Sole Proprietorship in Illinois

The state of Illinois is considered as the national hub for research and innovation. It is home to 34 Fortune 500 companies that have experienced growth in a diverse industry cluster. You can start a sole proprietorship in Illinois and leverage top talent passing out from world-renowned research universities. As an entrepreneur, the expansive business community as well as vibrant startup ecosystem are blessings in disguise. Today, the state is home to 1.3 million small businesses, a large percentage of which are sole proprietorships. When you search sole proprietorship in Illinois for resources, you will be able to access a host of competitive small business incentive programs that aid in business growth and expansion.

What is a sole proprietorship in Illinois?

A sole proprietorship is the most common unincorporated business structure that can be formed within the USA. It requires minimal startup costs and as the name suggests, it’s run by a single individual. This type of company is also known as an individual entrepreneurship or sole-tradership. One of the salient highlights of this type of entity is the use of less state documentation and legal paperwork as compared to a limited-liability company or C Corporation. As a sole proprietor, you will have the flexibility of using your legal full name as a business name or can even choose to use an assumed name or file Illinois trade name. If you start a sole proprietorship in Illinois then you will be able to access state run business incentive and grants programs as well.

Important features of sole proprietorship in Illinois

A sole proprietorship in Illinois is one of the oldest forms of business in the USA and the world. It has a basic and simple structure. It has a different tax structure and you will not be required to file any federal taxes. There are many advantages and a few disadvantages to operating this type of business. This is mostly due to the features of the entity structure. Let’s take a look at some of the top features.

• Control over decision-making is one of the top features of a sole proprietorship. You will be able to manage operations independently and also maintain complete autonomy when it comes to decision-making. This is because it is a single-owner organization.
• When you search sole proprietorship in Illinois tax laws, it will reveal that owners are required to file individual tax returns. You will need to report income and expenses. This helps in avoiding double taxation while enhancing tax efficiency.
• This type of entity is considered the best option for small business owners. This is because the entity structure requires very few setup procedures. You will not be required to face too many regulatory hurdles as well.
• One of the important features is that you are not required to register this type of business, unlike an LLC, corporation, or partnership.
• As a business owner, you will be able to derive maximum incentive from your company. This is because you will not be required to share any of your profits.

Steps to Start Sole Proprietorship in Illinois

If you are wondering how to start a sole proprietorship in Illinois then there are certain state and business-specific requirements that you will need to identify and fulfill. These requirements are mostly related to management, operations, and finance. A sole proprietorship in Illinois can be a home-based business or can be operated from a commercial space like a retail store. As a result, you may need to apply for appropriate licenses or local permits. There are several important areas to focus on as mentioned below.

1. Prepare a business plan

A good business plan can make that all-important difference between success and failure. You may have a brilliant business idea but without proper planning, you will not be able to achieve targeted growth. When talking about a plan, it should be a solution that fits your specific needs. There are several details that are required to be documented in this plan right from the primary objective to future expansion. It should cover operations, product-market fit, competition, finance, and even potential business partnerships. A business plan will also outline other company-related areas like whether the company name should be your legal name or should you file an Illinois trade name. Some of the most common aspects of a sole proprietorship business plan are:

• Executive Summary
• Business concept
• Long and short-term Objectives
• Market analysis
• Operating plan
• Product or Service line
• Organization and Management
• Competition
• Target audience
• Marketing Plan
• Sales Strategy
• Financial Plan and Projection

2. Choose an Illinois business name

If you start a sole proprietorship in Illinois then it is important to identify a strong business name. There are two types of names that this type of entity can choose to operate with. You can use your own legal name (full name) or you can file an Illinois trade name also known as a DBA (doing business as). The name is critical to your business as it will reflect the objectives of your company. The name of your company will be used in marketing and branding collaterals and also for opening a bank account. Hence, it is important to choose the right business name.
Here are some easy tips that you can follow:

• Follow Illinois State’s business name guidelines and rules
• The name you choose should not be similar to that of any competitor
• Try to avoid any names that are hard to pronounce or spell
• You should keep your target audience and business goals into consideration when choosing a name
• You should also search a sole proprietorship in Illinois also known as name availability search
• Check if the chosen name is available for domain name booking for your company website
• You can take help of online business name generators for creating short names

3. File a trade name

If you want to start a sole proprietorship in Illinois then you can use your own name or go with a DBA name. A DBA or doing business as the name is also known as an assumed name, fictitious name, or a trade name. You can choose this type of company name if you are not comfortable using your full legal name. The process of choosing an assumed name is governed by 2023 Illinois Compiled Statutes, Chapter 805 – Business Organizations, 805 ILCS 405/ – Assumed Business Name Act. It is important to note that you can file an Illinois trade name with the office of the County Clerk in the county where you are planning to transact business. Let’s look at an example to understand this.

Example: Your name is Janet Mason and you want to file a sole proprietorship in Illinois as a cake and catering company. It is based in McLean County, IL. You can use your own name like ‘Janet Mason Cakes & Catering.’ Alternatively, you can choose to use a business name like “Janet’s Cakes & Catering”. Here Janet’s Cakes & Catering will be considered as a fictitious business name or Illinois DBA. You will need to conduct a name availability search for this name. If it is available then only you can file an Illinois trade name. You will need to submit the Assumed Name Certificate Intention with the County Clerk’s Office along with a fee of $24.

Do you want to start a sole proprietorship in Illinois?

