Definition

What is an LLC?

Illinois Limited Liability Companies (LLCs) are a business model perfect for beginners and medium and small-sized businesses. Forming an LLC is the most convenient and fastest strategy for hustling a new business in Illinois. Many benefits and security of bigger Illinois corporations are available to LLCs, but with far less complex regulations and restrictions.

Business owners can access various tax breaks, credits, and incentives in Illinois. For instance, The Economic Development for a Growing Economy Tax Credit Program (EDGE). It offers yearly tax credits to eligible enterprises that promote job growth, capital investment, and a higher living standard for Illinois residents. Additionally, the state offers loans and grants to assist enterprises in purchasing essentials like land, equipment, machinery, etc., provided that the venture would aid Illinois residents.

Along with other advantages for small enterprises, a Limited Liability Company (LLC) provides legal immunity and tax breaks. Operating an LLC shields business owners from financial responsibility for legal allegations made against the organization or the majority of operational obligations. “Members” is the term for LLC owners. Single-member LLCs are those with a single owner, and Multi-member LLCs are those with multiple owners.

Advantages

Advantages Of an LLC In Illinois

Are you looking to start a business in the great state of Illinois? If so, forming an LLC is one of the best things you can do. An LLC offers entrepreneurs and small business owners several distinct advantages. Let’s discuss some of the major benefits of starting an LLC in Georgia.

Disadvantages

Disadvantages Of an LLC In Illinois

Starting a Limited Liability Company (LLC) in Illinois can have advantages and disadvantages. Before starting an LLC, it is important to understand the implications of this business structure and how it might affect you and your business down the road. 

Here we will discuss some of the key disadvantages of starting an Illinois LLC so you can make an informed decision.

LLC Formation

How To Form An LLC In Illinois

Illinois LLC formation might seem overwhelming without a proper guide. We have put it up for you in steps that will systematically lead you to form it effortlessly. The Illinois LLC formation steps are as follows:

1. Naming the LLC 
2. Designating an Official Address 
3. Appointing a Registered Agent 
4. Filing the Articles of Organization 
5. Acquiring an Employee Identification Number 
6. Establishing an Operating Agreement 
7. Illinois LLC Registration

Naming the LLC

The very first requirement for Illinois LLC formation involves selecting a name. Business owners need to find a proper name according to what they offer. The LLC name needs to be unique, i.e., no other entities in the state are registered under that name. Many service providers offer Business Name Generator tools to help decide on a sophisticated LLC name. All LLCs must refer to the LLC naming guidelines and follow them. Refer to the Illinois Business Name online page to find out more details.

After coming up with the LLC name, verify if the name is available with the Illinois state, is not taken, or already exists. It can be done by performing an online name search on the Illinois Secretary of State (SOS) website. Alternatively, a business name search can be conducted using tools offered by LLC service providers. Make sure that the Illinois naming regulations are met. These regulations are as follows:

• The name must incorporate an abbreviation or term specifying the business model category. Suppose the business model is a Limited Liability Company. In that case, the name must contain any of these: LLC, L.L.C., LTD, Limited Liability Company, Ltd. Liability Co., limited, Ltd. Liability Company, or Limited Liability Co.
• The name must be unique and distinguishable from other company names on the Illinois record. Letter case and punctuation do not differentiate the names of organizations, but articles, abbreviations, and terms can be used to make the name distinctive. For instance, ABC company is similar to A.B.C. company or abc company. But The ABC company is not similar to An ABC company. The Illinois Secretary of State (SOS) website has detailed business naming information.
• The name availability must be checked using the Illinois Name Availability search tool. Other websites also offer similar tools. It is necessary to verify if your decided name is available and not taken already.
• The name must not include terms representing government agencies like the FBI, State Department, Treasury, CIA, etc.
• Using restricted terms like a credit union, attorney, lawyer, bank, etc., mandates additional licensure paperwork and documentation.
• Owners must also purchase the domain name (or URL), even if they don’t intend to use it immediately. It is important to do so as some other entity might secure it. The URL or domain name must be outstanding, concise, and pertinent to the company name. Verify URL availability before settling for the LLC name.
• Illinois offers the LLC name reservation for around 90 days. Fill out the Application to Reserve a Name form and mention details like LLC name, mailing address, EIN, and registered agent details to reserve your company name, along with depositing the $25 fee.
• Illinois DBA (doing business as) is called ‘Assumed Business Name.’ Other states use the terms ‘fictitious name’ or ‘trade name’ for the assumed business name. Businesses intending to operate under a separate name other than their legal business name must file for Illinois Assumed Business Name with the Illinois Secretary of State. 

