Limited liability companies (or LLCs) are one of Illinois’s most popular business structures. This structure is perhaps the most preferred among small business owners in the state. LLCs have fewer legal paperwork requirements, a less complicated set-up process, a flexible management structure, and are taxation friendly. Thus, they are often more attractive to startups and small business owners seeking fewer financial burdens when starting their enterprises. In addition, starting an LLC in Illinois helps business owners protect their assets from business debts.
The rules and procedures for forming and operating an LLC in Illinois are outlined in the Limited Liability Company Act. The process for starting an LLC in Illinois involves the following:
- Step 1: Naming the LLC: This entails choosing a unique name for the company. The process involves reviewing the state’s naming requirements, performing a name search, and possibly reserving the name with the state’s business registration agency.
- Step 2: Selecting a registered office or agent: A registered agent must be designated as the LLC’s contact person for receiving state and legal mail. The agent also helps ensure the company complies with state laws, such as filing reports and paying taxes when due.
- Step 3: Completing filing requirements: This includes filing articles of organization (for a domestic LLC) or an Application for Admission to Transact Business (for a foreign LLC) to the Illinois SOS. It may also mean drafting an operating agreement and obtaining a Certificate of Good Standing.
- Step 4: File for the LLC: It is possible to file for an LLC via mail or online.
- Step 5: Obtaining an Employer Identification Number (EIN)
- Step 6: Registering for State and Local Taxes
In Illinois, the Secretary of State (SOS) is the agency authorized by law to accept LLC registration and maintain LLC files. Specifically, the Secretary of State’s Department of Business Services manages LLC records, including formation records, amendments, annual reports, and other documents.
What Is an LLC?
A limited liability company (LLC) is a legal business entity that fuses the limited liability features of a corporation with the management flexibility and tax advantages of a partnership. An LLC functions as a separate legal entity from its owners; it can be run by one or more persons (“members”), and the owners are protected from personally dealing with company debts or liabilities. This means that in the event of a bankruptcy or legal issue, the LLC relieves its owners of personal responsibility for their business’s debts or liabilities.
LLCs are popular among small and medium-sized businesses and have different categories, namely:
- Single-member LLC: Has only one owner, otherwise known as the sole member.
- Member-managed LLC: Involves two or more members. Here, each member has an equal say in the company’s affairs. Members also manage daily operations.
- Manager-managed LLC: Members take a passive role in company affairs and appoint at least one manager to handle daily business operations.
- Series LLC: This structure allows members to create smaller units or “cells,” which operate as individual businesses under the parent LLC.
- Professional LLC: A type of LLC entity that provides professional services authorized by the Department of Financial and Professional Regulation.
The Illinois Limited Liability Company Act stipulates the conditions for forming a limited liability company in Illinois. Per the law, all limited liability companies (domestic or foreign) interested in operating in Illinois must register with the Secretary of State’s office. The act permits residents and foreigners to establish an LLC for any lawful purpose or business, except insurance, unless the business exists as a subsidiary of a larger corporation. Also, in line with the act, an LLC may sue and be sued, complain and defend, and partake in administrative or other proceedings in its name.
Step 1: Illinois LLC Name Search
Before choosing and filing an LLC name, business owners are advised to conduct a name search to confirm if the name is available and complies with the legal requirements for use. Below are the Illinois LLC naming requirements:
- The new name must be different from the names of other companies currently reserved or registered with the Secretary of State.
- The name must bear the words “Limited Liability Company” or its abbreviations “L.L.C.” or “LLC.”
- Terms such as “Corporation,” “Corp.,” “Incorporated,” “Inc.,” “Ltd.,” “Co.,” “Limited Partnership,” or “LP” must not appear in the name.
- The proposed name may not contain any word or phrase that indicates/implies that it is organized for insurance, assurance, or banking.
- The name must comprise letters of the English alphabet, Arabic or Roman numerals, or only those symbols that the Department of Business Services can reproduce.
Individuals can perform an LLC name search in Illinois on the Secretary of State’s website. If the name is available, no records will come up.
Aside from the online feature, interested persons can send an email or dial (217-782-696) to reach the SOS office for name inquiries. Note that the online search is only a preliminary check. Only the Department of Business Services can determine if a name is available in compliance with Illinois statutes.