4. Get EIN

If you start a sole proprietorship in Illinois, you will be required to file personal income tax. You may also be required to file sales tax and any other state taxes. As an owner of a sole proprietorship, you can file your taxes using a Social Security Number (SSN). However, applying for and obtaining an Employer Identification Number (EIN) can be quite advantageous. There are certain requirements that you need to meet to apply for an EIN and they are:

• If a sole proprietorship company hires employees
• If your company plans to open a business bank account
• If you have a Keogh plan
• You are required to file excise tax returns
• If you change or convert the entity structure from sole proprietorship to a partnership or LLC
• If you file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy

5. Obtain necessary licenses and permits

One of the most important requirements of any form of business is obtaining proper licenses and permits. A business license is a legal document that is issued by a state or government agency. Its objective is to grant permission to a sole proprietorship in Illinois from an operational perspective. This will help you to sell products or provide services within a specific jurisdiction or industry. Obtaining a license or permit also demonstrates that you are compliant with the local laws and regulations. Licensing in the state are categorized as under –

• Sales Tax license or seller’s permit
• Industry or activity specific licenses
• Professional licenses
• City or County licenses and permits
• Federal or Regulated licenses
• Zoning permits

6. Open a bank account for your Illinois business

One of Illinois’s easiest entity structures to form and operate is a sole proprietorship. The standard procedure is to open a business bank account although most individual owner-driven organizations prefer to operate their personal savings account for business purposes. It is recommended to operate a business banking account as it will help separate your personal gains and expenses from those of the company. Thus, it will help manage the business’s financial aspect. When you keep your funds separately in a checking account, it will help limit your personal liability.

7. Report and pay taxes

You know how to start a sole proprietorship in Illinois but in order to maintain active status and enjoy credibility, it is important to ensure compliance with all annual requirements of the state. This is where filing of taxes each year becomes extremely crucial. A sole proprietorship is a single owner entity and hence there is no distinction between the owner and the business itself from a tax perspective. As the owner, you will need to claim profits or losses on your personal tax return. The individual income tax rate in Illinois is flat at 4.95 percent.

Ready to Start a Sole Proprietorship Business in Illinois

A sole proprietorship in Illinois is one of the best forms of business that you can operate. This type of entity is not required to be registered with the state, unlike several other forms of business. However, you will need to obtain appropriate business licenses and fulfill state annual requirements like filing taxes or renewal of licenses.

Business License in Illinois

Different states in the USA have different business laws and regulations. These laws govern the operational aspect of every conducting their business in this state. The Illinois Compiled Statutes, Chapter 805 – Business Organizations requires all domestic or foreign entities formed in this state to apply for an Illinois business license. The importance of licenses or permits lies in the fact that this ensures businesses are able to comply with laws and regulations pertaining to maintaining safety standards and best practices. If you don’t obtain an Illinois business license and still operate a company then you may be severely penalized.

Who needs an Illinois business license?

Whenever you plan to start a business, it is important to always conduct Illinois business license search. The significance of this search lies in the fact that you will need the right permission or authorization to transact in a local jurisdiction. Business licenses and permits provide that authorization. The scope of a license however will vary according to several factors like the type of company, location of your business, profession or occupation, state laws, zonal codes, and industry regulations. This search will essentially help you to obtain an Illinois business license that is relevant to your business.

What business license do I need in Illinois?

If you have decided to form a company in Illinois then one of the foremost operational requirements is to obtain an Illinois business license. Different states in the USA have different licensing requirements. Some states, like Nevada and Washington, issue a general business license, but Illinois doesn’t. There is no requirement for a state-level business license, although some cities may require you to apply for a general business license. This will depend purely on the city where your business is located and the operational area within city limits.

Type of Business Licenses in Illinois

The business activity plays a key role in obtaining an Illinois business license. Certain cities are regulated, while some are defined under occupation or profession. The second most important factor is the location of your company. It is important to note that the type of Illinois business license and permits required by your company may vary according to location or jurisdiction. Let’s try and understand the different types of licenses that may apply to any entity planning to conduct business in this state.

Statewide seller’s permit

There are different types of business activities that businesses can indulge in the state of Illinois. If the primary activity is related to meeting economic nexus within the state or selling taxable products and services, then you will need to register for a sales tax permit. This type of Illinois business license is also known as a seller’s permit. You will need to complete and submit the Certificate of Business Registration, and there is currently no registration fee for the same. This certificate can be filed online using MyTax Illinois.

Local business licenses

One of the important forms of permits or licenses in this state is local licensing. If your business is situated in a specific city, county, village, or jurisdiction then you will need to conduct an Illinois business license search for that specific location. Different cities and counties have different licensing laws and requirements. Licensing may be industry-specific, activity driven, or simply area-specific. You will need to obtain an Illinois business license based on these parameters. The type of license, fee, and renewals will vary from one city or county to another. Let’s look at an example to understand how to obtain local business licenses.

