How to Start a Business in Illinois
Home to over 70 of the largest companies in the US, Illinois is obviously no slouch when it comes to fostering a positive environment for business ownership. If you're already selling a product or service, you're in business as a sole proprietor. Keeping and growing that business, however, is a different animal. From taxes and insurance, to business licenses and bank accounts, our guide will show you how to do it all and protect your personal assets in the process.
Ready to Start a Business in Illinois?Let's Get You Started
Pick a Business Structure
Name Your Business
File Formation Paperwork
Draft Internal Records
Get Illinois Business Licenses
Organize Your Money
Get Business Insurance
Understand Your Tax Burden
Build Your Business Website
File the Illinois Annual Report
Apply for Trademarks
1. Pick a Business Structure
Your first step is to pick a legal structure for your business. If you’re already in business, but haven’t filed formation documents with the state, you’re a sole proprietor. If you have a business partner, you’re a general partnership. Both structures are easy to maintain and free to form, but without legal separation, you are your business. That spells trouble. If your business gets sued or goes under, your personal assets will be on the chopping block. No one wants that.
You need liability protection. LLCs and corporations are two of the most popular business structures for precisely that reason: they provide liability protection by creating separation between business owner and business.
Illinois Limited Liability Company (LLC)
Formed at the state-level, LLCs offer flexible taxation, a simple management structure, and fewer formalities than corporations. The real benefit of the LLC is that it creates a separation between business owner and the business, which means that if the business gets sued or goes bankrupt, the assets of the members of the LLC are, in most cases, untouchable.
Forming an Illinois LLC requires filing formation documents with the Illinois Department of Business Services, Limited Liability Division, and paying the $150 filing fee.
Corporations are the original business structures. Like LLCs, corporations offer asset protection for their owners. Corporations are owned by shareholders, who appoint a board of directors, who turn around and hire officers to run the corporation. While corporations have more formalities than LLCs, they are a popular business structure for owners who want to raise outside money and grow the business.
Starting an Illinois corporation requires filing paperwork with the Illinois Secretary of State, and paying a $175 filing fee.
Can an LLC be just one person?
Yes! A one-person LLC is called a single-member LLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are just like multi-member LLCs, but there are some slight differences in how they file taxes and protect personal assets.
Read all about Single-Member LLCs.
What about Illinois nonprofits?
Nonprofits are different from LLCs and for-profit corporations in that their mission is to improve the community through charitable acts. If you have a specific business in mind that serves the public good like a religious organization or a food bank, you can start an Illinois nonprofit corporation by filing formation documents with the Illinois Secretary of State.
Want to learn more? Check out our Nonprofit Guide.
2. Name Your Business
Choosing a name for your business is one of the first things you’ll think about. Your business name will set the stage for years to come. You can pretty much choose any name for your business, as long as it lines up with the naming rules of Illinois. These include:
- Must include the words “limited liability company” or “corporation,” or an abbreviation like “LLC,” or “Inc.”
- Not include the words “trust,” “trustee,” or “fiduciary,” unless the business is involved in that activity.
- Be distinct from any other active business name in Illinois.
- Not use words that suggest your business offers a professional service, like “accountant” or “lawyer.”
Use the Illinois business name search to see if your business name is available.
Can I reserve a business name in Illinois?
You sure can. If you’re not ready pull the trigger on your fried fish food truck business, “The Codfather,” you can at least reserve the name for 90 days, or until you’re ready to officially start your business. To do this you’ll need to submit an Application for Reservation of Name to the Illinois Department of Business Services. The filing fee is $25.
What is a DBA?
A DBA is like an alias for your business. Formally referred to as “doing business as,” a DBA can be used in place of your business’s legal name, which is the name you listed on your state formation documents. If you’re a sole proprietor or in a partnership, you’ll need to register a DBA if you’re using a name for your business other than the owners’ names.
LLCs and corporations often use DBAs to re-brand or expand into new areas of business without having to file new business formation documents. Illinois calls DBAs assumed names. To register an assumed name in Illinois, you’ll need to file Form LLC-1.20 for LLCs, or Form BCA-4.15/4.20 for corporations. Corporations and LLCs register their DBAs with the Illinois Secretary of State. Sole proprietors and partnerships will need to register their assumed name at the county level.