After performing the name search, individuals can reserve the LLC name by filling out a name reservation form (LLC-1.15) and paying a fee of $25. This form will help keep the desired LLC name for 90 days. However, the reservation process is not compulsory.
Step 2: Choosing an LLC Registered Agent in Illinois
Limited liability companies (LLCs) are required by law to get a registered agent in Illinois who will receive legal documents and related correspondence on behalf of the organization. This agent can reside in Illinois or be a company authorized to conduct business in Illinois. The agent must also have a street address in the state or a rural route and a box number (Illinois does not accept P.O. Box alone). The address will serve as the registered office. Additionally, the agent or entity serving in this capacity must be available during normal business hours to collect service of process and other official documents.
Note that the registered office address must be the same on formation documents provided to the Secretary of State’s office, as all official correspondence from the Department of Business Services will be sent to the address.
When a business fails to provide a registered agent and registered office, the Secretary of State can involuntarily dissolve the company.
Inquirers can quickly search the SOS business database for information on a company’s registered agent. One can use a company’s name, a file number, or a keyword in the company’s name to find its registered agent’s name and registered office address.
How Do I Change My Registered Agent for My LLC in Illinois?
Per the Limited Liability Company Act (805 ILCS 180/1-36), a business may change its registered agent or registered office if the position becomes vacant or the registered agent can no longer serve in the capacity.
To effect this change, requesters should obtain and fill out a Statement of Change of Registered Agent and Registered Office Form (LLC 1.36/1.37) from the Illinois Secretary of State. The form should provide the information below.
- The name of the limited liability company
- The full name and address (the registered office) of the previous agent
- The full name and address (the registered office) of the new agent
- The person authorizing the change
Individuals can submit the form online on the Illinois SOS database or by mail to the address on the form. Once the Secretary of State approves the change, the new registered agent can begin receiving correspondence on behalf of the LLC.
Step 3: LLC Filing Requirements in Illinois
The filing requirements for domestic LLCs differ from foreign LLCs. To file for or form a domestic LLC, the company must have a registered agent who resides in Illinois and is authorized to do business in Illinois. This is in addition to the naming requirements discussed above. It is worth noting that an Illinois LLC cannot act as its own registered agent. Once the requirements have been sorted, the requester can proceed to file Articles of Organization.
Foreign organizations or business owners wanting to do business in Illinois will need to file an Application for Admission to Transact Business with the SOS Department of Business Services.
Before submitting the form, it must meet the following requirements:
- Have a registered agent authorized to do business in Illinois
- Get a Certificate of Good Standing (evidence that the LLC complies with its home state). Original copy required.
Once the requirements have been met, the requester can fill out and submit the following:
LLC Articles of Organization in Illinois
The Illinois Articles of Organization is a legal document filed by domestic business owners seeking to operate as an LLC in the state.
Information entered on the Articles of Organization form include the name of the company, business address, effective date of formation, registered agent name, address of registered office, LLC purpose, member or manager names and addresses, names of organizers (person in charge of filling out and signing the form), etc. Articles of Organization may be filed electronically via the online filing portal provided by the state or with a paper form by mail at a fee of $150 (plus a $100 expedited fee, which is optional). See the office address for filing via mail:
Secretary of State’s Office
Department of Business Services
Limited Liability Company Division
Room 351, Howlett Building
Springfield, IL 62756
Usually, a limited liability company commences operations when the Department of Business Services approves the Articles of Organization. However, businesses can delay the effective date of the Articles of Organization for up to 60 days after the filing date.
LLC Operating Agreement in Illinois
An operating agreement (805 ILCS 180/15-5) describes how a limited liability company in Illinois will function internally. It defines how an LLC will handle important issues, such as voting, transferring membership interest, allocating profits and losses, and dissolution.
Illinois law stipulates that members of a limited liability company may draft an operating agreement to regulate the affairs of the company and define the roles and duties of members, managers, and the company itself.
Unlike the Articles of Organization, an LLC is not required to file its operating agreement with the Illinois Secretary of State. However, the document is tenable by law and may be presented when a legal dispute arises.
LLC Statement of Information in Illinois
An Illinois statement of information is a detailed report of the organization’s activities and strides recorded yearly. Statements of information in Illinois are generated yearly and are called Annual Reports.
