How to start a business in Illinois

If you're looking to launch your startup in the Prairie State, read this first.
13 minute read
Edward Kost @EdwardKost
Technical Co-pilot
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Everything you need to know to start your business in Illinois

Before launching a startup in Illinois, it's important to understand its startup landscape.

Here are notable startup stats for Illinois:

 

Illinois startup stats

 

Planning your business in Illinois

To help you stay on track, you'll need to strategically crafted business plan.

A business plan also demonstrates to potential investors that you have confident control over the operations and growth of your startup.

Thankfully, we've written an in-depth guide to crafting a winning business plan.

The typical business plan is comprised of the following chapters:

  • Value proposition

  • Market opportunity

  • Target market

  • Competitor analysis

  • Funding required

  • Sales and marketing

  • Financial projections

  • Milestones

  • Your team

If you're not sure what type of business to launch, here's a list of the top trending business ideas in Illinois right now.

  • Food truck

  • Digital marketing agency

  • Daycare

  • Virtual Assistant

  • E-bike hire

Don't worry if your business idea doesn't fit with these trends. Any business can be successful with proper planning and comprehensive market research.

Structuring and registering your business in Illinois

There are 7 main business structures, and all are applicable to both brick and mortar businesses and e-commerce businesses:

  1. Sole Proprietorships

  2. Partnerships 

  3. C-Corporation

  4. S-Corporation 

  5. Limited Liability Company (LLC)

  6. Nonprofit

If you're uncertain about which structure best suits you, read our in-depth guide on structuring your business for success.

Procedures for all business types 

Regardless of the business structure you choose, you'll need to do the following:

Get your EIN

If you plan to employ staff, you'll need a unique tax ID number, also known as an Employer Identification Number (EIN).

Register business with Illinois Revenue

You'll need to register your business with the State of Illinois in order for it to be officially recognized by the State. You can register online.

After registering with Illinois Revenue, you'll also be issued with a taxpayer ID which you'll need to submit your tax returns.

Register a business name

If you plan on trading under a unique business name that differs from your given name, you'll need to register it.

To register a business name in Illinois, you'll need to file a Certificate of Assumed Business Name at your local county clerk’s office.

Submit new hire reports 

Whenever you hire new employees you'll need to inform both the IRS and the State of Illinois online.

Obtain licenses and permits

Some business solutions require a special license. The location of your business in Illinois may also be subject to zoning restrictions.

How to form a Sole Proprietorship in Illinois

This is the simplest business structure to operate and form. If you follow each of the above steps, you've already done everything you need to do to form a Sole Proprietorship in Illinois 

Tax details for Sole Proprietorships

Sole Proprietors need to file a personal tax return since they're considered an indistinguishable entity from their business.

You can access the relevant tax form here, and you can submit this form online

How to form a partnership in Illinois

If you plan to run a business with at least one other person, the simplest business structure you can choose is a Partnership. 

There are different forms of partnerships. Each of them differ by the amount of jurisdiction the members have over the business.

General partners handle the day-to-day decision making of the business. They have the highest level of personal liability (think of each general member as a Sole Proprietor).

Limited members limit their personal liability. This comes at the price of not having a say in day-to-day business operations.

File Partnership certificates

These documents formalize your partnership in Illinois. The document you submit depends on the partnership structure you choose.

General Partnership

General Partnerships are registered with the State of Illinois by submitting Form Reg-1 (can also be done electronically) and registering for an EIN.

Limited Partnerships

You can access Limited Partnership registration forms here.

Create a Partnership Agreement

This is not a requirement for the state of Illinois, but it's a step we highly recommend.

A Partnership Agreement outlines all of the processes of the business as well as the duties of each of its members.

It's very important for your Partnership Agreement to contain mediation guidelines to follow in the event of a dispute between members. This will ensure the business keeps running smoothly despite any disagreements.

There are no set rules to follow when creating your Partnership Agreement. If you need inspiration you can use a template.

Tax details for Partnerships in Illinois

You can find the tax form for Partnerships here. If you need assistance in filing it out, you can find instructions here.

