In this article, we explain how to form a partnership in Illinois. For some foundational information, check out our article: Illinois Partnerships Explained: General Partnerships, Limited Partnerships (LPs), and Limited Liability Partnerships (LLPs). If you are starting a new venture, here are the basic steps you will follow:
1.) Choose a partnership name. In the state of Illinois, partnerships are allowed to utilize the surnames of individual partners, or they can use a fictitious business name. For fictitious business names, each name has to be clearly distinguishable from the name of any other business. To make sure your business name is compliant, run a search on the Illinois Secretary of State and U.S. Patent & Trademark Office databases.
2.) File an Assumed Business Name Certificate. Once you know your business name is available, reserve it by registering the business name with local, state, and/or federal authorities. Applying for permission to use a fictitious name varies, depending on the type of partnership you are forming. Illinois requires owners to register an Assumed Business Name Certificate with the office of the county clerk in your county. The filing fee is $5, and you’ll need to publish the partnership name in your local newspaper for three consecutive weeks. Although it isn’t required, you may want to register your business name as a trademark.
3.) Draft and sign a partnership agreement. While the law doesn’t require partnership agreements, they definitely help minimize any misunderstandings between you and your partners. This agreement should clearly outline each partner’s contribution to the partnership, the allocation of profits, losses, and draws, the partners’ authority and management duties, voting rules, entering of new partners, bankruptcy, withdrawal or death of a partner, and disputes.
4.) Complete all of your required paperwork, depending on the type of partnership you wish to form.In Illinois, you don’t have to register your GP, but you can register it by filing a Statement of Partnership Authority with the Secretary of State. LPs and LLPs have to register with the Secretary of State by filing a Certificate of Limited Partnership and paying the appropriate fees.
5.) Obtain licenses, permits, and zoning clearance for your business. Depending on the type of business you’re running, you may need to obtain business or professional licenses. Illinois provides a comprehensive database of every occupation that requires a license by partnership on the Illinois Business Portal, provided by the state of Illinois.
6.) Obtain an Employer Identification Number.The IRS requires partnerships to obtain an Employer Identification Number (EIN). This is a nine-digit number the IRS issues for tax reporting purposes. You can register for an EIN on the IRS website.
7.) Determine your partnership’s tax and other regulatory obligations.In the state of Illinois, businesses are required to report taxes and file various employee reports. If you have an employee or employees in Illinois, you have to register your business with the Illinois Department of Employment Security and carry workers’ compensation insurance. You’ll also have to register for business taxes with the Illinois Department of Revenue. Partnerships have to pay property replacement tax at a rate of 1.5% of net income.
8.) Initiate your day-to-day business affairs.Open a bank account for your business, research insurance for your company, and create a website. It’s best to keep your business’s finances separate from your personal accounts. Because partners are often liable for debts and obligations of the business, a business liability insurance policy may be necessary for your own financial protection.
We've discussed the process of forming a partnership in Illinois and in upcoming articles we will discuss the different types of business entities and the advantages and disadvantages of each.