An LLC can use an Assumed business name when it plans to advertise or introduce new products and services or open an outlet without needing to constitute a completely new business organization. A DBA might be employed when; for instance: A business whose legal name is Best Books, LLC intends to trade books on a website under the name Best Books or wants to market stationery supplies as Best Supplies, etc.

• Although the Illinois Secretary of State registry indicates that the LLC name you want is obtainable, that doesn’t imply you can utilize it. Apart from state trademark registration, federal trademark registrations are also available for company names. Hence, verifying with the U.S. Patent and Trademark Office is essential. 

Online inspection can be done on the search engine website to see if the preferred name has yet been federally registered or trademarked. Also, contact the Illinois Secretary of State for information on state-level trademarks and service marks.

Designating an official address

All Illinois LLCs must possess a dedicated official mailing or street address. It can include the address of:

• A physical place 
• House (in case of a home-based venture)
• Office establishment 
• Any location external to the Illinois state 

However, mentioning a P.O. box is not permitted.

Business owners can simplify this step by acquiring an Illinois virtual mailbox from any service provider. The service provider can receive mail from the SOS on behalf of the owner and scan it to provide an online review of the mail received. For those operating a home-based venture, taking this action will prevent the publication of their residential address in the public records of their company, which is a wise decision.

Appointing a Registered Agent

A Registered Agent is a person who delivers official tax and legal communication and is in charge of maintaining records with the Illinois Secretary of State. All Illinois LLCs are mandated to get a Registered Agent. Those who can secure the Illinois Registered Agent designation include:

• Business owner or member 
• Manager or employee of the company 
• Specialized Registered Agent from any service provider 

An Illinois Registered Agent must satisfy the following requirements:

• The agent needs to have an Illinois-based physical mailing or street address 
• The agent must be present to accept or receive documentation on the organization’s behalf during regular working hours.

When submitting the Articles of Organization in Illinois, the Registered Agent’s name, address, and contact details must be mentioned.

Filing the Articles of Organization

Next comes the form submission to the Illinois Secretary of State to formulate the Articles of Organization, also available as LLC 5.5 Form. Once you have gathered all the details and necessary documentation for the Illinois LLC, you can proceed with its registration with the Illinois SOS. The LLC is formally created upon filing it and becomes legally active.

There are various ways to file the Illinois Articles of Organization:

• Physically send the form to the Office of the Secretary of State via mail 
• Let your LLC service provider do it for you 
• Use the Illinois Secretary of State’s online filing system.

The Illinois LLC Articles of Organization must be submitted with a $150 filing fee. The details that must be filled in on the form of Articles of Organization include:

• The Illinois LLC name 
• The official address of the organization for Illinois LLC 
• The Illinois LLC’s objective 
• The date from which the Illinois LLC will go into effect 
• The operational duration of the Illinois LLC (limited or perpetual. By default, perpetual is mentioned if left vacant)
• Date from which the Articles of Organization will be effective 
• The Illinois LLC Registered Agent details (name, contact information, address)
• The name, address, and signatures of the organizer(s)
• Names and addresses of the initial member(s) if member-managed or of the manager(s) if manager-managed 
• Conditions for governing the organization’s internal affairs 

Under Illinois law, all LLCs must register copies of their Articles of Organization with the details and information to be printed or typed only in black ink. The Secretary of State (SOS) will examine the Articles of Organization certificate after you register it. Once it is accepted, the LLC is then regarded as a legal body.

Remember that the Illinois Articles of Organization and Illinois Articles of Incorporation are entirely different. Make sure to distinguish the two when filing, as the first applies to LLCs and the second applies to corporations.

The Articles of Organization is only filed once at the time of LLC formation. However, an Illinois LLC Annual Report is mandated to be filed yearly. If you have appointed a service provider, they will remind you when to submit it or complete it on behalf of the LLC.