You can submit this form online.

How to form an LLC in Illinois

An LLC is the minimal business structure that would allow you to officially distribute stock to investors. This makes securing funding a much easier process for LLCs.

The LLC structure also differentiates members' assets from business assets. If your business solution poses any risk of financial loss to your clients, you should consider protecting yourself with an LLC structure.

An LLC can either be a single-member entity or a multiple-member entity. A multiple-member LLC is run by at least two members and a single-member LLC is run by only one owner.

Naming your LLC in Illinois

In order for your business to be readily identifiable as an LLC you need to add any one of the following to the end of your business name:

  • L.L.C.

  • Limited Liability Company

  • LLC

Elect a registered agent

You need to appoint a registered agent to guarantee that you'll always receive important document that is sent to you by mail. 

A registered agent is 3rd party that registers with the state of Illinois to accept mail on your behalf.

If you're located outside the state, an LLC you establish in the state of Illinois is classified as a “Foreign LLC.”

Foreign LLCs in Illinois need to appoint a registered agent in the state, and also file Form 45.5 in order to transact in Illinois.

The registered agent you appoint  must meet the following criteria:

  • Hold a registered office in the State of Illinois to accept mail correspondence

  • Not accept mail correspondence via a PO BOX

  • Guarantee availability during business hours

  • Guarantee the delivery of all mail to business owners in a timely manner

You could act as your own registered agent, but we don't recommend it since, as a busy business owner, you can never 100% guarantee your availability during business hours. It's much more convenient to contract a professional registered agent to act on your behalf.

Professional registered agents in Illinois:

Here's a list of some professional registered agents you can hire in Illinois:

Submit Articles of Organization

An LLC is created after the submission of its Article of Organization.

You can access the Articles of Organization for Illinois LLCs here. Once completed, this document should be mailed to the Secretary of State:

Secretary of State

Department of Business Services

Limited Liability Division

501 S 2nd Street, Room 351

Springfield, IL 62756

You can also file this document online.

When completing your Articles of Organisation, you'll need to outline a purpose statement for your LLC. Your purpose statement is a brief description of your business and how you plan to make it profitable.

Create an operating agreement for your LLC

An operating agreement is a collection of all the rules that govern an LLC.

Crafting an operating agreement is not a state requirement, so there are no set guidelines for producing this document. For inspiration on how to craft your Operating Agreement click here.

Submit annual reporting

LLCs in Illinois need to submit an annual report in order to prove their compliance with state regulations.

You can file this report by mail or online

Tax requirements for LLCs

Here is a list of taxation streams LLCs in Illinois need to be aware of:

Sales Tax

You'll need to register for a sales tax permit before commencing any sales based activities in Illinois. You can complete this registration online or by mail.

Employer tax / Unemployment insurance tax

If you hire employees you'll need to pay unemployment insurance tax.

For more details on UI tax click here.

You'll also need to pay withholding tax for all employees via the MyTaxIllinois portal.

Personal property replacement tax

You can find the relevant forms here.

Franchise tax

This tax is imposed on businesses for the privilege of transacting in the state of Illinois. It's a temporary tax that will be phased out over a four-year period starting in 2020.

Federal tax 

Single-Member LLCs will need to report their yearly financial activity to the IRS via Form 1040. You can find Illinois tax return documents for single member LLCs here

Multiple member LLCs should report to the IRS using Form 1065. You can find the Illinois tax return document for multiple member LLCs here.

How to form a Corporation in Illinois

There are two different types of Corporations

C-Corporation

This is the standard form of a Corporation. C-Corporations are considered separate entities to their owners which provides members with the highest level of personal asset protection.

C-Corporations also have an immortal life despite any member withdrawals, unless otherwise specified in its Articles of InCorporation.

S-Corporation

S-Corporations are classified as a “pass-through-entity,” meaning that their members are only taxed once at the personal income tax level.

S-Corporation members can also receive tax-free dividends to the extent of their investment.

To elect an S-Corporation classification with the IRS you'll need to file Form 2553.