Based on state statutes, domestic and foreign limited liability companies must file their annual reports with the SOS prior to the first day of the month the company was organized. If the report is not filed in a timely manner (that is, within 60 days of the deadline), a late filing penalty will be accorded to the business. The company will be dissolved if the report is not filed within 180 days of the due date.
Do You Need an Illinois Address for LLC?
Yes. LLCs in Illinois are expected to list a place of business on the articles of organization filed with the Secretary of State. However, the address must not be the LLC’s physical location in the state. Where a company does not have a home base in Illinois, the entity can opt for a virtual address as its principal place of business. Note that an LLC must also provide a registered agent’s address in articles of organization.
How To Get a Virtual Address for LLC in Illinois
There are several businesses online that provide virtual address services to LLCs that want to be formed in Illinois. These providers often offer mail-handling services (scanning, package reception, etc.). Some even have conference rooms and co-working space rental services, among other features.
When researching virtual address providers, inquirers should consider factors such as cost, reliability, additional services offered, and customer reviews. After finding a provider, it is usually possible to register for the services online. Some personal and business information is required to sign up with a virtual address provider.
Note that providing a place of business differs from the address of the registered agent/office. A virtual address cannot replace the address of a registered agent. However, a virtual address can be used as a replacement for a principal office address.
Step 4: How To File for an LLC in Illinois
Interested persons can file for an LLC in Illinois by mail or online.
To file via mail, individuals must complete the Articles of Organization (LLC-5.5 form) and send them to the Secretary of State’s office. Individuals must submit two copies of the Articles of Organization form (one originally signed document and a photocopy).
A payment of $150 for the filing is required, and fees must be paid via check or money order. All mail correspondence should be addressed as follows:
Secretary of State
Department of Business Services
Limited Liability Division
501 S. Second Street, Room. 351
Springfield, IL 62756
Businesses in Illinois can file for an LLC online if the general criteria (name requirement, place of business, registered agent, etc.) have been met. However, if the LLC requires a specific purpose or particular provisions, the business must submit a paper form via mail. The fee for online application is also $150.
After sending the application and payment online, the requester will receive an email acknowledging receipt from the Secretary of State.
Meanwhile, the Department of Business Services provides an option to have one’s documents reviewed and, if approved, filed on an expedited basis within 24 hours of receipt (excluding weekends and holidays). To request expedited service, individuals must pay a $100 fee, excluding the original cost of filing articles of organization.
How To Create an LLC Online in Illinois
To file an LLC online, applicants should follow the following process:
- Log in to the Illinois SOS website.
- On the menu bar, click online services and scroll down to the business section.
- Under the business section, select “LLC Articles of Organization.” This will lead the applicant to an instructional page. Applicants are advised to carefully read this section and ensure the requirements are met before clicking the “File” button at the bottom.
- The file button opens a new page where the applicant selects whether they want to establish a standard limited liability company or an LLC that has the ability to establish a series. Select the preferred option and click continue.
- This leads to the Provisions page. Here, the applicant should review the online filing criteria and click “yes,” to proceed to the next section. Otherwise, they will be directed to use the paper filing option.
- The next section is the proposed new name section. Applicants must enter the new LLC name and click the continue button twice to go to the “Place of Business” section.
- At the business address section, fill out the principal and mailing address of the LLC. Click the continue button.
- Fill in the LLC’s registered agent and registered office and click the continue button.
- The next page presents details of the registered office entered by the applicant for fact-checking. If there are errors, applicants can “Edit Address”; otherwise, click the “Address is Correct” button.
- The next page prompts the applicant to fill in the names and business addresses of managers and members with the authority of a manager. Only eight entries are allowed at this stage.
- Next is the Attestation page. Here, the organizer (person authorized to sign) fills in their details.
- After signing, the user clicks the continue button to review the information entered. Where there are errors, click the edit button to make changes, then click continue. This action leads to the processing page, where users can select an expedited service (review and approval within 24 hours) or a non-expedited service (review within 10 business days).
- The next page is the Billing page. Users are expected to pay a standard fee of $150. For expedited service, there is an extra $100 fee. Users should fill in their payment billing information and select Continue to make the payment. Fees are payable via Mastercard, American Express, Visa, or Discover card.