Manager-Managed LLCs Vs. Member-Managed LLCs

Selecting between a manager-managed entity or a member-managed entity is a significant choice for LLC owners. The best option relies on their circumstances and interests. Many Illinois LLCs choose to be member-managed, meaning the members (owners) run the company’s daily operations. A manager-managed structure is beneficial if none of the members have the interest or time to manage the business daily. 

In manager-managed LLCs, single or multiple members can be designated to serve as managers or recruit an external manager. If you employ an external manager, it is crucial to attentively vet potential hires to ensure that they will operate your company sincerely, smartly, and competently. Additionally, specify precisely the amount of decision-making authority the manager will possess in your Operating Agreement.

Modifying Articles Of Organization

The Illinois LLC Articles of Organization must be submitted once only. However, LLC Articles of Amendment need to be submitted if business owners later want to modify their Articles of Organization. For instance, if the registered agent’s address needs to be changed. Service providers can also help with filing the LLC Articles of Amendment.

Acquiring an Employee Identification Number (EIN)

The Internal Revenue Service (IRS) requires organizations to acquire an EIN for recognition or identification purposes. It is also referred to as Federal Tax Identification Number (FTIN) or Federal Employer Identification Number (FEIN). An EIN provides the Internal Revenue Service (IRS) information about the company, similar to what a Social Security Number (SSN) accomplishes for sole proprietors or individuals.

This number is intended to help LLCs with the following:

• Establishing a bank account for the company 
• Staff recruitment 
• Federal and state tax filing, payment, and management
• Providing payroll data and employee payments.

As an aspect of the Illinois LLC formation procedure, business owners can obtain an EIN or let their LLC service providers do it.

Establishing an Operating Agreement

An Illinois LLC Operating Agreement describes: 

• how the business is organized between members
• how company decisions will be made
• what will happen if a member quits the business.

Think of it as a “user guide” for operating the organization. An organization must have an Operating Agreement according to some state laws. Although it is not legally obligatory in Illinois, creating one is a good decision to safeguard your company. The following is not an exhaustive list but an example of what the Operating Agreement might contain:

• The LLC name 
• The LLC’s official address 
• Details of the Registered Agent (name, contact, address)
• Details of Articles of Organization 
• Business pursuit 
• LLC members and details of their shares 
• Distribution manner of profit and loss among members 
• Process or policy that will apply to members quitting and to new members’ addition 
• Administration of the LLC 
• Liability and indemnification clauses

Illinois LLC registration

All Illinois LLCs must register with the Illinois Department of Revenue.

Types of LLC

Which type of LLC is ideal for me?

In Illinois, there isn’t a specific categorization of LLC types like in some other states. However, there are different ways you can structure your LLC depending on your business needs. Some of the most common structures you may consider for your LLC in Illinois are:

1. Single-Member LLC: This is the most basic form of an LLC, owned by just one individual or entity. The owner is responsible for all the decisions and liabilities of the business.
2. Multi-Member LLC: This type of LLC has two or more members who share ownership, profits, and responsibilities. Multi-member LLCs are required to have an operating agreement to define the roles and responsibilities of each member.
3. Member-Managed LLC: In this type of LLC, all members take an active role in the day-to-day operations and decision-making processes of the business. Each member has equal authority and responsibility for the company’s affairs.
4. Manager-Managed LLC: In a manager-managed LLC, the members appoint one or more managers to oversee the daily operations of the business. The managers may or may not be members of the LLC, and they are responsible for making decisions and executing tasks on behalf of the company.
5. Series LLC: Illinois is one of the few states that allow the formation of a series LLC. This unique structure allows for multiple individual LLCs (referred to as “series”) to exist under one master LLC. Each series operates independently, with its own members, assets, and liabilities, but under the umbrella of the master LLC.
6. Professional LLC (PLLC): This type of LLC is specifically designed for licensed professionals, such as doctors, lawyers, and accountants. To form a PLLC, at least one member of the LLC must have the appropriate professional license.

Remember that while these are some of the common structures, it’s essential to consult with a legal professional or a business advisor to determine the best option for your specific situation. Additionally, make sure to comply with all Illinois state requirements when forming your LLC.

LLC Taxes

Applicable LLC taxes in Georgia

Businesses can not elude tax payments. All Illinois LLCs are subject to state and federal taxes. Preliminary taxes imposed on Illinois organizations include:

• Federal taxes 
• State taxes 
• Employee and employer taxes.