Specific licenses

Specific business activities require specific licenses and permits. Some of the specific licenses include the following –

• Specific activity – There are several activities that fall under this category. An important example is Retail Food. If you start a restaurant, it will be considered under this category, and you may be required to obtain an Illinois business license for food establishments. The issuance of this license is overseen by the Illinois Department of Public Health (IDPH) and local jurisdictions. Certified local health departments must submit a uniform food establishment inspection report before issuing this license.
• Professional license – There are hundreds of occupations and professions. If you start a company whose primary activity is categorized under a specific profession or occupation, then proper licenses will be required. You may be required to conduct an Illinois business license search to ascertain the exact permit requirements for your company. This license will enable you to provide a specific service legally in this state. The Illinois Department of Financial and Professional Regulation (IDFPR) is the regulatory body overseeing the issuance of professional licenses.
• Home-based business – If you are thinking of establishing your startup from your residence or home, you may need an Illinois business license and permits. The licensing regulations and requirements for home-based businesses will vary from one location or jurisdiction to another. In most jurisdictions, you must apply for a home occupation permit. It is important to note that certain occupations, such as repair or dispatch of motor vehicles, cannot be licensed under this permit. You will also need proper zoning approval from the city or jurisdiction where you conduct your business.

Federal Licenses and Permits

There are certain business activities for which licenses or permits are required at the federal level. The list of activities is regulated by the federal government, like selling alcohol or firearms. Some other areas for which you may need a Federal Illinois business license include producing commercial nuclear energy, drilling for natural gas, manufacturing and importing firearms, making or selling alcoholic beverages, and transportation and logistics, among others.

Need any Assistance in Obtaining Your Illinois Business License?

There is a wide variety of business activities and hence the type of license required by your company will also vary. It will also vary according to location. You may need to apply for a single license or multiple licenses. The application, fee, and laws for Illinois business licenses and permits are different for each type of license and each jurisdiction.

Illinois Business Entity Search

The job of choosing the right name for your company should not be taken lightly as there are several aspects to consider. Sometimes, entrepreneurs choose a name in a hurry and forget to conduct an Illinois business name search. This leads to copyright and other related issues in the future especially from the operational perspective. We can divide the business naming process into three steps and they are:

• Identify the right business name
• Check for Illinois business name availability
• Reserve or register the company name if it is available

• It is important to keep your business name short – 6 to 8 letters and yes, it should be easy to remember
• You need to avoid any complicated names like Hoegaarden or Balenciaga
• Try and ensure the name is catchy and memorable like Arrow or Lee
• It is important to brainstorm business names that reflect on the purpose of your company like “Jacks Burgers”
• You can use online business name generators
• Always as a rule, follow the state naming guidelines
• A business name should be dynamic in nature keeping in mind future expansion
• Try not to choose a name that is similar to that of a competitor
• Your chosen name should not cause any trademark infringement
• The chosen name should be web-friendly and domain name is easily available

What is an Illinois business name search?

There are different types of entities in Illinois from which to choose. You can choose to register LLCs, partnerships, corporations, nonprofits, and even foreign entities. One of the important parts of the registration or incorporation process is the reservation or registration of a business name. This is possible only when your chosen name undergoes an Illinois business name search. This is basically a process of finding out whether the name you choose is available for reservation or not. This process is also known as business entity search or business registration lookup.

Example: You want to establish a new LLC or corporation in Illinois. The primary activity of the business is printing posters and marketing material. It is based in Chicago, IL. You want to name it “Chicago Printworks”. Once you have chosen this name, the next step is conducting an Illinois business name search. When you conduct this search, it will bring up a company with the same name based in Chicago, IL. This entity shows active status. It simply means that you will not be able to use the name chosen by you. You can change the name a little to something like “Chicago Printing Works” and conduct Illinois business name availability again, and then it will show that the name can be reserved.

Naming your Illinois LLC

If you have decided to register a limited liability company in Illinois, the first step will be to choose a company name and reserve it. This will be considered the legal name of your LLC. This name will be used everywhere, from branding collaterals to opening a business bank account. It will also be mentioned in the Articles of Organization and other LLC-related documents. Hence, it becomes crucial to choose a name that is compliant with the Illinois business name rules and guidelines.

General LLC naming rules

One of the most important areas to focus on when naming your limited-liability company is Illinois business name rules and regulations. The naming of an LLC and reservation of such a name is governed by provisions of Article 1, Section 1-15 of the Illinois Limited Liability Company Act. The general rules for an LLC name are:

• The name should have words like Limited Liability Company or abbreviations like LLC or L.L.C.
• It may also contain a combination of words and abbreviations like “limited liability company,” “limited liability company,” or “limited liability co.”
• This name should be distinguishable from any other in the Secretary of State Department of Business Services database. You can check this by searching for the name of an Illinois LLC.
• There are “Word Restrictions” that you need to check before finalizing a name. The state prohibits using specific words like trust, trustee, banking, and fiduciary.
• An LLC name should also remain distinguishable from that of another entity type. Thus, you cannot use terms like Corp., Incorporated, L.P., and Ldt. among others.
• Your chosen name should not contain symbols. You can use Arabic numerals, letters of the English alphabet, and Roman numerals.

Search LLC name availability on Illinois’s Secretary of State Website

Once you have thought of a strong business name for your LLC, ensure it complies with the Illinois business name rules. The next step is to conduct a business entity search. The website of the Secretary of State—Department of Business Services offers an online option for conducting this search. There are several search options available, but the easiest would be to search using a “business name”. You can also conduct a keyword search or partial word search.

Example: You want to start a bakery in Naperville, IL using the name “Golden Hour Bake House”. You can conduct the Illinois business name availability search using the full name or a part of this name, like “bakehouse”. The search options will reveal both specific names and all names with the word bakehouse. The results show that “Golden Hour Bake House” already exists in Springfield, IL. In such a scenario, you can change a part of the name or the complete name. If you change it to “Twilight Bake House,” then it doesn’t bring up any similar name. This means the changed name is available. Now you can simply fill out the Application to Reserve a Name.