Can You Have Multiple Businesses Under One LLC in Illinois?
Yes. In Illinois, business owners can have multiple businesses operating under a single limited liability company. This type of business entity is called a Series LLC. A series LLC allows one to create multiple enterprises (series) with separate liabilities without registering each business.
To establish a Series LLC, business owners must fill out Articles of Organization for Series (Form LLC-5.5(S)) instead of the standard Form LLC-5.5. The filing fee for Form LLC-5.5(S) is $400. After filing the form with the Secretary of State’s Department of Business Services, the company must create the individual business entities by filing a Certificate of Designation for each business. Filing a separate Certificate of Designation is necessary to create each series.
Based on the statutory requirements, business owners will need to maintain separate LLC agreements and business records for each series. Likewise, records of assets of each series must be treated separately from each other and from those of the umbrella LLC.
How Long Does It Take To Set Up an LLC in Illinois?
The processing time to create an Illinois LLC depends on the application method. Usually, after registering an LLC with the Illinois Secretary of State’s online business portal, processing takes up to 10 business days. Mail submissions may take more time. However, individuals can opt for expedited service by paying additional fees to fast-track the filing process. With an expedited service request, the LLC business filing will be reviewed, and an email response will be issued within 24 hours, excluding weekends and holidays.
Step 5: How to Get an EIN for LLC in Illinois
The Internal Revenue Service issues an Employer Identification Number (EIN). Applicants may obtain an EIN for their limited liability companies online, via mail, or by fax.
To apply online, visit the EIN for LLC Online Application page on the IRS website and click the “Apply Online Now” button to commence. Once the application is complete, the EIN will be processed and issued immediately.
Applicants based in the United States should fill out Form SS-4 and submit it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Once the IRS issues an EIN for the Illinois LLC, the applicant will receive an official approval, known as an EIN Confirmation Letter (CP 575). For fax applications, a response comes within four business days. However, applications via mail take four weeks to process.
International applicants can obtain information about getting an EIN on the IRS website.
Step 6: Do LLCs Pay Taxes in Illinois?
Yes. However, not as an entity. LLCs in Illinois are taxed as pass-through entities. As a pass-through entity, members of the LLC pay self-employment taxes on any income they earn through the LLC. In addition to the self-employment tax (a federal tax), Illinois LLC members pay the state tax rate of 4.95% and the Illinois sales & use tax (if selling tangible goods or services). The sales & use tax rate in Illinois is 6.25%.
How Are LLCs Taxed in Illinois?
Illinois LLCs are taxed based on their Internal Revenue Service (IRS) classification. By default, LLCs are categorized as disregarded entities or partnerships, depending on whether the LLC is a single-member or multi-member LLC.
For single-member LLC, the company owner does not pay the state income tax. The only tax filed is the Self-Employment Tax paid with the Illinois Individual Income Tax Return Form 1040.
Multi-member LLCs are taxed as partnerships. Such entities file Form IL-1065, Illinois Partnership Replacement Tax Return instead. Each member of the company will also need to fill a Schedule K-1-P, Partner’s or Shareholder’s Share of Income, Deductions, Credits, and Recapture, indicating what amounts will be paid as the partner’s Illinois income tax return.
Aside from the above, LLCs in Illinois can also opt to be taxed as a corporation (C-Corp) or Small Business Corporation (S-corp). Each has specific tax requirements, accessible on the Illinois Department of Revenue Q&A page.
Tax Benefits of an LLC in Illinois
Some of the tax benefits accessible to LLCs in Illinois include:
Pass-through Taxation: By treating LLCs as pass-through entities, LLCs avoid the double taxation feature of C corporations, where the business and shareholders pay taxes on income and dividends, respectively.
Flexible Taxation: One of the pros of an LLC is being able to choose how it would like to be taxed by the IRS. An LLC can elect to be taxed as a disregarded entity (for single-member LLCs) or a partnership (for multi-member LLCs). Again, it can choose to be taxed as an S-corp or C-corp.
Ease of Reporting: LLCs do not have to deal with complex tax filing requirements, unlike other business entities. For instance, since tax returns are remitted through to the members’ individual tax returns, the company is relieved of administrative burdens that accompany corporate tax remittance.