Profits from LLCs are not taxed, similar to C-corp. They are rather taxed in the following manner:

• LLC member(s) must file federal income tax on earned profits after analyzing federal deductions and allowances 
• LLC member(s) must file self-employment tax on company profits.
• LLC member(s) must file state income tax after subtracting state deductions and allowances 
• LLC member(s) are subjected to file payroll tax applicable on salaries of all employees
• Illinois sales tax applies to some LLCs that sell goods.
• Employees are also responsible for filing state and federal income taxes. 

The first three categories are subjected to pass-through taxation and apply to LLC members or managers earning profits from the organization. LLC profits are declared on state and federal personal tax returns.

LLC State Taxes 

The Illinois Department of Revenue mandates the following three different state tax payments on business owners:

• Sales tax 
• Income tax 
• Franchise tax 

Illinois Sales Tax 

Businesses selling tangible goods or specific kinds of services must collect sales tax at the point of purchase. Illinois sales tax sum differs based on the company’s area, city, or county. According to their operating business model, LLCs might need to collect Illinois sales tax on behalf of the Department of Revenue of the state.

LLCs selling items that mandate sales tax payment should file a Certificate of Registration business license (seller’s permit). The procedure can be accomplished online via the MyTax Illinois website.

Items subject to Illinois sales tax collection include:

• Specific services that the company offers 
• Personal property, tangible goods, and products sold, like raw materials, furniture, books, cars, appliances, electronics, etc.

Not all states impose sales taxes on necessities like food, clothing, gas, medicine, etc. Owners can utilize the tool for ‘State Sales Tax calculation’ offered by service providers to estimate the amount of sales tax due on LLCs. They can also verify from the Department of Revenue if they are subject to Illinois sales tax collection or confirm it from their qualified accountant. Also, check the correct tax amount that must be paid.

Illinois Income Tax

The income business owners earn subject to Illinois Income Tax. The income is carried over to personal tax returns. Illinois has a flat income tax rate of 4.95%. Owners must pay taxes at Illinois’ standard rates and can then claim standard state tax breaks and waivers. State income tax is also due on all salaried staff.

Illinois Franchise Tax

Like a few other states, Illinois imposes a tax on particular business organizations for offering the privilege of existing as a legal body and conducting business within the state. Such a tax is referred to as Franchise, Privilege, or Transaction. It is a crucial component of LLC tax filing. Contrary to the name, it is not related to franchises. 

In 2020, the Illinois Franchise Tax was eliminated. LLCs will still be liable for franchise tax payment as the repeal will be enforced on 31st December 2025. The tax obligation will fluctuate across the years till the dissolution is finished.

Consult with tax preparers, accountants, or the Department of Revenue if you are uncertain whether your LLC is subject to the Illinois franchise tax payment. If yes, remember to verify the correct payable tax amount.

LLC Federal Taxes 

The IRS collects federal taxes every quarter. LLC owners are subject to pass-through taxation that entails:

• Federal Income tax 
• Federal Self-employment tax

As federal taxes are confusing, check with a qualified tax preparer or an accountant to verify that the Illinois LLC is making the necessary payments.

Federal Income Tax

Standard Federal Income Tax must be paid on the money withdrawn from an LLC. The amount of federal income tax relies on LLCs:

• Current tax bracket 
• Income 
• Deductions 
• Filing status

Only the profits withdrawn from the company, excluding some allowances and deductions, are subject to federal income tax. It also incorporates the following:

• Business expenses 
• tax-free sum 
• few retirement plan deductions 
• medical expenses 

Discuss further Federal Income Tax details with your tax preparer.

Federal Self-Employment Tax

The Federal Insurance Contributions Act (FICA) administers the self-employment tax. 15.3% is the current self-employment tax rate which incorporates all profits from the organization. All members and managers withdrawing earnings from an LLC must file the federal self-employment tax.

To determine the amount of self-employment tax needed to be paid, subtract the business expenditure from the personal income. For instance, if the members or managers withdraw $20,000, a $3,060 self-employment tax would be due. Similarly, upon withdrawing $120,000, the payable self-employment tax amount will be $18,360.