Do you want to form an LLC in Illinois?

Naming your Illinois Corporation

A business corporation or a C Corporation is one of the most popular forms of businesses in this state. If you have decided to incorporate then it’s time to choose a name. A corporate name will be the identity of the company and hence you need to be extra careful while choosing this name. It’s important to adhere to Illinois business name rules and related requirements. Once you have chosen a corporate name, the follow up process would be to conduct an Illinois Corporation name search. This process will help you to decide whether your chosen name can be reserved with the state or not. Let’s look at the various aspects to consider when naming your new company.

General Corporation naming rules

The Illinois business name rules will be different for different types of entities although they may remain same for the same type of domestic and foreign entities. State naming guidelines help in minimizing the risk of your chosen corporate name in getting rejected. The corporate name laws are governed by 2023 Illinois Compiled Statutes, Chapter 805 – Business Organizations, 805 ILCS 5/ – Business Corporation Act of 1983; Article 4 – Name. The general rules for a corporate name are:

• Whether you form a C Corporation or elect an S Corporation status, the name should contain words like “corporation”, “incorporated”, “limited”, or “company”.
• The name can also contain abbreviations like “corp.”, “inc.”, “co.”, or “ltd.”
• The name should be unique and distinguishable from the name of any other company operating in the state as this will aid in Illinois business name availability search.
• You should not use a name that contains any word or phrase implying that your company is authorized to conduct the business of indemnity, assurance, or insurance.
• You should also check the list of restricted words, especially those associated with specific professions or industries. It is important to note that the Secretary of State will be responsible for determining if your name is “distinguishable” from another name.
• If you don’t want to use your legal name or the owner’s name then you can adopt a DBA (doing business as) name also known as an assumed name.

Search Corporation name availability on Illinois’s Secretary of State Website

Once you have finalized a name for your corporation, the next step is to conduct an Illinois Corporation name search. The website of the Illinois Secretary of State – Business Services Department offers you the access necessary to conduct this search. This is an online search option and provides several search methods. The search methods you can use include search using a business name, search using file number, keyword, and partial word.

Example: You want to start an engineering corporation in Evanston, IL. You want to use the name “Collins Engineers, Inc.”. You can search Illinois business name availability by using the entire name or just “Collins Engineers.” The search options will reveal that this name is currently in use. This corporation is situated in Chicago and enjoys an active status. In such a scenario, you can change this name to “Evanston Engineering, Inc.” or “Collins-Engineering, Inc.”. Such a name is available, and you can then reserve it. Alternatively, you can also file a DBA or assumed name.

Are you thinking of registering for a corporation in Illinois?

Do you need any assistance with an Illinois business name search?

A business name is the most important form of identity for a company. It helps create a positive first impression amongst customers and is used in various official documentation. It becomes crucial to choose the right name for your company. An Illinois business name search will help you identify a name that you chose and is available for reservation. IncParadise can provide meaningful assistance in naming your corporation or LLC.

Illinois LLC Annual Filing Requirements

The annual requirements for an Illinois limited liability company are governed by the Illinois Compiled Statutes, Chapter 805 – Business Organizations, 805 ILCS 180 – Limited Liability Company Act. The Illinois LLC annual requirements may be different from those of other forms of entities being formed in this state. If you are planning to form a limited liability company then the important annual requirements are categorized as under.

Illinois LLC Annual Report

When you form a limited liability company (LLC) in Illinois, you realize that there are great benefits like protection of your personal assets and pass-through taxation. Simultaneously, operating an LLC also means that you will have to fulfill several ongoing compliance responsibilities like filing LLC taxes in Illinois and submitting annual reports. These responsibilities are applicable to both domestic and foreign LLCs. One of the most important Illinois LLC annual requirements is that of filing the annual report.

Do you want to file an Illinois Annual Report for your LLC?

Illinois LLC Taxes

As an entrepreneur in Illinois, it becomes essential for you to understand the various taxes that may be applicable to your Limited Liability Company. If you fail to comply with LLC taxes in Illinois requirements then this may lead to heavy penalties and even cause legal issues. According to the Illinois Department of Revenue, the most important of all taxes for an LLC is the personal income tax. This is because a Limited Liability Company is considered a pass-through entity and hence the company will not be required to pay taxes. Instead, you as the owner or member will file individual income tax at a flat 4.95 percent. This rate will remain the same irrespective of your income.

Illinois Employer Taxes

• Self-Employment tax – This is one of the important LLC taxes in Illinois and each member of your LLC needs to file it. Self-employment taxes have to be filed on your share of the profits at a rate of 12.4 percent for Social Security and 2.9 percent for Medicare.
• Unemployment Insurance (UI) Tax – The unemployment insurance tax is considered to be a variable tax as the rates may increase or decrease depending on the overall economic condition of the market or state. If unemployment is low and there is a higher number of businesses paying the tax rates will drop and vice-versa. This is one of the important Illinois LLC annual requirements and currently the UI tax rates vary from 0.525 to 7.1 percent.

Illinois Sales and Use Tax

Apart from an Illinois LLC annual report, one of the important state requirements is that of filing sales and use tax. Most states in the USA have some form of sales and local taxes. In Illinois, if you or your LLC engages in a business activity that involves sale and use of any tangible personal property then you will be required to file this tax. This is one of the most common LLC taxes in Illinois and has to be filed by in-state retailers and out-of-state sellers.

