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Illinois has many business opportunities for entrepreneurs to tap into.
And one way to partake in the market is to officially establish your presence as a company.
When it comes to starting a company, a Limited Liability Company is the most popular option among small companies and start-ups.
This is because an LLC offers various flexibility, protection, and tax benefits for less stress than other business structures.
However, there are several steps you have to follow, and requirements you must obtain, to successfully open an LLC in Illinois, and this guide is going to walk you through them.
So without further ado, let’s jump right in.
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Pros Of Starting LLC In Illinois
Limited Liability Protection
The limited liability in LLC does not mean the business is limited.
Instead, it means that the risk of every member in the LLC is limited to their business assets, while their personal assets are protected.
This is one of the most enticing benefits of an LLC, as it protects the personal assets – cars, homes, money, etc – of the members from being tampered with if the business faces legal issues or falls into debt.
Pass-Through Taxation
LLC business owners’ profits are not taxed at the entity level, instead, they are passed through to the members based on personal income.
This means that no matter how much the company makes, only what is marked as personal income by the LLC member will be taxed.
That way, they can avoid being double-taxed, and save a lot of money in the business’s official account.
Flexible Management Structure
LLC offers more management flexibility than other business structures.
In an LLC the members can decide to either run the business themselves or hire business managers to do so.
This is especially beneficial for business owners that prefer not to be involved in the day-to-day running of the business, but instead, want to pursue other personal interests.
Few Formalities
Unlike the Corporation business structure, LLCs offer fewer regulations and formal activities.
In an LLC business, hosting meetings with the board of directors or shareholders is not mandatory.
You are also not mandated to keep huge records of any meeting whatsoever.
Best of all, there are fewer legal requirements an LLC business must comply with compared to a corporation, giving the members more free time and decision-making flexibility.
Cons Of Starting LLC In Illinois
Difficulty in Raising Capital
LLCs do not offer a similarly high level of protection and management structure investors are usually familiar with – with corporation businesses.
This makes it a risky investment for investors, making it difficult for LLCs to raise capital.
In fact, LLCs are not structured to have shareholders, as they do not offer stocks, and they offer less control to shareholders, which is a big turn-off for investors.
Limited Lifespan
In states like Illinois, LLC businesses have limited lifespans and may be required to dissolve if a member leaves the company or dies.
In most cases, an LLC member can voluntarily dissolve the business using court orders in the event of legal or financial difficulties.
High Personal Income Tax
As an LLC business owner, you might be enjoying the benefit of avoiding double taxation, because only personal income is taxed.
However, the tax levied on this personal income is way higher than the state’s general income tax rates.
In Illinois, each member of an LLC pays self-employment taxes of up to 15.3% – 12% for social security and 2.9% for Medicare.
In addition, they’ll also need to pay Illinois State’s income tax of 4.95%.
7 Steps On How To Start LLC In Illinois
1. Name Your Illinois LLC
The first step in how to open LLC in Illinois Is to choose what you’re going to name your company.
In addition to the marketing aspects of naming your company such as choosing a brandable, short, catchy, and memorable name, there are specific legal rules you must adhere to;
- Under Illinois law, every LLC business must contain the word “limited liability company” or any shortened version of it such as LLC, L.L.C, etc
- Your chosen name must not include any word that gives the impression of a government agency such as the Treasury, State Department, FBI, CIA, etc.
- You must also check for the availability of whatever business name you choose, making sure that no one else has used it – not even in the neighboring state. To do that, you can either google search the name, search the name, or search the Illinois Secretary of State online database
- If you’ve eventually found an available name for your LLC, you can reserve it by filing a Name Reservation form. Reserving your LLC name in Illinois will cost $25.
2. Choose An Illinois Registered Agent
The next step is to choose an Illinois agent for your LLC.
A registered agent is an individual or business entity whose job is to accept legal documents on behalf of your LLC company, especially in cases when your business is sued.
Any registered agent you choose must have a physical address in Illinois – even PO Boxes aren’t allowed.
If you have a permanent address in Illinois, and you are always available during business hours, you can apply to be your LLC’s registered agent.
Also, if you have a friend or family member with a verified physical address – home or office – in Illinois, you can choose them to be your registered agent.
Otherwise, you can hire a business entity as your registered agent, which is also called a commercial registered agent.
