Reside in Illinois and plan to start your business in this state? If you’ve chosen an LLC as a supportive legal framework for your future enterprise, you’ve already made the right step toward your business success. As a business structure, a limited liability company has a lot going for it. This entity type is relatively new and has appeared as a response to a fast-changing business environment. For decades, an LLC has proved to be efficient, and currently, it’s one of the most popular business forms in the US. It combines the best features of a partnership such as ease of management and pass-through taxation with the limited liability of corporations to translate into an entity that delivers to different business needs while securely shielding your personal assets.
Coming back to launching an LLC in Illinois, you’ll have quite a number of rules and formalities to match. They might look bewildering and confusing, yet, don’t let that seeming complexity fool you. With our comprehensive instructions, you’ll cope with the process without a hassle and set your LLC up and running on the right foot. Keep on reading, and, in the end, LLC formation won’t look that scary anymore.
- How to Form an LLC in Illinois: Step by Step
- First Tasks After Setting Up an LLC in Illinois
- Keep Your Illinois Company Compliant
- Illinois Business Formation Quick Links
- FAQ About Illinois LLC Registration
How to Form an LLC in Illinois: Step by Step
Step 1: Name your LLC
A business starts with a good idea and an LLC starts with an appropriate name. In contrast to sole proprietorships and partnerships, LLCs need state registration and are not automatically named after their owners. Since you won’t be able to form an LLC without a name, you’ll have to invent a company moniker first. Yet, choosing some random name is not enough. It should meet certain naming rules and regulations that each state has in place. In Illinois, it’s Sections 1-10 of the Illinois Limited Liability Company Act that sets forth business naming requirements.
Words You Have to Use Starting an LLC in Georgia
In the world of business, a company name means a lot. The right moniker will quickly become a buzzword and make your enterprise noticeable straight away. It will let the company stand out among competitors and catch customers’ eyes. A good name will work for your business and become its landmark. While inventing a business name, you are allowed to be creative and use your imagination to the best. You are free to search for inspiration in literature, architecture, science, art, and technology. To come up with an original and memorable name, you can use foreign words, acronyms, or even create abbreviations of your own. To achieve some special charm, you can mix and combine meaningful words in fancy concoctions or join the parts of words in non-existent yet catchy combos.
On the other hand, there are a few state rules stipulated in the Illinois LLC Act that you can’t overlook when naming your company:
- Whatever the name you select to register your business, it should contain a word that clearly refers to the type of legal entity. Hence, either an abbreviation LLC, Ltd. or L.L.C., or a full phrase Limited Liability Company or Limited should stand next to the name itself;
- Another strict requirement is that the name should be unique, i.e. not used by any other legal entity in the state of Illinois;
If you want to name your chocolatery “Springfield Chocolates LLC”, and there is a company in the state operating under the name “Springfield Chocolates Inc.”, the Secretary of State will decline your filing application and suggest that you change the name to make it distinguishable.
All in all, it’s the Secretary of State that will make a final decision on whether the business name you’ve picked is acceptable or not.
Words You Can’t Use
As stated above, a creative approach toward company naming is welcomed. Yet, going overboard with creativity is not the best way to go. Thus, striving to invent an original name, don’t use too long, complex, or tricky words. They will add bulkiness and look hard to understand, not to mention that wordy constructions are hard to remember. Instead, give preference to simple words and phrases that evoke some associations with your business activity.
Besides, along with naming requirements, Section 1-10 of the Illinois LLC Act brings some restrictions and bans:
- You can’t refer to other types of legal entities in your LLC name;
- It’s not allowed to use any references to governmental, financial, and educational institutions, as well as to entity types that require some sort of permissive documents to operate as such;
- Offensive, rude, abusive, and humiliating words are under the strict ban;
- The words “trust”, “trustee”, or “fiduciary” are prohibited unless you get special permission under the Illinois Corporate Fiduciary Act.