Illinois Corporation Annual Filing Requirements

A C Corporation is one of the most favored forms of business in the state of Illinois. There are several processes that you will need to undergo right from incorporation to applying from necessary business licenses and permits. Apart from all this, you will also need to fulfill Illinois Corporation annual requirements. These requirements are important as they will ensure your company enjoys a good standing in this state. The annual requirements of corporations are governed by the Illinois Compiled Statutes, Chapter 805 – Business Organizations, Business Corporation Act of 1983. Let’s look in detail at all important annual requirements including corporation taxes in Illinois.

Illinois Corporation Annual Report

Once you have incorporated your new business in the state of Illinois, you will need to be compliant with all state requirements. Compliance with all annual state requirements will ensure your company enjoys a good standing in the state. One of the important Illinois Corporation annual requirements is that of filing an annual report. It is an important business filing that is required by most states in the USA. It is typically filed with the secretary of state.

What does it include and how to file it?

Generally speaking, a corporation has to report to the state if there are any changes to their physical or corporate address, change of registered agent, and even ownership and officers. Some states may require additional information about a company like stock, assets, and paid-in capital. When you file an Illinois corporation annual report, all such important information is included in it. It is important to note that both domestic and foreign corporations have to file this report as a part of Illinois Corporation’s annual requirements.

What is the due date for filing?

Once you have incorporated your company, you will need to file an Illinois annual report pursuant to 805 ILCS 5/14.05. This report has to be filed with the Illinois Secretary of State – Business Services Department. You will need to file an Illinois corporation annual report each year by the end of the month prior to the incorporation anniversary month.

Penalties if fail to file

You have to file an Illinois corporation annual report within or prior to the due date to avoid any penalties. There will be a late fee that is normally calculated based on franchise tax that is due on the date you are filing this report. In fact, if this report is not filed within sixty days of your annual report due date then you will receive a notice from the state. The notice states that if you are not able to comply then your entity may be administratively dissolved within a period of 60 days.

Thinking of filing an Annual Report for your Illinois Corporation?

Illinois Corporation Taxes

One of the important Illinois Corporation annual requirements is that of corporation taxes. Illinois is one of the thirty two states to have a flat corporate income tax. In fact, the flat tax rate is also one of the highest in the nation at 9.5 percent. This tax rate includes a 7 percent business income tax rate as well as a Personal Property Replacement Tax of 2.5 percent. The replacement tax is one of the important Corporation taxes in Illinois and will be levied on the net income of your company.

Illinois Sales and Use Tax

One of the important forms of corporation taxes in Illinois is the sales and use tax. As the name suggests, sales tax has to be filed only if a corporation indulges in selling or buying specific products and services. If your corporation is involved in the following then you will need to register with the Illinois Department of Revenue (IDOR).

• If you have a business nexus in Illinois
• If you are selling taxable goods or services to residents in Illinois
• If your buyers are required to file sales tax in this state

Need any Assistance in Filing the Illinois Corporation Annual Report?

The Illinois Corporation’s annual requirements or that of an LLC are quite important forms of compliance. Each new and existing entity needs to fulfill or meet these requirements. If your business fails to maintain compliance then it can lead to heavy penalties and even dissolution.

Illinois LLC or Corporation

Entrepreneurs find Illinois a favorable state to form, operate, and grow their business. The state offers several advantages as well as resources to a new company. You can choose from a wide variety of entity structures although the most popular are a C Corporation and limited liability company (LLC). It is quite important to choose the right entity structure as it will determine the future of the company as the cost to form Illinois Corporation may be lower or higher than other types of entities. Similarly, there are other aspects to also consider like tax consequences, legal advantages, asset protection, documentation, and annual maintenance. There will be a cost associated with each of these and this may eventually impact the operational and financial side of your company.

Which business entity should I choose for Illinois business?

One of the most important decisions that entrepreneurs need to make before starting a company is choosing the type of entity structure. It needs to be a well thought out decision as the type of business entity chosen will have major implications in the short and long-term survival and success of that entity. As an example, if you choose to form an LLC then you will need to consider the cost to form an Illinois LLC. When you choose an entity structure, there will be a financial implication, which will vary according to the entity chosen. There will also be an annual maintenance cost of Illinois Corporation or LLC. Hence, it is integral to identify the finer aspects of entity structures. You need to look for the following –

• Tax Treatment – One of the factors that drives decision making when choosing an entity structure is the tax treatment desired by you. Ideally, a business can choose to be a flow-through entity where the tax passes onto the owners or members. Such entity structures include LLC, S Corporation, Sole Proprietorship, and Partnership. Alternatively, there is also non flow-through business like a C Corporation. Hence, it becomes important to choose an efficient entity structure for tax planning purposes. This will also impact the overall cost of forming an Illinois Corporation or LLC.
• Liability Protection – Personal liability protection is the need of the hour for most entrepreneurs and first-time business owners. Certain entity structures protect owners’ assets against legal claims or business liabilities. Other structures, like sole proprietorships, do not offer any protection at all.
• Startup costs – Startup and recurring costs – Every new business has startup and recurring costs. This is an integral component of the Illinois LLC cost per year or that of corporations. The startup costs include company registration, business name reservation, licensing and permits, annual reports, and sales tax registration.