Choose a name for your Corporation 

Corporations in the state of Illinois must use a  specific suffix in order to identify the business as a Corporation.

One of the following must be added to the name of a Corporation:

  • Corporation

  • Company

  • Limited

  • Incorporation

Once you've chosen a suffix and made sure that your proposed name is not already registered  you can register the name of your Corporation online.

Select a registered agent

The process of selecting a registered agent for Corporations is the same is the process for LLCs.

File Articles of Incorporation

To officially form your Corporation, you'll need to file Articles of Incorporation.

This document outlines details such as the name of the Corporation, details of all members, and the purpose of the business, registered agent details and stock structure.

You can submit this form online.

The Articles of Incorporation need to be signed and filed by incorporators. Incorporators can either be individuals or another Corporation.

There must be at least one incorporator and they must be at least 18 years of age.

Create a corporate records book.

Store all of your important documentation in this records book, such as stock certificates, bylaws and meeting minutes. The Corporate Records Book should be housed in the primary office of the Corporation and readily accessible by all senior members.

Host director meeting, create bylaws and appoint directors

The initial corporate meeting is an opportunity for all senior members to create the bylaws that govern the Corporation, issue stock certificates as well as appoint directors to serve the initial term.

Submit annual report

Corporations in Illinois need to submit an annual report to keep all shareholders and other interested parties informed about key business activities that took place throughout the year.

The annual report also ensures that your business remains compliant with State regulations.

These annual reports are due by the end of the month of the anniversary of the Corporation's formation.

For example, if your Corporation was formed on December 2nd, your annual report would be due every year by December 31.

You can file your annual report online.

Tax details for Corporations

If you elect for your Corporation to be classed as an S-Corporation, make sure you submit Form 2553 within 15 days after the start of the first taxation year.

Corporations should register a MyTax Illinois account in order to centralize all tax processes with the Illinois Department of Revenue. This is also a helpful resource for updated tax rates.

There are six different forms of state taxation in Illinois Corporations should be aware of:

Corporate Income Tax

This is charged at a flat rate of 7% on federal taxable income.

Personal property replacement tax

The net income of Corporations is taxed at 2.5%

Sales tax

Can be filed online or by mail.

Employment / Unemployment insurance tax

For more details on Unemployment Insurance tax click here.

Employment withholding tax is paid online.

Franchise tax

The total yearly franchise tax payable is calculated as a percentage of a Corporation's total Paid-In-Capital. The calculation of this tax is difficult and many Illinois business owners struggle to understand it.

However there is hope dawning over the horizon. The State of Illinois has decided to phase out franchise tax over a four year period starting 2020. 

Illinois State income tax

Corporations in Illinois can access their State tax return here. Instructions on how to fill out this form correctly can be found here.

A list of different Corporate tax forms for the State of Illinoins can be found here.

IRS taxation forms for Corporations 

Tax forms for C-Corporations can be found on the IRS website here.

Tax forms for S-Corporations can be found on the IRS website here.

How to form a nonprofit in Illinois

If your business solution is centred around helping others, you should consider structuring it as a nonprofit. Nonprofits enjoy the benefits of tax exemption, but they need to first prove the charitable nature of their business operations.

Naming your nonprofit in Illinois 

The state of Illinois doesn't impose any mandatory suffix to the name of nonprofits. If you choose to, you can add any of the following to the end of your business name:

  • Corporation

  • Incorporated

  • Company

  • Limited

Elect a registered agent

The process of electing a registered agent for nonprofits in illinois is the same as the process for LLCs and Corporations.

Submit Nonprofit Articles of Incorporation

To establish a nonprofit in Illinois, you need to submit Form NFP 102.10, and specify the purpose of your nonprofit. This needs to be filed with the Illinois Secretary of State.

If you're also filing for a tax exemption with the IRS you'll need to attach certain provisions to this form (refer to ‘article 5’ of the form). The purpose of these provisions is to clearly outline the  charitable intentions of the business and also prove the nonprofit nature of its dissolution clause.