- By introducing articles, prepositions, conjunctions, capital letters, or changing the forms of words, you won’t make the name distinguishable. You’ll have to use different keywords or select synonyms.
|Should you have to get a license for your business activity, check your projected name with the Secretary of State and monitor the trademark database before using this name for LLC filing.|
Research the LLC Name You Want
To rest assured the name you’ve selected for your future LLC is acceptable and your filing won’t be rejected by the state for the inappropriate moniker, it’s advisable that you do a name search before entering that name into your formation docs.
The easiest way is to use a free business name search tool available on the Illinois Secretary of State’s website. If you have more than one version in mind, you can check them all and use the one that feels like your cup of tea.
If you plan to use the chosen business name as a trading name or for setting up a brand, we also recommend doing a few other searches as well. Thus, don’t neglect researching license and trademark databases.
Illinois DBA: Using a Fictitious Business Name
Sometimes, you might have big expectations over your business name. And, after a name search and the Secretary of State’s revision, your LLC name appears to be not quite what you want. While a registered business name is a part of your company’s legal record, you are free to use a DBA name for commercial and marketing purposes. DBA (“doing business as”) is a fictitious or assumed name, which is different from the LLC’s registered name and is used for daily business operations.
The good thing about DBA is that it can be used without an “LLC” identifier, and you can get multiple DBAs for your LLC. This way, you’ll get the chance of running several product lines, operate in various areas and industries, or extend your activity to other states without forming multiple LLCs. Legally, everything will be done under the roof of a single LLC. Meanwhile, there might be several brands operating on the market.
With bigger opportunities, DBAs also impose some law requirements to follow that are regulated by Section 1-20 of the Illinois LLC Act. Thus, similar to a registered name, each DBA should be unique and available for use in the state of Illinois. Besides, each DBA needs a separate registration and paying a state registration fee. Filing for a DBA is quite easy, though. You just need to fill in the Form LLC-1.20 with basic info and submit it to the Secretary of State’s office.
|Unlike in many other states where DBAs are issued for a period of ten years, in Illinois, you can use a DBA within five years only, and you’ll have to pay a $30 fee for each year of use. The date when your DBA expires directly relates to your state filing date, and the year should be divisible by five. Thus, if you register for a DBA in 2021, it will be valid till 2025. You can further renew, though, to 2030 then.|
Step 2: Appoint an Registered Agent to Create an LLC in Illinois
Appointing a registered agent is on the “to-do” list of every entrepreneur seeking to form an LLC since it’s a law requirement in each and every US state. Illinois is not an exception. Section 1-35 of the Illinois LLC Act calls for assigning this role so that you could get a state registration for your limited liability company. The function of this role is to receive official and legal correspondence on behalf of your company. It’s your business representative that will serve as a permanent point of contact between your company and the state or public.
The importance of this role in Illinois is even higher since the Code of Civil Procedure in the state stipulates that LLC lawsuits are to be handed to LLC registered agents. Should the sender fail to file your agent, there is a great risk that your LLC will lose the sue. It will look as if you haven’t responded to the lawsuit letter.
The Illinois law allows any state resident over 18 years old or a legal entity registered in the state to be your assignee. The rule of thumbs is that such person or entity should have a registered address and should be permanently present under that address during business hours. Since there are no specific educational or professional requirements to this role, many beginner entrepreneurs often choose to be their own registered agents or confer this function to their relatives or friends.
|If you do plan to hire a registered agent service, in our Best Registered Agent Service review, you’ll spot a number of decent alternatives to match any business needs and any budget|
Experienced businessmen, on the other hand, prefer hiring special companies providing registered agent services. Dedicated to this service only, those companies will be always in place to get your mail, sort it, and handle sensitive letters or urgent notifications to you.