Pros and Cons of Forming an LLC or Corporation in Illinois

Whatever entity structure you choose will impact your company’s cost and operational aspects. The cost of forming an Illinois LLC or corporation is one such area that you need to focus on. Simultaneously, considering the long-term advantages of your chosen entity structure is also recommended. So, let us quickly look at the pros and cons of conducting an LLC vs Corporation in Illinois comparative analysis.

Pros of an LLC or Corporation

• You can start a Limited Liability Company with a single member
• An LLC or a C corporation can choose to be taxed as an S Corporation
• A traditional corporation has the power to raise funds by issuing stock
• Corporations can find various funding options like through Venture capitalist (VC) firms as compared to other entity structures
• An LLC enjoys a lot of flexibility when it comes to management
• The initial documentation for an LLC is comparatively lesser than certain other structures
• If you look at an LLC vs Corporation in Illinois, an LLC enjoys pass-through taxation on profits
• Limited liability protection for your assets is offered by both LLC’s and corporations
• A Corporation enjoys perpetual life

Cons of an LLC or Corporation

• The overall cost to form an Illinois Corporation may be higher than the cost to form any other entity
• It is difficult for an LLC to raise funds as compared to a corporation
• A limited liability company doesn’t enjoy perpetual existence
• A corporation, unlike other entities, undergoes double taxation on profits earned by the company
• A comparative analysis of LLC vs Corporation in Illinois reveals higher annual report fee for corporations
• Unlike other entities, corporations need to hold an annual shareholder meeting each year
• Corporations may have higher operational costs

Illinois LLC Cost

A Limited Liability Company is among first-time business owners’ most favored entity structures. This is due to the numerous advantages it offers. If you want to register your startup as an LLC, understanding the cost of forming an Illinois LLC is integral to smooth operations. There are various types of costs involved. The costs taken into account are from the registration and operation stages, including Illinois LLC’s annual fee. Let us take a look at the various expenses that you may incur.

Cost for forming an Illinois LLC

The cost of forming an Illinois LLC considers one-time fees and recurring costs. These are:

• The LLC registration process and fees differ from those of other entity structures. The first step towards registration is to file the Application to Reserve a Name (Form LLC-1.15) in compliance with 805 ILCS 180/1-10 (2023). The fee is $300.
• According to state laws, you must hire and maintain a registered agent to service the process. The Illinois LLC cost per year for this may vary depending on the RA service you choose.
• Submitting the company registration document is the third and most important cost of forming an Illinois LLC. You will have to file an Article of Organization along with a $150 filing fee. An additional fee is charged if you want to expedite the process.

Annual maintenance cost for Illinois LLC

Once you register your limited-liability company in Illinois, it is important to ensure that your company complies with all state requirements. This is known as fulfilling state annual maintenance requirements. There is an Illinois LLC cost per year that includes different fees. The costs involved are:

• Annual Report – An Illinois limited liability company must file an Annual Report. This report must be filed each year by the end of the month prior to the LLC registration month. The fee is $75 plus a transaction fee of $1.69.
• Taxes – One of the components considered in the cost of forming an Illinois LLC is taxes. This is the annual variable cost. Since an LLC is deemed a “Pass-through Entity,” the company doesn’t need to file any taxes. Instead, the members must file taxes on their share of profits. You may also be required to file other state and local taxes. The expenses related to Illinois taxes will vary according to the tax rates applicable to your company.
• Business Licenses – Every new and existing business needs to apply for licenses and permits in this state. This is an integral part of the Illinois LLC cost per year, as licenses and permits have to be renewed each year. The fee for licenses will vary according to the type of license and the number of licenses or permits required by an LLC.

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Illinois Corporation Cost

One entity structure considered the best option if you are looking to generate capital is a C corporation. This form of company is the traditional corporation with a rooted history dating back to the early 1600s when joint-stock companies existed. If you want to incorporate in Illinois, you will need to consider several aspects. The most important aspect is the cost to form an Illinois Corporation. Let us delve deeper into the costs of forming and operating this type of structure.

Cost of Forming Corporation in Illinois

The cost of forming an Illinois Corporation will be dependent on several factors. One of the important cost determinants is whether you want to form a domestic entity or incorporate a foreign company. There are several other cost categories related to incorporation in this state, and they are:

• One of the first cost elements is that of corporate name reservation. You must choose a company name following business name guidelines governed by Illinois Compiled Statutes – 805 ILCS 105/104.05. Once you have chosen a name, conduct a name availability search. If the chosen name is available, reserve it using the Application for Reservation of Name (Form BCA-4.10). A filing fee of $25 is a part of the cost to form an Illinois Corporation.
• The next important forming cost for Illinois Corporation is hiring a registered agent. According to Illinois Compiled Statutes—805 ILCS 105/Art. 5 heading, you will need to hire and maintain a registered agent for the service of process. The cost or fee would vary according to the RA service you chose.
• Finally, after the above processes are over, you must incorporate them in Illinois. You must file the Articles of Incorporation according to Illinois Compiled Statutes – Chapter 805 – 805 ILCS 5/Art.-2 heading. A filing fee of $150 is a part of the cost to form an Illinois Corporation. You may also be required to file franchise tax (a minimum of $25).

