How to start a business in Illinois
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:
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:
Sales and marketing
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.
Digital marketing agency
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:
Limited Liability Company (LLC)
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
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.
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.
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 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:
Limited Liability Company
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.
Tax requirements for LLCs
Here is a list of taxation streams LLCs in Illinois need to be aware of:
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.
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.
How to form a Corporation in Illinois
There are two different types of Corporations
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-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:
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%
Employment / Unemployment insurance tax
For more details on Unemployment Insurance tax click here.
Employment withholding tax is paid online.
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
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:
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
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.
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.
Nonprofits with tax exemptions are still required to file annual returns with the IRS in order to keep them informed about all financial activities.
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.
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.
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.
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):
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.
A helpful resource for businesses in Illinois
Online database of registered corporations and LLCs
Illinois tax portal for businesses
This is a great resource for small business news, tips and advice, market research and industry-specific links.
The US Small Business Administration offers advice, advocacy and instruction for small businesses across the country.
Our own guide to launching your startup will walk you through every step of starting a business, from concept to execution.