinois Department of Revenue for a sales and use tax guide.
Business Licenses and Permits
The Illinois Department of Financial & Professional Registration (IDFPR) has a directory of professions they regulate. You can register online for a business license on their portal.
Registration in Other States
If you want your Illinois LLC to do business in another state, you apply to do business as a foreign LLC. You may need to show a certificate of good standing as part of the application process. You can request a certificate of good standing online or mail form LLC-50.25 to the Illinois Secretary of State. The fee for the certificate is $25.
Every Illinois LLC must file an annual report (Form LLC-50.1) with the Secretary of State. The due date for the annual report is any time before the first day of the anniversary month (the month you formed your LLC). There is a $75 filing fee. If you don't file your annual report within 60 days of the due date, there is a $100 penalty.
Illinois LLC Formation FAQs
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