Annual maintenance cost for Illinois Corporation

The second category of costs applicable is known as the annual maintenance cost of Illinois Corporation. These are yearly costs associated with fulfillment of state requirements. They can be one-time or recurring in nature. The cost components are –

• Annual Report – A corporation formed in the state of Illinois will be required to file an annual report pursuant to 805 ILCS 5/Art. 14 heading. There is a fee of $75 for both domestic and foreign entities along with a transaction fee of $1.69. Apart from this, there would also be a variable franchise tax cost. These are taken into account as a component of the total cost to form an Illinois Corporation.
• Taxes – Once you incorporate in Illinois, you will need to be compliant with state annual requirements. This helps create a good standing. Hence, the annual maintenance cost of an Illinois Corporation is also associated with the filing of taxes. You will be required to file corporate income tax at a rate of 9.5 percent. Your company may be required to file other taxes like state sales tax and withholding tax.
• Business Licenses – Registering a business and making it operational are two different processes and have different requirements and costs. A corporation is considered to be operational when you have obtained the necessary licenses or permits. This is an integral component of the annual maintenance cost of an Illinois Corporation. This is a recurring cost as licenses or permits have to be renewed each year or as specified by the state.

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Need any Assistance in Forming Your Illinois LLC or Corporation

You can choose to register any type of entity structure as the options are varied in this state. Yet, most entrepreneurs prefer to either start their new business as an LLC or a corporation. This is owing to the many advantages and benefits these structures offer. The cost to form an Illinois LLC or corporation will also vary for domestic and foreign entities. We, at IncParadise can provide valuable assistance by handling requirements pertaining to new business formation or incorporation in the state.

Illinois Corporation

The news is that hundreds of entrepreneurs have moved their businesses to Illinois in the last few years according to a research paper published in Crain’s Chicago Business. New businesses are also gradually starting to capture the market space thanks to the state’s business competitiveness. There are many reasons to form a corporation in Illinois but existing entrepreneurs cite the primary reasons being availability of talent, diverse markets and robust infrastructure. Today, it is home to more than 30 Fortune 500 companies and some of the top names are Abbott Laboratories, Motorola Solutions Inc., AbbVie Inc., Deere & Company, and Exelon Corporation among others. The benefits of incorporating in Illinois often play a decisive role for those wanting to start a new company here.

What is an Illinois Corporation?

There are several types of corporations that a business owner can form although the most opted for is the traditional corporation, also known as a C Corporation. You can register a corporation in Illinois as a domestic entity or a foreign company. One of the salient highlights of this type of an entity is that it limits the liability of owners and investors. If you want to know how to form a corporation in Illinois, it is essential to identify the type of corporations that can be formed in this state. They are –

• Business or Traditional Corporation (C-Corp)
• S Corporation (S-Corp)
• Foreign Corporations
• Nonprofit Corporations
• Professional Service Corporation
• Benefit Corporations (B Corp)
• Close Corporations

What are the benefits of incorporating in Illinois?

Business owners prefer to incorporate in Illinois as this type of business structure has several advantages over other entity structures. Some of the benefits are:

• Limited Liability Protection – One of the benefits of incorporating in Illinois is limited liability protection. This ensures your assets are safe. If a corporation is sued, then the owners or shareholders of the said company will not be personally liable for any debts or damages.
• Gaining Tax Breaks – Another important benefit of forming a corporation is that this type of entity can often write off items like health insurance premiums, savings on self-employment taxes, and life insurance.
• Access to capital – If you form a corporation in Illinois, you can enjoy easy access to capital. You can raise money by issuing stock, which is sold to investors and enables capital raising. Even venture capitalists (VCs) prefer to invest in C corporations compared to other entities.

Starting an Illinois Corporation

Illinois is famous for its strong business communities and excellent quality of life. Incorporating in Illinois has several benefits, from diverse industries to the availability of the right talent and business incentive programs. All these factors can help your company to grow and expand rapidly. To register a corporation in Illinois, you must focus on key areas and processes.

1. Name Illinois Corporation

If you are planning to incorporate in Illinois, the first step would be to choose a corporate name. Although a business name is mandatory for every company, there are several benefits as well. A corporate name will be like the image or face of your company. Future customers, clients, or vendors can associate the name with your company. The corporate name will be required to fulfill several state requirements and other processes like business licensing and opening a corporate bank account.

2. Appoint an Illinois registered agent

If you plan to form a corporation in Illinois, then there are specific state business requirements that you, as the owner, must fulfill. Before registering your company or applying for incorporation, you must first hire and maintain a registered agent in the state pursuant to Illinois Compiled Statutes – 805 ILCS 105/Art. 5 heading. A registered agent can be an individual, or you can hire a company. Their primary responsibility is to accept all legal mail on your corporation’s behalf, known as Service of Process.

3. File Articles of Incorporation

The most obvious question for business owners is how to form a corporation in Illinois. The answer is that you must follow a process mandated by the Illinois Compiled Statutes. You must prepare and submit the Articles of Incorporation under Illinois Compiled Statutes – Chapter 805 – 805 ILCS 5/Art.-2 heading. It has to be submitted to the Secretary of State, Department of Business Services, along with a fee of $150. You will also be required to file franchise tax (a minimum of $25) and an optional fee of $100 if you want to expedite.

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4. Prepare bylaws for the Illinois Corporation

If you incorporate it in Illinois, one of the significant requirements will be formulating corporate bylaws. This is a mandatory requirement for any new company, although they must not be submitted to the state. Yet, most state laws require a new corporation to establish these company bylaws. Bylaws are important because they ensure consistent decision-making while enabling a proper voting process. This becomes especially important and necessary if a director or officer leaves the company.