There is also a publication requirement. Within 15 days of filing, you must run an ad in a local newspaper stating that you have registered your assumed name. The ad needs to run once a week for three weeks. After the three weeks are up, you’ll receive a certificate of publication from the newspaper. From there you’ll have 50 days to submit the certificate with an original copy of the ad to your county clerk’s office.
What about trademarked names?
It’s a good idea to check with the US Patent and Trademark Office (USPTO) to make sure your business name hasn’t been trademarked by someone else. If it has, and you use it anyway, there’s a chance that the business could come after you for infringement.
3. File Formation Paperwork
You won’t need to file formation paperwork with Illinois if you’re a sole proprietor or part of a general partnership, because you’re not creating a separate business entity. However, you will need to get an Illinois business license.
- To form an Illinois LLC, file Illinois Articles of Organization.
- To start an Illinois corporation, file Illinois Articles of Incorporation.
Warning: The information you list on your formation paperwork will become part of the public record. This means the names and addresses you provide will be fairly easy to find by anyone who knows how to search the Illinois business database.
What is an Illinois registered agent?
An Illinois registered agent is any person or business that maintains a registered address (no PO boxes) in Illinois, and is willing to accept service of process (notice of a lawsuit) and other official mail on behalf of a business.
How can I keep my information off the public record?
It’s no secret that privacy is a hot commodity these days. If you’re not into having your personal information on Illinois public records, your best bet is to higher a professional registered agent company that will list their name and address on all public documents allowable. This will keep your name and information off most public records.
4. Draft Internal Records
So far in this guide, we’ve dealt with public forms that you’ve had to file with the Illinois Secretary of State. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.
Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.
Here are the major internal documents you need to organize for LLCs and corporations:
Illinois LLC Operating Agreement
This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.
Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft an Illinois LLC Operating Agreement template that you can use as a solid foundation.
Illinois Corporate Bylaws
Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Corporate bylaws are required by Illinois law (§805 ILCS 5/2.20).
As with operating agreements, you can find plenty of bylaws templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted an Illinois Corporate Bylaws template you can use to get started.
Starting a nonprofit? Learn about Illinois nonprofit bylaws.
5. Get Illinois Business Licenses
All businesses (even sole proprietors) will need at least one business license in order to operate in Illinois. Depending on what kind of business you engage in, and where you do business, you may need more than one license.
Illinois State Business License
There is no general business license in Illinois, but there is a tax permit. Every business that engages in business activity in Illinois is required to obtain a Certificate of Registration or a License. Yes, that’s really the name of the license. This license allows your business to collect the 6.25% state sales tax. Registering your business for permission to collect taxes also gives your business its tax withholding and unemployment insurance numbers. Both of these will be important if or when you hire employees and disperse payroll.
Your business will also need state-level licenses and permits if it engages in sales of liquor, tobacco, cannabis, and other state or federally regulated activities. These can be obtained by the state authority that controls those activities.
Illinois Professional Business Licenses
Professional business licenses are issued to businesses that engage in professional services like massage therapy, construction, child care, accounting, salon services, and other activities that require training. For instance, if you’re cutting hair and doing nails, you’ll need a professional license from the Illinois State Board of Cosmetology.
Local Business Licenses
In most cases your business will need a local license or permit to operate in the municipality where it does business. For example, if you have a hair salon in Galesburg, Illinois, you’ll not only need a professional license from the state, you’ll also need a city license to collect sales tax. And because Galesburg is located in Knox County, you’ll need a license from the county to collect county sales tax.
Learn more about How to Get a Business License.
How do I get an Illinois business license?
The fastest and easiest way to get your license is to register online at MyTaxIllinois. The whole process, from online registration to approval from the state takes about three days. You can also fill out and mail the Illinois Business Registration Application (Form REG-1). You can also visit one of the many Illinois Department of Revenue regional offices and file everything in person.
Regulated licenses, like gambling, liquor, and tobacco, will need to be obtained from the corresponding state authority. For example, if you are opening a bar, you’ll need to first contact the Illinois Liquor Commission about what state permits and local licenses your business will need.
How much does it cost to get an Illinois business license?