Do You Have To Renew LLC Every Year in Illinois?
Yes. Every year, business owners must renew their LLCs to remain in existence. The renewal process in Illinois entails filing an LLC Annual Report with the SOS office and paying a fee of $75. Usually, LLCs in the state are expected to file their Annual Report before the first day of the company’s anniversary month (that is, the month it was formed). To remind a business, the Business Services Division sends a pre-printed version of the report to the company about six weeks before the due date.
Once the company files the report, it can obtain a Certificate of Good Standing and update other documents at the SOS. However, if a company fails to submit the report 60 days after the due date, the company will be placed in “delinquent status” and will be unable to purchase a Certificate of Good Standing. They will also need to pay the late-filing penalty of $100.
How Much Does It Cost To Start an LLC in Illinois
There is no fixed cost for starting an LLC in Illinois. This is because the cost accrued in the filing process depends on the category of LLC to be formed.
For instance, to start a standard LLC, interested persons may be looking to spend between $500 to $1,000 on the filing process. The cost covers the following:
- Name search: $0
- Name reservation: $25 (this is optional).
- Registered Agent: $100 – $300.
- Articles of Organization: $150.
- Annual Report: $75 (annually).
- Certificate of Good Standing: $25.
- LLC EIN Number Fee: $0.
- LLC Operating Agreement: Varies ($0 if the company drafts the document themselves).
- Taxes: Varies and may be due annually.
For other LLC structures, such as a Series LLC where filing Articles of Organization costs $400, the cost of formation will be higher.
Can You Form an LLC In Illinois for Free?
No. Individuals cannot form an LLC in Illinois for free. However, applicants can reduce costs by personally handling some parts of the creation process. For example, individuals may choose to develop the operating agreement themselves without engaging the services of an attorney.
How To Start an LLC in Illinois for Free/At Minimal Cost
Typically, LLCs must pay a fee to file formation documents with the Illinois Secretary of State’s office (e.g., Articles of Organization at $150). However, certain aspects of the process attract no cost. This includes a name availability search, operation agreement formation, and an EIN request.
What Businesses Should Consider Forming an LLC in Illinois?
Generally, LLCs are fit for business owners seeking to limit their liabilities for business debts and lawsuits. Small businesses like restaurants and retail stores commonly opt for the LLC structure. Also, real estate firms frequently adopt LLCs to hold and manage real estate assets.
Besides these businesses, tech startups also consider LLCs due to their flexible ownership structure, profit distribution scheme, and ease of scaling into a larger corporation in the future.
In addition to the above, professionals such as doctors, lawyers, accountants, architects, and creative associations can consider the LLC enterprise. Such entities can form a professional limited liability company to limit liabilities.
What Are the Benefits of An LLC in Illinois
Based on the provisions of the Limited Liability Act, the benefits of forming an LLC in Illinois are as follows:
- Limited Liability Protection: Under an LLC, members of an LLC are not liable for the company’s debts and liabilities. As a result, their personal assets are shielded from the company’s financial obligations.
- Flexible Management: LLCs provide flexibility in the management structure. Members can run the business themselves or appoint managers to handle operations.
- Tax Flexibility: Given that LLCs in Illinois are treated as pass-through entities for tax purposes, the entity is freed of corporate tax requirements. Tax payments are only made through members (via individual income tax). Furthermore, LLCs get to choose how they want to be taxed.
- Very Limited Restrictions on Type of Business: An LLC may be established for any lawful purpose or business, except insurance (805 ILCS 180/1-25). There are also no restrictions on the number of members.
- Fewer Formalities: LLCs are very easy to form and require little paperwork. Unlike other entities, such as corporations, LLCs do not need to hold periodic board meetings, assign formal roles, or engage in intensive record-keeping.
How Does an LLC Work in Illinois
Limited liability companies in Illinois merge elements of a corporation and partnership. This positions them to maximize the benefits of these business entities.
LLCs can function as a single-member entity (where the owner is the sole member) or a multi-member company with no restrictions on the number of members.
The mode of operation of an LLC in Illinois may be defined in its operating agreement. This legal document outlines the rights, responsibilities, and ownership interests of the members, as well as how the LLC will be managed.