• Statement of Purpose
• Board of directors
• Titles of the officers of the corporation
• Shareholders owning stock in the company
• Committee and committee members
• Procedure and timeline for annual meetings
• Issuance of stock to shareholders
• Rights and responsibilities
• Conflicts of interest
• Amendment to the Bylaws

5. Appoint initial directors & hold an organizational meeting

The articles of incorporation can be filed by one or more incorporators and such an incorporator could be an individual with personal stake in the company while going forward. Once you file the articles to form a corporation in Illinois, you will need to appoint initial directors and hold an organizational meeting. The initial directors will be responsible for making decisions on behalf of shareholders. The appointment of initial directors is an important step as corporations are unable to function on their own or by themselves. A corporation requires real people or individuals capable of making decisions, signing contracts and performing other duties on behalf of the company.

• Appointment of corporate officers
• Acquisition of a minute book for recording meeting minutes as well as actions
• Establishing a corporate structure of the company
• Approval of Corporate Bylaws
• Approval of share certificates
• Establish principal place of business
• Approval of the corporate seal
• Appointment of a banking institution
• Special resolutions if any

6. Get an EIN

Any business that plans to operate in the United States, it is important to possess proper identification. If you want to register a corporation in Illinois then an Employer Identification Number (EIN) is the best form of identification you can obtain. This is also known as the Federal Employer Identification Number (FEIN) and is the tax identification number for corporations. This unique 9 digit number is assigned by the Internal Revenue Service (IRS). Once you have obtained the EIN, it will help you with tax reporting and compliance, opening business bank accounts, hiring employees, and withholding payroll taxes.

7. Open a bank account

There are many benefits of incorporating in Illinois, such as the ability to raise venture capital funds. As a corporation, you can derive many more benefits if you open a business bank account. It is important to understand that operating a business successfully requires managing finances carefully. A corporate bank account can ensure proper financial management of company resources. Modern-day business banking services offer many tools and resources to help you manage your finances effectively. Most importantly, it will allow you to separate personal and business finances. This will further enable you to track expenses accurately, streamline tax preparation, and protect personal assets.

8. Comply with other tax and regulatory requirements

Once you incorporate in Illinois, you must comply with state annual maintenance requirements. One of the important requirements is that of filing taxes. Your company will be required to file corporate income tax at a rate of 9.5 percent. The company will also be required to file state sales tax. Corporations in this state may have to file various taxes like Illinois Franchise Tax and withholding taxes.

Know more about starting an Illinois Corporation

If you have decided to form a corporation in Illinois but are faced with several queries, this section will help you. This section deals with queries specific to various aspects of incorporation, such as corporate name, starting costs, dissolution, S Corporation, and foreign corporation, among others.

How do I form a “C” corporation and an “S” corporation in Illinois?

There are two types of corporations that you can operate in the state of Illinois: C and S Corporations. There is a process if you are wondering how to form a corporation in Illinois, especially a C Corporation. You must submit Articles of Incorporation according to 805 ILCS 5/Art. 2 heading. You can elect S Corporation status once you have formed a C Corporation. It is important to note that an S Corporation is not a business entity but a tax status. You must submit a completed IRS Form 2553 (Election by a Small Business Corporation). This will help you to set up an S Corp with the Internal Revenue Service (IRS).

How much does it cost to start a corporation in Illinois?

If you want to register a corporation in Illinois, you must submit Articles of Incorporation for a domestic entity. The initial cost to incorporate will be a $150 filing fee and a minimum franchise tax of $25. If you want to expedite the process, there will be an additional fee. Apart from this initial incorporation cost, other costs will be associated with the reservation of corporate name, application for business licenses and permits, filing of annual report, and articles of amendment, among others.

How do I look up a corporation in Illinois?

You will need to reserve a corporate name before you can register an Illinois Corporation online. This starts with identifying a name compliant with state naming guidelines and governed by Illinois Compiled Statutes – 805 ILCS 5/Art. 4 heading. The next step would be to conduct an Illinois Corporation search, also known as a name availability search. This process will ensure that your chosen name is available for reservation.

Do I need a business license for my Illinois Corporation?

Yes. You may require single or multiple business licenses depending on the industry, the location of your company, and the primary business activity. The fee and renewal processes may vary from one jurisdiction or municipality to another.

Can I register with a foreign corporation in Illinois?

Yes. You can incorporate it in Illinois as a foreign company. This process is also known as foreign qualification. You must submit a Certificate of Authority or Application for Authority to Transact Business in Illinois (Form BCA 13.15) according to Illinois Compiled Statutes – 805 ILCS 5/Art. 13 heading. The application must be submitted to the Illinois Secretary of State – Business Services Department with a fee of $150.

How do I dissolve a corporation in Illinois?

Once you register an Illinois Corporation online, it becomes operational. If you want to dissolve this company, you will have to file the Articles of Dissolution (Form BCA 12.20) pursuant to Illinois Compiled Statutes – 805 ILCS 5/Art. 12 heading along with a fee of $5. It is important to note that the Illinois Secretary of State will verify your franchise tax status prior to accepting the articles of dissolution.

Ready to Start an Illinois Corporation?

You can form different types of domestic business structures and even register foreign entities in this state. One of the most popular entity structures in this state is a C Corporation. This is due to the wide variety of benefits of incorporating in Illinois as compared to other business structures. If you are wondering how to register your company then IncParadise can assist you with the entire process of incorporation.