What is a better option you wonder to get an LLC in Illinois? While serving your own registered agent is more affordable and seems to be more convenient and safe, in practice, there are a lot of hidden drawbacks to this option that are not obvious at a glance:
- Privacy Risks: By making your personal data a part of public records, which is required by law, you’ll put your privacy at stake;
- The Bulk of Junk Mail: Along with essential business correspondence, companies tend to receive lots of spam letters. With a registered agent, you’ll receive business mail only;
- Missed Services of Process: If you fail to be present to get some letters that require a personal receipt or lose important letters in the piles of other documents, that might have serious legal consequences for your business or cause fines;
- Binding Duties: Since a registered agent is to be consistently present under the specified address during business hours, it will be hard for you to plan your business schedule outside the office, not to mention any private affairs, vacations, and days off.
By delegating this function to registered agent services, you’ll save time, effort, and peace of mind. While someone else will take care of routines and keep an eye on your legal mail, you’ll have more freedom to work on your business strategy and participate in vital business operations. The annual service cost usually lingers around $100, which is not too much for the convenience you get in return. Besides, many registered agent companies operate nationwide, so finding a registered agent in other states (once you need it) won’t be a problem.
Step 3: File Your Illinois LLC Articles of Organization
With a business name checked and a registered agent appointed, you are one step away from your Illinois LLC formation. Now you need to file the Articles of Organization to finalize the LLC registration and bring a new legal entity to the Illinois business arena.
Though it doesn’t look like anything special, submitting the Articles of Organization to the Secretary of State is a crucial step since this very step gives your entity legal power and entitles it to lawfully perform business transactions.
|Filing LLC documents seems too serious to handle this on your own? Or you simply seek to avoid the hassle of formalities? If so, you can let a professional LLC service do the whole job for you. And our Bestr LLC Services review will help you choose an optimal variant.|
What to include in my Illinois Articles of Organization?
Despite being a major Illinois LLC registration doc, the Articles of Organization is a rather typical paper. Its prime goal is to provide valid business info about your company and make it a part of public record to let the government authorities and other businesses identify your enterprise, whenever necessary. As a result, this document has a standardized form and its content is more or less the same across the states. However, Illinois law is more demanding in this concern. Section 5-5 describes the data your LLC Articles of Organization should cover:
- Full LLC name and registered address;
- The main locality where the business will take place;
- Names and addresses of all LLC organizers;
- Your LLC purpose in brief. While you might plan diverse activities, here, it’s enough to say “all lawful business activities”;
- A statement of how many members are in your LLC as of the date of formation;
- Names and addresses of all LLC managers including the statement if any of the managers is an LLC member;
- Your LLC period of existence if applicable.
- Any other crucial info including that stipulated by your Operating Agreement.
If you don’t feel confident enough to execute a whole document by yourself, you are free to download a ready-made LLC-5.5(S) template from the Secretary of State’s website and simply fill it in.
Filing Fee: How Much Is an LLC in Illinois
While you can complete the LLC filing procedure on your own, the state department won’t review and approve your formation documents for free. Each state has a fixed filing fee that varies from a symbolic $40 to a hefty $500. The state of Illinois hits the midground in this concern and will charge $150 for the filing service.
To double-check the current Secretary of State’s fees, you can refer to Section 10-50 of the Illinois LLC Act.
Illinois LLC Processing Time
Similar to filing fees, filing speed also varies by state. Normally, it depends on the Secretary of State’s current workload and the method you use to submit your formation documents. With that, the Illinois state department claims that your Articles of Organizations will be processed within a period from 5 to 10 business days, subject to online submission. If you choose to mail the documents on paper, get ready to wait longer.
While standard processing is included in the filing fee by default, the state also comes up with expediting options. Thus, you can pay $250 in extra to have your documents reviewed within a single workday upon receipt.
Step 4: Draft your Illinois LLC Operating Agreement
Many startuppers consider they can do without an Operating Agreement. Yet, you’d better think twice before skipping this document. In a word, an Operating Agreement is a set of company operational rules and regulations. It’s a sort of internal code of conduct for your LLC developed and agreed on by its members.
While an LLC law gives general instructions on how an LLC should be managed, operated, and controlled and provides common info on voting issues and company dissolution, an Operating Agreement describes all the essential points vital for your business in more detail. Besides, in an Operating Agreement, those rules and procedures will be stipulated with your individual business situation in the focus, thus, creating more favorable conditions for running a company on a daily basis.