Regardless of who you choose, just make sure they have a physical address in Illinois and are available during business hours, specifically 9 AM – 5 PM.
3. Obtain Your LLC Articles Of Organization
The Articles of Organization is a document you file with the Illinois Secretary of State that contains some basic information about your LLC such as;
- The entity name of your LLC
- The name and address of your registered agent
- The purpose of your business
- How your business will be managed
And much more.
To obtain the Articles of Organization for your LLC, you’ll have to fill out a form with the Illinois Secretary of State either online or by submitting a form via mail.
Filing Articles of Organization for an Illinois LLC costs $50, and it’s usually processed in 10 days. However, you can speed up the filing process to be done within 24 hours if you can pay an additional fee.
If you want to file the document by mailing a hard copy, you can download the Articles of Organization Form, else you can visit the Illinois official Secretary of State website and apply online.
4. Get An Employer Identification Number (EIN)
An EIN, also called Federal Employer Identification Number (FEIN), is a number assigned to your LLC by the Internal Revenue Service(IRS) and is used by several government agencies to identify your LLC.
Even though you might not have an employee yet, you still need to get an EIN, as it lets your company open a business bank account, file tax returns, apply for business licenses and permits, and have employees’ payroll (if you have any).
Note that the EIN is not issued by your Illinois Secretary of State, but by the federal IRS, and applying for EIN is free.
However, you must make sure your LLC registration has been approved before applying for EIN.
You can apply for an EIN online using either your SSN (Social Security Number) or ITIN (Individual Taxpayer Identification Number).
Another way to apply for your EIN is by mail or fax, but this method is usually slow compared to applying online.
5. Prepare An LLC Operating Agreement
An Operating Agreement is a customized document that contains the agreed functional and decision-making process of your LLC, and it must be signed by every member of the LLC.
Although Operating Agreement documents are not a must for starting LLC in Illinois, we highly recommend that you create one.
This is because, with an official Operating Agreement, every member of the LLC now knows and agrees on the business procedures of the LLC such as voting, meetings, day-to-day operations, conflict resolution process, membership duties, and ownership.
Furthermore, if your LLC does not have an Operating Agreement, its management procedures will be set to the default rules of Illinois – which may not be best for your business.
And in terms of conflict, the court may take an LLC without an Operating Agreement seriously.
To get started, you can download our free Operating Agreement template and draft one for your business.
6. Obtain Your Business License and Permits
Even after successfully opening an LLC, you may not be allowed to operate if your business does not have the required License or permit.
Different business industries and levels of business require different types of permits and licenses. And each license has different government agencies assigned to issue it.
We recommend that you contact your local government office to find out the kind of permit or license your business needs to operate.
You can apply for your LLC business permit through the Illinois Business Portal and fill out the form.
The cost of a business license in Illinois ranges from as low as $100 to $2000 depending on the type/industry of your business.
7. File An Illinois LLC Annual Report
Filing an Annual Report is an important part of starting an LLC in Illinois.
By filing an Annual Report, you maintain good standing with the Illinois Secretary of State and the public such as customers, vendors, and investors.
Failure to do so can result in penalties, and fines, and your business LLC will be dissolved by the state.
Like other LLC legal documents, you can file the Annual Report either online or by mail. But we recommend you file it online, as it will be processed in a few minutes, unlike via mail which takes up to 10-15 business days.
How To File Your LLC Annual Reports Online.
To file your LLC Annual Report online, visit the Illinois Annual Report Filing page, fill in all the required information providers on the form, winter your credit details, and proceed to make payments.
It will be processed in a few minutes and the receipt and copy of your Annual Report will be sent to your email.
When filing an LLC Annual Report, you must note the following;
- The Illinois LLC Annual Report cost $75 and is paid once every during the anniversary date of your LLC
- If your Annual Report renewal is 60 days (3 months) late, you’ll be charged a $100 penalty plus the base fee of $75, making it $75.
However, the Illinois government usually sends a renewal reminder to business owners, but you also have to set up a reminder for yourself.
How To Start LLC in Illinois FAQ
Conclusion
Starting an LLC in Illinois can be a rewarding experience for entrepreneurs, but the process can also be overwhelming.
However, don’t let the complexity of forming an LLC deter you from pursuing your business dreams in Illinois.
By following these 7 steps, you can successfully navigate the process and enjoy the benefits of personal liability protection and tax flexibility.
