In this article, we’ll review the process of how to form a Limited Liability Partnership in the state of Illinois. A Limited Liability Partnership, or LLP, is one of many ways to structure your business entity. LLPs are best for companies with two or more owners, who are considered general partners. These partners can’t be held liable for each other’s mistakes, errors, or purposeful wrongdoings. Because the partners are only liable for their own investments, each partner is protected from the other partners’ debts and obligations. LLPs are very popular with professionals who work in industries associated with a lot of legal risks, like doctors and lawyers.
The state of Illinois has a few requirements each business must fulfill prior to operating as an LLP. Here’s a list of requirements you’ll have to follow in order to form an LLP in Illinois:
· Obtain a Federal Employer Identification Number (FEIN)
· Determine a name that includes “Registered Limited Liability Partnership,” “Limited Liability Partnership,” “R.L.L.P.,” “L.L.P.,” “LLP,” or “RLLP.”
· Choose a registered agent that can receive official documents on behalf of the company
· Complete and file paperwork with the Limited Liability Partnership Section of the Office of the Illinois Secretary of State
1.) Select a business name.Each Illinois LLP should have a unique name. This name has to include the type of partnership that is being operated, as mentioned above: “Registered Limited Liability Partnership,” “Limited Liability Partnership,” “R.L.L.P.,” “L.L.P.,” “LLP,” or “RLLP.” For example, if you wanted to name your business “Sally’s Boutique,” as an LLP, you would need to make sure the name “Sally’s Boutique LLP” isn’t taken by any other company in Illinois. You can check the availability of potential LLP names by checking with the Secretary of State website. In Illinois, partnerships can also use the surnames of the individual partners. It’s best practice to choose a name that isn’t too similar to another registered business, due to common law and federal trademark law protections.
2.) Register your business name by filing an Assumed Business Name Certificate.Once you’ve selected the name of your partnership and confirmed its availability, you will need to formally reserve it. If you are going with a name other than the surnames of the partners, Illinois requires you to file an Assumed Business Name Certificate with the office of the county clerk in the county of your business location. You’ll also need to publish the partnership name in your local newspaper for three consecutive weeks, and your publisher should provide you with a certificate that you need to then file with the county clerk. The filing fee is $5.
3.) Draft and sign a Partnership Agreement.Although Illinois law doesn’t require a Partnership Agreement, it’s wise to ensure all partners are on the same page when it comes to handling specific situations that may arise. A well-drafted Partnership Agreement can help you and your partners decide how you’ll address certain scenarios before they actually happen. The PA should include each partner’s contribution to the partnership, the allocation of profits, losses, and draws, the partners’ authority and management duties, voting rules for decision-making, how to admit new partners, bankruptcy, withdrawal, death of a partner, and how to resolve disputes. These agreements can always be amended at a later date if you change your mind about something.
4.) Obtain the proper licenses, permits, and zoning clearance.Depending on the kind of business you’re running, you may need to acquire specific business or professional licenses. If you navigate to the Illinois Business Portal provided by the State of Illinois, you can find a comprehensive database of every occupation that requires a license by a partnership. Check with your city and county governments to see if your business needs any building permits and zoning clearances.
5.) Obtain an Employer Identification Number from the IRS.All partnerships are required to acquire an EIN, or a nine-digit number issued by the Internal Revenue Service for tax reporting purposes. You can register for an EIN on the IRS website.
6.) Complete the necessary paperwork. Depending on what kind of partnership you’re forming, you’ll need to navigate to the Illinois Secretary of State website and find the appropriate forms for your business. From there, you’ll print the forms off, complete all of the necessary fields, and mail them to the Illinois Secretary of State. An LLP requires a Statement of Qualification, where you’ll have to list your company’s EIN, name, chief executive office address, registered agent’s name and address, total number of partners, each partner’s name and address, a brief summary of your business, and when the registration will become effective. The form will require you to calculate your own filing fee, which is $100 for each partner not exceeding $5,000. At least two partners have to sign this form.
7.) Address any other day-to-day operational affairs.Once you’ve created your LLP, it’s important to get your business’s affairs in order. This includes opening a business bank account, signing up for general liability insurance, registering or paying taxes, and designing a website.
In the state of Illinois, all businesses are required to report taxes and file various employee reports. If you have employees, you have to report and pay employment taxes on a periodic basis. Profits of LLPs are often taxed through each partner’s individual income taxes, which is a nice benefit for partners. Illinois’s tax rate is 3.75%, which is significantly lower than other states. However, Illinois does require all LLPs to file a renewal statement every single year. With this renewal statement, each partnership has to pay a filing fee of $100 per partner, which is much higher than filing fees in other states. When it’s all said and done, costs balance out from state to state.
If an LLP was originally established outside of Illinois, it is considered a “foreign LLP.” To transfer this LLP to be registered in Illinois, you’ll have to complete a Statement of Foreign Qualification, which is very similar to the regular Statement of Foreign Qualification mentioned in Step 6. Unlike the filing fee for domestic LLPs, the filing fee of a Statement of Foreign Qualification is a flat rate of $500. In addition to filing a SFQ, the foreign LLP will also have to file a Certificate of Good Standing from the jurisdiction of the originating state or country of origin.
If you’re interested in forming a Limited Liability Partnership in Illinois, we can provide you with the legal guidance you need to make sure you fulfill all of the state’s requirements.