The areas, issues, and aspects covered by an Operating Agreement are as follows:
- Ownership structure: Distribution of equity shares in percentage between company members along with the detailed descriptions of each member’s role in an LLC;
- Management structure: The document should state if a company is a member-managed or a manager-managed LLC and set up the powers and duties of each manager;
- LLC activities: Detailed list of business transactions, operations, and procedures an LLC will be entitled to perform from day to day;
- Company Profits Distribution: In an LLC, business profits are not necessarily distributed proportionally to members’ equity shares. It’s up to the company owners to decide how to allocate the profit;
- Voting Issues: Usually, the document clearly specifies what issues, problems, or decisions need member voting;
- Changing the Membership Structure: Rules for new members to join your LLC and existing members to resign or leave the company;
- LLC Dissolution Procedure: Should you decide at some point that you don’t need your LLC anymore, a process of dissolving your business is to be described in an Operating Agreement.
Though the Illinois LLC Act doesn’t oblige entrepreneurs to draft an Operating Agreement, its Section 15-5 does exemplify a few specific aspects this document could deliver:
- Restrictions or even elimination of fiduciary duties of the members in member-managed LLCs;
- Changing the member duty of care toward LLC if it doesn’t breach the law or relates some deliberate misconduct;
- Member and manager actions within the state that align with their duties.
Being an internal document, an Operating Agreement needs no state registration. Hence, amending it to match your current business needs will be easy. However, taking into account the fact that it has a priority over the state default laws, it’s advisable that you take it seriously and treat its execution with due diligence.
Step 5: Get an EIN (Employer Identification Number)
Both individuals and businesses are exposed to tax commitments. The Internal Revenue Service keeps track of all tax returns to ensure all taxes are duly paid, trace overdue, and detect any violations. For this purpose, the IRS uses social security numbers for individuals and EINs for businesses. An EIN is an Employer Identification Number or a Federal Tax ID that works in the same way as an SSN for physical persons, which is to identify a taxpayer.
Single-member LLCs usually don’t need an EIN, yet, we recommend that you still get one right after your LLC registration since you might need it for many other purposes. Thus, an EIN is needed if you are going to hire employers, open a business bank account, register for franchise taxes, or select an S-Corp or C-Corp status for your LLC.
Getting an EIN is an easy task that will take you just a few minutes. All you need is to fill out an online Form SS-4 on the IRS website and receive your EIN number for free nearly in an instant. So, if someone offers this service for money, decline those offers.
First Tasks After Setting Up an LLC in Illinois
Having formed an LLC, you are only halfway to an operable and functional business. While legal formalities are met, there are many other aspects you need to consider immediately after formation to let your business propel to success at full speed. So, consider taking the following steps after the official formation process is over.
Open a Business Bank Account
The biggest benefit of an LLC structure is the limited liability protection it offers. Yet, do you know that this protection is not something that exists by default? Actually, it could be pierced if you fail to meet certain conditions. One of such conditions is business independence from its owners. And a business bank account greatly contributes to proving and maintaining that independence. A dedicated checking account for business helps clearly distinguish between your personal and business assets and avoid mingling finances.
The benefits a business bank account brings to you and your company include:
- Separating assets: Separate bank accounts will draw a line between your own money and business funds and prevent mixed finances. This way, you’ll get more privacy protection for your personal property and provide better independence to company monetary assets;
- Easy accounting: Accurate bookkeeping is vital for business strategic planning and daily maintenance. Understanding the expenses and controlling cash flows will reveal financial opportunities and ensure efficient budgeting;
- Financing Potential: Should you need a credit or loan to maintain or grow your business, getting it without a separate checking account is nearly impossible. Banks are not eager to provide financing to companies with cash flows and incomes that are hard to identify;
- Legal Protection: In case of a lawsuit against your company, split finances will keep your corporate veil intact and your personal assets protected. Otherwise, the court might consider that you misuse the limited liability shield and treat the business funds as your own.