Here are some examples of drafted provisions that you can use:

You can submit this document by mail or online. If you're submitting by mail, make sure you only use black ink when signing and also include a copy of the original document.

Obtain account ID with Illinois department of revenue

You must register your business with the Illinois department of revenue in order to obtain an account ID.

The registration is completed by submitting Form REG-1. Alternatively, it can also be completed online.

Host initial directors meeting

This meeting is an opportunity for all members to formulate the bylaws of the business, elect initial directors and discuss any other business launching processes.

The meeting minutes for this meeting (and all subsequent director meetings) should be documented in the Corporate Records Book. 

Register for fundraising activities

Before commencing any fundraising activities or accepting donations, you need to register your nonprofit with the State of Illinois. 

Religious organizations are eligible to register for an exemption from such fundraising activity disclosure.

Other nonprofits need to submit Form CO-1 to register with the State of Illinois.

Professional fundraisers also need to register with the state.

Ongoing reporting for nonprofits in Illinois 

Nonprofits in illinois need to submit reports on an ongoing basis (usually annually) to keep both the state and IRS informed about all financial activities.

IRS reporting 

Nonprofits with tax exemptions are still required to file annual returns with the IRS in order to keep them informed about all financial activities.

Form 990-N

Nonprofits that collect less than $50,000 in annual receipts need to submit this form annually by the 15th day of the 5th month after the close of the tax year. 

The form is filed online via the IRS electronic filing system. You can find instructions on how to submit this form here.

Certain religious, government and political organizations are exempt from filing this report. For more details on which nonprofit entities are exempt from this reporting click here.

Form 990-EZ

Nonprofits with annual receipts totalling up to $200,000 and up to $500,000 in assets should file Form 990-EZ.

Instructions on how to fill out Form 990-EZ can be found here.

Form 990

If the total gross receipts of a nonprofit is greater than or equal to $200,000 and its total asset value is greater than or equal to $500,000, you'll need to submit Form 990.

You can find instructions for completing the form here

State of Illinois reporting requirements

Nonprofits in the state of Illinois also need to file annual reports at a state level.

You can access the Illinois charitable organization annual report here.

When submitting this report, make sure you also attach the 990 form you submitted to the IRS. You can find detailed instructions for this form here.

Nonprofit license requirements in Illinois 

If you plan on undertaking gaming activities such as raffles and bingos, you'll need to register your intention to do so at least 30 days prior to the event.

Registrations are made by submitting Form RCG-1.

Tax details for nonprofits in Illinois

File for tax exemption 

You'll need to apply for tax exemption at both a state and federal level.

Applying for federal level tax exemption (501c):

To apply for tax exemption with the IRS, you'll need to submit Form 1023. Smaller charity operations may be eligible to file the simpler Form 1023z.

 Applying for State level tax exemption in Illinois

Once the IRS grants your federal tax exemption, you'll also automatically be exempt from Illinois state income tax.

To be exempt from Illinois sales tax you'll need to submit Form STAX-1.

To renew your tax exemption, follow these instructions.

Protecting your business in Illinois

Some recommended insurance policies for your Illinois startup are:

Business owners policy (BOP)

A convenient policy that combines  business property insurance and business liability insurance.

This policy protects your business from events such as fire, theft, loss of income, etc.

Commercial property insurance 

This policy protects the belongings of your business, such as inventory.

General liability insurance 

This policy gives your business a broad spectrum of protection, including property damage, copyright infringements, personal injuries and more.

Business income insurance 

This insurance policy supplements any lost income while your business recovers from disruptive damage.

Workers compensation insurance

This will ensure your employees get compensated in a timely manner in the event of any work related injuries. 

Helpful resources

Resources

Illinois business portal

A helpful resource for businesses in Illinois

Illinois Corporation Name Database

Online database of registered corporations and LLCs

MyTaxIllinois

Illinois tax portal for businesses 

Small Business Development Center

This is a great resource for small business news, tips and advice, market research and industry-specific links.

Small Business Administration

The US Small Business Administration offers advice, advocacy and instruction for small businesses across the country.

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