The state tax permit (Certificate of Registration or a License) is free to obtain. Other state licenses vary in price. Wineries will pay $350 for a license. A retail liquor license will run $750. These are just the prices to get approval from the state. Local licenses and permits will also come with their own fees.
How do I get a professional license in Illinois?
The Illinois Department of Financial and Professional Regulation is your one-stop shop for all professional licensing. However, the process to get a professional license isn’t as simple as just paying for that particular license. For example, if you’re in the business of selling houses, you’ll need to attend classes, take the real estate exam, and pay a whole host of added fees before you even pay for your real estate license, which costs $125.
How do I get a local business license?
Local licenses are obtained from the city or county where you do business. If you’re selling hot dogs in Chicago, the license will be issued by Cook County, and the cost of your license will be based on the size of your establishment. If you’re operating a yoga studio in Joliet, Illinois, you’ll have to check with both the city and the county (Will) to see what kind of license you’ll need. You’ll also need to apply for a sales tax permit directly with the city of Joliet, as Will County does not have a sales tax.
6. Organize Your Money
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.
Open a Business Bank Account
To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.
How do you set up a business bank account?
LLCs and corporations will need to provide the bank with their formation documents, operating agreement or corporate bylaws, EIN, and in some cases, a Corporate Resolution to Open a Bank Account or LLC Resolution to Open a Bank Account.
Do I need a business bank account to accept credit card payments?
Probably. Payment processors require you to provide them with a bank account. This is where they’ll deposit funds from transactions. Most of the time, this needs to be a business bank account.
Some payment processors may let you get away with listing a personal bank account, but it’s not a great idea. Mixing your business finances with your personal finances erodes the separation between you and your business, weakening your liability protection. It also turns tax season into a nightmare.
Learn more about Payment Processing.
Set up Payroll
You’re in business to make money, and your employees work for you so that they can get paid. This means that you’ll need to set up a payroll system to take care of your obligations. Here’s how you do it:
- get an EIN
- register your business at MyTaxIllinois to get both your tax withholding and unemployment insurance account numbers set up
- prepare, collect, and file the necessary forms that your employees will need to fill out
- buy payroll software, hire a professional accountant, or figure out payroll yourself
- schedule payroll
Handling payroll for a business can be stressful. That’s why a lot of businesses use payroll software or hire a reputable accounting firm to do it for them.
What forms do my employees need to fill out?
Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in the US.
What’s the difference between an independent contractor and an employee?
It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.
An independent contractor is self-employed—how they complete their work is not directly controlled by an employer. An independent contractor may perform the same kind of work for other businesses, and can do the work when and how they choose.
An employee, on the other hand, performs their work how and when their employer chooses.
If you’re unsure, you can file Form SS-8 with the IRS and let them decide.
Learn everything you need to know about hiring independent contractors.
How do I get an Illinois Tax Withholding Number?
When you register your business with the Illinois Department of Revenue at MyTaxIllinois, you will receive a tax withholding number. You’ll need an EIN before you can begin the application to get a tax withholding number.
7. Get Business Insurance
Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is going to have to pony up some cold hard cash. Business insurance can help cover the costs.
The question of whether or not your business needs insurance depends on what kind of business you engage in. If you run a marketing company from the safety of your own home, you may not feel like you need insurance. If you own a roofing company, you’ll be required to get insurance in case you damage a customer’s property. Whether required or not, business insurance is important because it adds a layer of protection to your business.
Here’s a quick list of the most commonly purchased types of business insurance:
Workers’ Compensation Insurance
If you have one employee, even a part-time employee, Illinois will require you to obtain workers’ compensation insurance. Worker’s compensation insurance provides wage replacement and medical benefits to workers injured on the job. Workers’ compensation is no-fault insurance, which means in most cases your business cannot be sued when a work-related injury or illness occurs. If an employer fails to purchase insurance, the business can be fined up to $500 for every day of noncompliance. Corporate officers can be held personally liable if the company fails to pay the penalty.
Illinois does not have a state-administered insurance fund, which means that most businesses purchase workers’ compensation insurance through a private insurer. Businesses can also choose to self-insure, as long as they meet the $200,000 security requirement.
This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.
Do business owners need workers' compensation insurance in Illinois?
Business owners are exempt from having to purchase insurance for themselves. However, insurance plans don’t always cover business-related injuries, so it is probably a good idea to get workers’ compensation insurance for yourself anyway.