Get Business Insurance For Your Illinois LLC
Though the law ensures certain legal protections for business, you need to think about an added shield for your LLC to minimize the consequences of some unexpected events or situations that you can’t foresee. This is where business insurance usually comes into play.
The types of insurance that will work for your business depend on the activities you run and the industry you operate in. Yet, there are some generic types that are applied in different business scenarios. It’s general liability, commercial property, and commercial automobile insurances aimed at protecting your company’s property against damages. Workers compensation insurance is common for businesses hiring employees while professional liability insurance provides an extra layer of legal defense in case of professional malpractice.
Keep Your Illinois Company Compliant
To be eligible and rightfully operate on the market, your LLC should stay compliant with Illinois state laws, requirements, and regulations related to different spheres of the company activity.
Illinois Business Permits and Licenses
Licensing is a sensitive issue for many LLCs. Licenses might be required at a federal, state, and local levels. Depending on what your business is about, it might need more than one license or permit.
While the state of Illinois doesn’t require LLCs to get business licenses, your municipality can have such requirements in place. Thus, before getting your business up steam, first, consult the Illinois Department of Financial and Professional Regulation and your county or city clerk to learn the list of licenses and permits you should get for your LLC to stay compliant.
Illinois Tax Requirements
Similar to a common approach, in Illinois, LLCs are treated as pass-through entities, which means the Illinois Department of Revenue will stick to general IRS guides and tax the company incomes on personal tax returns of the LLC owners.
Not taxed at a federal and state level, LLC incomes are taxed under the personal tax rates of the company members. And the taxable incomes are usually distributed among the owners pro-rata to their equity shares. Thus, single-member LLCs will report taxes as sole proprietorships and multi-member LLCs will do that as partnerships.
Notably, each state might have some specific LLC taxes in place. In Illinois, LLCs with a corporate tax status are exposed to personal property replacement tax. And there might be other taxes you need to consider for your company. So, it’s advisable that you consult a tax advisor on that issue to select an optimal taxation scheme for your enterprise.
Annual Report and Other Filing Requirements
Annual or biennial state reports are a part and parcel of compliance requirements in most states. Such reports help the government keep the business info up-to-date and trace the company’s good standing status.
Reporting rules in Illinois are regulated by the LLC Act Section 50-1. You should file a state report annually within 60 days before your LLC formation date. The filing fee for a timely submitted report is $75. And in case of delayed reporting, you’ll also pay a $100 penalty above that fee.
A report is to be sent to the Secretary of State and should update your main company information such as:
- Full LLC name and address;
- Address of your LLC headquarters or main location where your business takes place;
- Name, address, and detailed contact data of your registered agent;
- Names and addresses of the LLC managers and managing members.
Besides, the Illinois LLC Act stipulates that you should permanently keep some other records in your LLC headquarters:
- Full name and current valid address of each LLC member;
- Each member’s monetary contribution into LLC;
- The estimated value of property and/or services each member has contributed or will contribute to LLC;
- The date when each LLC owner joined the company;
- Formation documents;
- Copies of LLC tax and annual reports for the recent three years;
- LLC financial statements for the recent three years;
- An LLC Operating Agreement.
Illinois Business Formation Quick Links
- Illinois Corporate and Limited Liability Company Name Search
- Illinois DBA application (Form LLC-1.20)
- Illinois Department of Financial and Professional Regulation
- Illinois Department of Revenue
- Illinois Limited Liability Company Act Article 1 (General Provisions)
- Illinois Limited Liability Company Act Article 5 (Organization)
- Illinois Limited Liability Company Act Article 15 (Management)
- Illinois Limited Liability Company Act Article 50 (Fees and Other Matters)
- Illinois Limited Liability Corporate Fiduciary Act Article 1 (General Provisions)
- Illinois Personal Property Replacement Tax Information
- Illinois Secretary of State — Form Articles of Organization
- Illinois Secretary of State — LLC Publications/Forms
- Illinois Workers’ Compensation Commission
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.
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