LLCs Classified As S Corp Are Subjected To Low Federal Self-employment Taxes 

Classifying an LLC as an S Corporation can help reduce the self-employment tax amount. The Internal Revenue Service (IRS) proposes LLCs be categorized as S Corporations for taxation by filing S Corp Election Form (Form 2553). It is possible if an organization complies with specific prerequisites. Doing so will enable LLC members to claim part of their income as withdrawals or distributions and some as salary. Hence, the self-employment tax amount will decrease, saving you some money. 

Some service providers can also help you file Form 2553 and provide an S Corporation Tax Calculation tool to estimate the saving amount. Further details on decreasing the LLC self-employment tax by electing for S Corporation can be found with the help of tax advisors or accountants.

Employee and Employer Taxes 

LLC owners who pay employees are subject to different tax conditions. Consult a tax preparer or accountant to receive precise advice for your particular situation.

Payroll Withholding Tax 

Employers need to deduct federal taxes from the paychecks of employees. The 15.3% combined federal tax rate comprises 7.65% of the employer’s share of taxable employee’s salaries plus 7.65% of tax levied on employees.

Employee Insurance And Other Provisions 

Employers may be subjected to insurance payments for employees like:

• employee compensation insurance 
• unemployment insurance tax, etc.

Employee Tax Returns 

Employees are also subjected to file tax returns despite their employers withholding state and federal income taxes from their wages.

Miscellaneous LLC Duties And Taxes 

Other duties and taxes apply to LLC owners based on their respective industries.

Certain taxes applicable on Illinois LLCs may comprise:

Tobacco/Cannabis tax is applied to entities dealing with products like cannabis or tobacco.

Motor fuel taxes apply to suppliers and distributors of automotive gasoline.

Liquor tax is payable by entities retailing alcohol-based drinks.

Hotel tax levied on Illinois entities offering hospitality services.

Such taxes can be filed through the Illinois MyTax portal. Export and import duties are also imposed on businesses dealing with respective products.

The additional taxes or duties that LLCs must pay should be discussed with tax preparers or accountants.

Estimated Taxes 

Many LLCs are mandated to pay estimated taxes all year long (or four times a year) as per their taxable income, adjusted gross income, deductions, taxes, and yearly credits. The most typical forms of estimated taxes include:

• Illinois state income taxes
• Federal income taxes
• Federal self-employment taxes

Visit the IRS website or ask your accountant for more information.

Costs

Cost of forming an LLC in Georgia

There are various costs associated with the formation of an LLC in Illinois. Some filing fees are charged once, while others are paid multiple times over the operating period of LLCs. These include:

Articles of Organization Filing Fee

The state fee for acquiring Articles of Organization is the main expense associated with forming an LLC. It is deposited to the Illinois Secretary of State. To establish an LLC in Illinois, be ready to make the following payments:

• New domestic (single-member or multi-member) LLC–$150
• Series LLC–$400
• New foreign LLC (Application for Admission to Transact Business form LLC-45.5)–$150

The Department of Business Office of the Illinois Secretary of State is where you can request permission for registrations, paperwork, etc. The LLC-5.5 (Articles of Organization) form typically takes 10 business days to process. A 24-hour (normal business day) prompt processing is also available for an extra $100. Owners can file their Articles of Organization more quickly online or personally, at either the Springfield or Chicago office.

Annual Report Filing Fee

Every LLC in Illinois must submit an Annual report to the Secretary of State. The annual filing amount was decreased from $250 to $75, which is a great value.

The annual report is due on the first day of the next month after the LLC registration anniversary. For instance, if an Illinois LLC (Limited Liability Company) was established on 14th July 2022, the Annual report must be submitted by 1st August 2023.

A $100 surcharge is assessed for annual reports that are not submitted timely.

Registered Agent Charges 

A registered agent’s name, address, and contact information must be filled out in one of the fields on the Articles of Organization form. Illinois law obligates businesses to select an authorized individual to manage documentation services.

A registered agent must be a state resident, either an owner, a manager, or an entity permitted to serve as a registered agent in Illinois, like a registered agent service.

The hiring of a registered agent is free of charge in Illinois. But if you subsequently wish to modify your registered agent information, the following additional expenses are implicated:

• If owners want to change their registered agent or there is a change in the registered agent’s address, then the Illinois SOS must be informed by filing an LLC-1.36 or 1.37 form for $25.
• If the registered agent has resigned, the SOS must be informed by filing the LLC-1.35 form for $5.

