Setting up an LLC (Limited Liability Company) in Illinois can be a strategic move for entrepreneurs and small business owners seeking a flexible and liability-protected business structure.
Understanding the cost breakdown, as well as the pros and cons, is crucial for anyone considering this option.
In this guide, we’ll explore the requirements and expenses associated with forming an Illinois LLC, helping you make an informed decision that aligns with your business goals and financial considerations.
About Illinois LLC
An Illinois Limited Liability Company (LLC) is popular for entrepreneurs and small business owners due to its advantageous features.
One key benefit is the personal liability protection it offers to its members, shielding their personal assets from business debts and legal obligations.
Illinois also allows for Series LLCs, a unique structure that enables business owners to segregate assets and liabilities among different series or divisions within a single LLC, providing an extra layer of protection and operational flexibility.
With a relatively low annual report fee and no publication requirement, Illinois creates a favorable environment for businesses seeking cost-effective and streamlined operations, making it an attractive destination for those looking to establish an LLC.
Why Illinois
Economic Diversity: Illinois boasts a diverse economy with a strong presence in various industries, including finance, manufacturing, technology, healthcare, and agriculture.
This economic diversity can offer businesses a wide range of opportunities and access to diverse consumer markets.
Transportation Hub: Strategically located in the Midwest, Illinois serves as a vital transportation hub with major airports, railroads, and a well-developed highway system.
This connectivity facilitates the movement of goods and makes it an ideal location for distribution and logistics companies.
Skilled Workforce: The state is home to world-class educational institutions, producing a skilled and educated workforce.
This talent pool is beneficial for businesses seeking qualified employees in various fields.
Business Incentives: Illinois offers a variety of incentives to businesses, including tax credits, grants, and loan programs, to encourage investment and job creation.
These incentives can significantly reduce the cost of doing business in the state.
Access to Markets: Being in close proximity to major metropolitan areas like Chicago provides businesses with access to a vast consumer base and international markets.
This accessibility can be a significant advantage for businesses looking to expand and grow.
Cost Breakdown
When considering the formation of an Illinois LLC it’s essential to have a clear understanding of the associated costs.
The expenses involved in establishing and maintaining an Illinois LLC include registration fees, annual maintenance fees, and other potential expenditures.
Here’s a detailed breakdown of these costs:
| Illinois | |
|---|---|
| Filing Fee | $150 |
| Annual Report fee | $75 |
| State Income Tax | 4.95% |
| Sales Tax | 6.25% |
| Corporate Income Tax | 9.50% |
Filing Fee
When forming an LLC in Illinois, you are required to file Articles of Organization with the Illinois Secretary of State.
There is an initial filing fee of $150 to register your business with the state.
Annual Report Fee
LLCs in Illinois are required to file an annual report with the Illinois Secretary of State. , which comes with an associated fee of $75.
State Income Tax
Illinois has a state income tax rate of 4.95% on the income earned by individuals and businesses. LLCs are typically pass-through entities, which means that income “passes through” to the owners and is taxed at their individual income tax rates.
Sales Tax
Illinois imposes a state sales tax rate of 6.25% on the sale of most tangible personal property.
However, the actual sales tax rate can vary by location due to local sales tax additions.
Corporate Income Tax
If your LLC elects to be taxed as a corporation (C-corporation), it would be subject to a corporate income tax rate of 9.50% on its net income.
Pros and Cons
Pros of Forming an Illinois LLC
Limited Liability: One of the primary advantages of an LLC is the limited liability protection it offers.
Members’ personal assets are generally shielded from business debts and liabilities, reducing personal financial risk.
Pass-Through Taxation: By default, Illinois LLCs are taxed as pass-through entities.
This means that business profits and losses “pass-through” to the individual members’ personal tax returns, avoiding double taxation at the corporate level.
Series LLC Option: Illinois allows for Series LLCs, a unique structure that enables multiple series or divisions within a single LLC.
Each series can have its own assets, members, and operations, providing enhanced asset protection and flexibility.
Tax Flexibility: LLCs in Illinois have the option to elect corporate taxation if it aligns better with their financial strategy.
This flexibility can be advantageous for businesses with specific tax planning needs.
Anonymity: Illinois permits the anonymity of LLC members, as their names and addresses are not required to be disclosed in public records, providing privacy for owners.
Cons of Forming an Illinois LLC
Filing Fees and Annual Report: Forming and maintaining an LLC in Illinois comes with costs, including an initial filing fee of $150 and an annual report fee of $75.
These expenses can add up over time.
State Income Tax: Illinois imposes a state income tax rate of 4.95%, which can impact the personal income of LLC members, potentially affecting the overall tax liability.
Sales Tax: The state’s sales tax rate is 6.25%, which can affect businesses involved in retail or the sale of tangible goods.
Corporate Income Tax: If your LLC elects to be taxed as a C-corporation, it will be subject to a corporate income tax rate of 9.50%, which could result in double taxation if profits are distributed as dividends to members.
Annual Reporting Obligations: LLCs in Illinois are required to file annual reports, and failure to do so can lead to penalties or even dissolution of the LLC. Complying with these reporting requirements is essential.
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Requirements to Form an LLC in Illinois
1. Choose a Name for Your LLC
Your LLC’s name must include the words “Limited Liability Company” or abbreviations like “LLC” or “L.L.C.”
The name must be distinguishable from existing businesses registered in Illinois. You can check name availability through the Illinois Secretary of State’s website.
2. Designate a Registered Agent
Appoint a registered agent who can receive legal documents and official correspondence on behalf of your LLC in Illinois.