Do I need business insurance for my home-based business?
Probably. That’s because you can’t count on your homeowners’ or renters’ insurance policy to cover damages related to your business. Most insurance companies offer a home-based business insurance plan.
8. Understand Your Tax Burden
As a new business owner, it’s important to understand your tax obligations to both your local community, the State of Illinois, and the feds.
- LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. LLC members are responsible for their own federal self-employment taxes (15.3%). LLCs can elect to be taxed as an S-Corp or C-corp by filing the appropriate paperwork with the IRS.
- Corporations. Corporations are taxed as C-corps by default. This means that corporations pay the 21% federal corporate tax rate and any applicable Illinois corporate tax.
To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.
Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.
However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.
How do I get an EIN
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.
Check out our guide to applying for an EIN.
What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status, but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.
Learn more about the S-Corp tax election.
What is a C-corp?
A C-corporation is the default federal tax election assigned to corporations. Most corporations are taxed as C-corps, but LLCs can also apply for C-corp tax designation by filing paperwork with the IRS. C-corps file federal corporate income taxes and state corporate income taxes (in Illinois, the corporate income tax rate is 9.5%). C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.
Learn more about the C-corp tax election.
Illinois State Business Taxes
Illinois has a 9.5% corporate income tax, a 6.25% state sales tax, and an average combined state and local sales tax rate of 8.81%. Illinois also employs a flat 4.95% individual income tax.
Local Illinois Business Taxes
There are a total of 487 tax jurisdictions across Illinois, and with so many jurisdictions having their hands out for tax revenue, things can get a bit confusing. For example, when combined with the state sales tax, a business in Chicago will have to collect 10.25% from every sale. Of that total, 1.75% goes to Cook County, 6.25% goes to the state of Illinois, and 2.25% goes to the city of Chicago. Your business will be responsible for collecting both state, county, and city sales taxes from customers and then remitting the collected taxes to the appropriate tax authority.
9. Build Your Business Website
If you want actual local Illinois customers to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an annoying influencer to establish a robust online presence. You’ll just need the following:
- Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
- Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“firstname.lastname@example.org”).
- SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
- Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.
10. File the Illinois Annual Report
The Illinois Annual Report is due before the first day of your business’s anniversary month. For example, if you formed your business on July 4th, your report would be due June 30th. The filing fee for LLCs is $75. Illinois nonprofits pay $10. Illinois corporations have a bit more to do when it comes to their annual report filings.
Annual Reports for Illinois Corporations
Annual reports for Illinois corporations have two distinct parts. The first part is the regular annual report where information on corporate directors, officers and shares is updated with the state. The second half of the form helps you calculate the corporation’s franchise tax. This tax is based on either paid-in capital (at a rate between 0.1% and 0.15%) or an “allocation factor,” which takes into account your gross assets and revenue.
The minimum franchise tax payment is $75 plus whatever is owed. The good news is the state will allow exemptions as it phases out the corporate franchise tax over the next few years. 2022’s exemption is $10,000, 2023 is $100,000, and after January 1st, 2024, the franchise tax will be eliminated.
Note: The annual report cannot be filed electronically if your corporation owns property or transacts business outside of Illinois.
Read up on How to File an Illinois Annual Report.
What if I don’t file an annual report in Illinois?
The penalty for failing to file an annual report or paying your franchise tax varies by entity. Corporations will be assessed 10% of the total franchise tax due. Nonprofits will pay an additional $3 and LLCs an additional $100. If after 120 days you have still not filed your annual report or franchise tax, the state will administratively dissolve the business.
11. Apply for Trademarks
A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.
You can apply to register your trademark with the Illinois a or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Illinois is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Illinois.
You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.
Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.
How do I register for a trademark in Illinois?
You can start by searching Illinois’ trademark database to make sure your mark isn’t already in use. If you’ve determined that your trademark is available, you can fill out and file a Trademark or Service Mark Application. The application costs $10, and must be accompanied by three examples (website logo, business card, stationery, clothing, etc…) of your trademark as it has been used. Trademarks will need to be renewed every five years.
Can I register a trademark before I use it?
No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.
For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.
Learn more about filing an Intent-to-Use Trademark.