To maintain its existence, an LLC must file an annual report with the Illinois SOS office before its anniversary month. Failure to do this could attract penalties such as fines, inability to obtain a certificate of good standing, or worse, the company being dissolved by the Secretary of State.
LLC VS S Corp in Illinois
An S corporation is a normal corporation given special tax classification under Subchapter C of the Internal Revenue Code (IRC).
Generally, this tax classification is accessible to both corporations and limited liability companies in Illinois. Per state statutes, businesses registered as LLCs may choose to be taxed as S Corps. Small businesses may opt for this tax status to establish more credibility as a corporation.
Like LLCs, an S Corp is a pass-through entity that exempts owners from paying corporate taxes (members only pay individual income tax on the business income). It also offers limited liability protection to the shareholders.
While an LLC and S-Corp have quite certain peculiarities, they also differ in ownership structure, income distribution, and tax benefits.
In an S-Corp, profits are distributed based on the amount of stock a shareholder owns. However, in an LLC, members determine the profit distribution ratio irrespective of the percentage of ownership each member holds. Again, S Corporations are only allowed up to 100 shareholders, all of whom must be citizens or residents of the United States. On the other hand, LLCs have no restrictions on the number or citizenship of members.
Nevertheless, S Corps enjoy more favorable employment tax treatment when compared to LLCs.
LLC vs. Sole Proprietorship in Illinois
A sole proprietorship is a legal entity with one owner. Legally, there is no distinction between the owner and the business. As a result, the owner bears the business’s profits and losses personally. LLCs, on the other hand, protect owners’ personal assets and limit their liability to business debts and lawsuits.
Whereas setting up a sole proprietorship in Illinois is relatively easier to set up than an LLC—courtesy of its unincorporated nature—some business owners in Illinois prefer registering as an LLC because it gives their firm a sense of legitimacy.
LLC vs. Corporation in Illinois
For investors, corporations are the most preferred business structure. They are internationally recognized business entities and ideal for business owners looking to sell shares to the public. Both LLCs and corporations in Illinois protect business owners from being personally liable for business obligations and place no limitations on the number of owners. However, they differ in taxation, ownership structure, and managerial flexibility.
Whereas Illinois LLCs are taxed once (on members’ personal tax returns), corporations are taxed twice (corporate tax and individual income tax). Also, LLCs have more tax options than corporations. LLCs are not tied to a tax classification and can be taxed as single- or multi-member entities, C corporations, or S corporations. Corporations are also known to have less management flexibility and strict rules about holding meetings and keeping records.
Business License vs. LLC in Illinois
A business license differs from a limited liability company in Illinois. A business license permits an individual to operate a certain type of business within a specific area. Licenses may be issued by the state or a municipality government. On the other hand, an LLC is a legal business structure duly registered with the SOS.
In Illinois, different government offices, including county offices and the Illinois Department of Revenue, are in charge of issuing business licenses in the state. Meanwhile, the Secretary of State’s office approves LLCs.
Do I Need a Business License if I Have an LLC in Illinois?
Yes. Most LLCs in Illinois must obtain a business license to operate. As a standard, there is no general state license for businesses. However, almost all local governments require a business operating license (or general business license) to operate within their jurisdiction. For instance, before starting a retail business, food and liquor business, entertainment center, daycare center, or motor vehicle repair business in Chicago, intending business owners must obtain a license from the Business Affairs and Consumer Protection Department.
How To Dissolve an LLC in Illinois
Per the Illinois Limited Liability Company Act, LLCs can dissolve their operations by following the procedure outlined in their operating agreement. Usually, the operating agreement developed at the LLC formation stage details steps to be taken when such a need arises. Another option is to have members vote in favor of a dissolution.
Once the majority of the members agree on the dissolution, the LLC must file articles of dissolution with the SOS. Members can obtain Form LLC 35-15 (Statement of Termination) from the SOS website. It costs $5 to file. The company must also contact the Department of Revenue to ensure satisfaction of all tax liabilities.
Subsequently, the LLC may notify possible claimants about the dissolution process. The notice of dissolution must be published at least once in a nationwide newspaper and include the principal office address for contact purposes, instructions for submitting a claim, and the filing deadline. In Illinois, claimants have four months to initiate a claim.