The registered agent must have a physical address in the state.
3. File Articles of Organization
Prepare and submit the Articles of Organization to the Illinois Secretary of State. You can file this document online or by mail.
Include essential information such as the LLC’s name, registered agent details, and the effective date of formation.
4. Pay the Filing Fee
Pay the filing fee, which is $150. Check the current fee on the Illinois Secretary of State’s website, as fees may change over time.
5. Create an Operating Agreement
Although not legally required in Illinois, it’s highly recommended to create an operating agreement.
This document outlines the management structure, member roles, and operating procedures of your LLC.
Having an operating agreement can help prevent disputes among members and establish clear guidelines for the company’s operations.
6. Obtain an Employer Identification Number (EIN)
If your LLC has more than one member or if it’s a single-member LLC with employees, you’ll need to obtain an EIN from the IRS.
This is necessary for tax purposes and can be obtained online for free.
7. File Annual Reports
After forming your LLC, you’ll need to file an annual report with the Illinois Secretary of State.
The annual report includes updated information about your LLC and is due each year. The filing fee for the annual report is $75.
8. Comply with Business Licenses and Regulations
Depending on your business type and location, you may need to obtain specific licenses, and permits, or comply with local regulations.
Check with local authorities and relevant state agencies to ensure you meet all requirements.
9. Pay State Taxes
Understand and comply with state tax obligations, including state income tax, sales tax, and any other applicable taxes based on your business activities.
10. Maintain Records
Keep accurate financial and operational records for your LLC, including financial statements, contracts, and meeting minutes.
Statistics of LLCs in Illinois
LLC Statistics in Illinois for 2022
There were approximately 930,000 LLCs in Illinois in 2022, representing over 99% of all businesses in the state.
LLCs employed approximately 2.2 million people in Illinois in 2022, or about 45% of the state’s workforce.
The top industries for LLCs in Illinois in 2022 were: Professional, scientific, and technical services (19%) Construction (15%) Retail trade (13%) Health care, and social assistance (12%).
The average age of an LLC in Illinois in 2022 was 5.5 years. The median revenue for an LLC in Illinois in 2022 was $100,000.
LLC Statistics in Illinois for 2023
There have been approximately 100,000 new LLCs formed in Illinois in 2023 so far, representing a 10% increase over the same period in 2022.
LLCs continue to be the most popular business structure in Illinois, with over 99% of all new businesses being formed as LLCs.
The top industries for new LLCs in Illinois in 2023 so far are: Professional, scientific, and technical services (18% Construction (16%) Retail trade (14%) Health care and social assistance (13%) Manufacturing (12%)
The average age of a new LLC in Illinois in 2023 so far is 2.5 years. The median revenue for a new LLC in Illinois in 2023 so far is $50,000.
Comparison of Illinois LLC Formation Process with Other Popular States
Naming Requirements:
Illinois: Must include “Limited Liability Company” or its abbreviations and be distinguishable.
Delaware: Must include “Limited Liability Company” or abbreviations and can be reserved.
Nevada: Must contain “Limited-Liability Company” or its abbreviations.
Texas: Should contain “Limited Liability Company” or abbreviations and must be distinguishable.
Registered Agent:
Illinois: Requires a registered agent with a physical Illinois address.
Delaware: Requires a Delaware registered agent, which can be an entity or individual.
Nevada: Requires a Nevada registered agent.
Texas: Requires a Texas registered agent with a physical address.
Filing Fees:
Illinois: $150 for Articles of Organization, $75 for annual report.
Delaware: $90 for Certificate of Formation, plus #300 annual franchise tax.
Nevada: $75 for Articles of Organization, plus annual fee.
Texas: $300 for Certificate of Formation.
Unique Features
Illinois offers Series LLCs and tax flexibility.
Delaware is known for its business-friendly legal environment and the Court of Chancery.
Nevada provides tax advantages and anonymity.
Texas offers a strong economy and no state income tax for individuals.
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Conclusion
Establishing an LLC in Illinois presents a compelling option for entrepreneurs and business owners.
The state offers unique advantages, including the flexibility of Series LLCs, the option to choose pass-through or corporate taxation and strong privacy protections.
It’s crucial to consider the associated costs, such as filing fees and state income tax, and weigh them against the benefits of limited liability and operational flexibility.
In addition, meeting the annual reporting requirements and staying compliant with state regulations is essential to maintain your LLC’s good standing.
Ultimately, the decision to form an LLC in Illinois should align with your business goals, financial strategy, and the specific needs of your venture.
Consulting with legal and financial experts can help you navigate the process and make well-informed choices for the future of your business.
Additional Resources
For readers seeking more information on LLC formation in Illinois and related topics, here is a list of valuable resources and references:
Illinois Secretary of State Business Services Division:
The official website of the Illinois Secretary of State’s Business Services Division is a comprehensive resource.
It provides detailed information on LLC formation, annual reporting, and relevant forms.
Illinois Secretary of State Business Services Division
Illinois Small Business Development Center (SBDC):
The Illinois SBDC offers free and confidential business consulting services.
They can provide guidance on the LLC formation process, business planning, and other aspects of running a successful business.
Department of Revenue:
For information on state taxation, including sales tax and income tax, the Illinois Department of Revenue’s website is a valuable resource.
Illinois Department of Revenue
Illinois Attorney General’s Office:
The Attorney General’s office can provide information on legal aspects related to businesses, including consumer protection and compliance.
Illinois Attorney General’s Office