These filings can also be accelerated for an additional $50. It is a better option because $100 will be charged as a late fee if an LLC fails to file the Statement of Change of Registered Agent and Registered Office form within 60 days of a registered agent’s resignation.

If you live in Illinois and can collect official documents regarding LLC between regular working hours, you can act as your registered agent. In this case, there will be no expense involved. Alternatively, suppose the LLC owners do not reside in Illinois, and no one else is present to manage the legal paperwork during regular office hours. In that case, they can hire a registered agent through a registered agent service to complete the task mentioned above in their name. 

Illinois registered agent services typically charge $49- $99 or above annually.

Illinois LLC Name Reservation Fee 

LLCs need a sophisticated, unique company name. Those who already have a name in mind and want to avoid others acquiring it but are busy creating and completing other business paperwork can submit the Application to Reserve a Name form and deposit a $25 charge. It secures the company name for 90 days.

Know that your LLC name must contain an acronym denoting the business model or structure like LLC, L.L.C., or the word Limited Liability Company. Additionally, an LLC name must be quite distinct from all other companies established in Illinois state.

Illinois LLC Certification Charges 

Business owners might be required to present certain certifications or copies to investors, banks, etc. They will have to contribute additional funds to receive certification or copies for their Illinois LLC (limited liability company).

$25 is charged for a Certificate of Good Standing, Certified copies of Articles of Organization, or other legal papers. The turnaround time can be expedited for $75. Such documents are accessible from the Department of Business Services.

Illinois DBA Filing Fee 

A DBA (Doing Business As) is also known as an ‘Assumed Business Name.’ It is an addition to take into account when:

• For marketing reasons, the LLC has a recognized distinct brand that can be linked to its name.
• Or owners might prefer to refrain from conducting business under the legal business name of their LLC and want to register a different name instead.

Illinois has an odd pricing model for DBA filing. In contrast to other states, the $150 DBA filing fee is split over 5 years and charged as follows:

• $30 is charged for DBA filed in the year ending in 9 or 4 
• $60 is charged for DBA filed in the year ending in 8 or 3
• $90 is charged for DBA filed in the year ending in 7 or 2
• $120 is charged for DBA filed in the year ending in 6 or 1
• $150 charged for DBA filed in the year ending in 5 or 0

DBA must be renewed every 5 years. Each time a DBA name expires on the LLC, it must be revived at least 60 days in advance. Business owners can also register for renewal of their DBA name when submitting an annual report. There is a $100 late fee if you don’t revise your DBA name by the deadline.

Also,

• For altering a DBA within the initial five years, owners must pay an additional $25.
• An additional $5 is charged to revoke an Illinois registration for a DBA name.

Illinois LLC Licenses And Permits Fee

Businesses may be obligated to acquire legally required permits and licenses, depending on the sector, occupation, or area of your Illinois Limited Liability Company (LLC). The specifications change depending on the industry. However, the construction industry and those businesses that offer professional services must consider the prerequisites with concentration. The charges vary based on the permit or license needed to be acquired.

Starting A Business

Business Opportunities to Explore in Georgia

Now that you have successfully formed your Illinois LLC, here is what you need to do further. An Illinois LLC will be legally established once it is registered. Maintain your LLC up to date with state requirements and operational status. All Illinois LLCs must file an Annual Report. It is due annually on the first day of the month after the anniversary month of the Illinois LLC formation. 

The annual report includes similar details mentioned in the Articles of Organization and confirms the SOS the existence of LLC, and declares any modifications. An LLC might be required to keep a registered agent on record for the company and submit quarterly tax payments.

A registered LLC also enables you to take the following actions:

• Become a member of the state tax authority
• Acquire any essential licenses or permits, such as Health department permits, Zoning permits, Home Occupation permits, Professional licenses, etc., to run your company. Businesses need a seller’s permit in some states to carry out sales.
• Create a bank account for your company
• Initiate application for obtaining a business credit card
• Get insurance to protect your company 
• Use a trademark to safeguard your company name and an official logo.

Comparisons

Is LLC The Best Entity For Me?

Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.

FAQ

Frequently Asked Questions About Starting An LLC In Illinois

Here are the most commonly asked questions about forming an LLC business in the state of Illinois: