In this article, we’ll explain what an LLC is, why it’s beneficial to have an LLC for your business, and how to go about forming your own LLC in Illinois.
If you want to start a business, welcome to the first step! Oftentimes, taking the first step is truly the hardest part. We’re here to guide you through forming an LLC in Illinois.
What is an LLC?
A “limited-liability company,” also known as an LLC, is commonly referred to as a “hybrid” business structure, meaning it acts similar to both a corporation and a sole proprietorship. LLCs protect business owners and their families by separating their personal and business assets. Once a business owner has formed an LLC, he or she is protected from personal liability for debts or other mistakes the business might make.
What are the benefits of an LLC?
Forming an LLC for your business is a great idea. It not only allows you to insulate yourselves from personal liability, but also eliminates the requirement of paying separate business taxes. LLCs offer a lot of flexibility when it comes to their organizational structure, and because of this, they are subject to fewer restrictions and regulations.
Can an LLC Operate in Multiple States?
When it comes to LLCs organized outside of Illinois, businesses have to register with the Illinois Secretary of State. These companies are referred to as “foreign LLCs.” Foreign LLCs also have to appoint a registered agent for service of process physically located in Illinois. To register, file an Application for Admission to Transact Business, Form LLC-45.5. This application can be filed by mail, and it costs $150. The application has to be accompanied by a Certificate of Good Standing or Existence from the foreign LLC’s home state, dated no more than 60 days prior to the filing of the certificate. If the foreign LLC’s name isn’t available in Illinois, that business has to adopt an assumed name for use in Illinois and submit it with the application. This can be accomplished with Form LLC-1.20, Application to Adopt, Change, Cancel or Renew an Assumed Name.
How do I form an LLC?
Once you’ve decided to form your own LLC in Illinois, it’s a fairly straightforward process. While it takes several detailed steps, it’s not incredibly difficult to form an LLC in Illinois. We’ve created a step-by-step guide for you to follow below!
Choose a Name for your company. Seems easy, right? Under Illinois law, your LLC’s name has to contain the words, “limited liability company” or “LLC” at the very end. That being said, you cannot utilize the abbreviations and words “Ltd,” “Corporation,” “Corp,” “Incorporated,” “Inc,” “Limited Partnership,” “LP,” and “Co” for an LLC’s name in Illinois. It has to be recognizably different from any other business entities that are already on file with the Illinois Secretary of State and any state or federal agencies. On top of all of that, your company’s name has to use the letters of the English alphabet or Arabic/Roman numerals, and it cannot contain any explicit language or imply that your business is involved with banking or insurance. Business owners can reserve an LLC name for up to 90 days by filing Form LLC-1.15. It costs $25 to file the optional Form LLC-1.15 and $300 to reserve the name of your LLC for 90 days. If you have a company name in mind, you can validate that it’s compliant with Illinois state law and available to use prior to filing three different ways: 1) write to the Department of Business Services, located in Springfield, Illinois; 2) call the Department of Business Services at (217) 524-8008; 3) visit www.cyberdriveillinois.com and enter your potential company name on the Business Services page. Remember, common names are usually already taken, so it’s wise to have a few alternate names for your company in the back of your mind. When brainstorming names, you may want to check the availability for a relevant URL to your business, so you can create an appropriate domain name at a later time.
Determine your LLC’s principal place of business. In your Articles of Organization (step 7), you’ll have to name a physical address for your company to serve as its primary location for conducting business. The state of Illinois allows this address to be inside or outside of state lines. All official correspondence from the Department of Business Services will be sent to this address for your company.
Establish a duration period for your LLC. This refers to how long you want your company to exist. It’s possible to list the duration period as “perpetual,” meaning it doesn’t have a specified end date. When do you want your business to begin its existence? When do you want your business to end? If you are afraid of committing to a dissolution date, don’t worry. If you ever need to extend your LLC’s life, you can file an Articles of Amendment to change it.
Designate a registered agent for your LLC. Every Illinois LLC has to have an agent for service of process in the state. A registered agent is an individual or business entity responsible for receiving important legal documents on behalf of your business. This person should be your business’s point of contact with the state of Illinois. A registered agent has to be a resident of Illinois or a corporation authorized to transact business in Illinois. You can list yourself as your company’s agent, but you have to reside in Illinois, and your mailing address has to match your business’s address. If you are naming someone other than yourself as your LLC’s registered agent, be sure he or she has formally agreed to perform this role.
Decide if your LLC will be member-managed or manager-managed. In Illinois, you have to have at least one member in your LLC, but there is no maximum. A member-managed LLC affords each member equal rights when making important business decisions. A manager-managed LLC allows all of the members to elect several other members from the company to be responsible for the company’s business affairs. Either way, you’ll have to provide the names and addresses of members and managers, as applicable.
Write a “purpose clause” for your LLC. A purpose clause is a statement that outlines the business objectives of your company. This can really be any lawful purpose, except for banking and insurance.
Draft and file Articles of Organization for your LLC. Finally, it’s time to create your LLC by filing Articles of Organization, Form LLC-5.5, with the Illinois Secretary of State Department of Business Services. All of the documented information above should be included in the Articles of Organization, as well as any provisions relating to how major business decisions will be made, like what happens if your company is dissolved, for example. Once finalized, your LCC’s organizers have to sign the Articles of Organization, along with each individual’s printed name and address. If one of the organizers is a business entity, you have to provide the name of that entity and the printed name, address, and title of the person signing on that entity’s behalf. Filings are handled on an expedited basis within 24 hours. The articles may be filed online or by mail. To file Articles of Organization, it costs a $150 filing fee, plus an additional $400 filing fee to file Articles of Organization for an LLC with the ability to establish a series. If you need to have your filing expedited, you can pay an additional fee of $100 to ensure your Articles of Organization will be reviewed within 24 hours of filing.
Draft an Operating Agreement for your LLC. The state of Illinois does not require LLCs to have an Operating Agreement, but it’s smart to include one. An OA is a legal document that outlines the ownership and operating procedures of your LLC. When written correctly, comprehensive OAs ensure all business owners are on the same page, reducing potential conflict in the future.
Draft an Operating Agreement between the members of your LLC. After you file your LLC’s Articles of Organization, you should create a document that outlines things like the role of each member, voting rights, how new members will be added or existing ones removed, how profits and losses will be allocated, and how the Operating Agreement itself will be amended. This agreement doesn’t have to be filed with the state of Illinois.
Register your LLC with the Illinois Department of Revenue. Illinois state law requires your LLC to register with this agency upon formation for state tax purposes. You can register your LLC online or through the mail using Form REG-1, which is the Illinois Business Registration Application.
Apply for an Employer Identification Number from the Internal Revenue Service. Once your LLC is legally formed and your Articles of Organization have been submitted and approved, you’ll need an EI number to pay federal and state taxes, hire employees, and open a company bank account. You can apply for an EI number online, by contacting the IRS at (800) 829-4933, or by completing and mailing in Form SS-4 to the address listed on the form.
Open a corporate bank account. Your LLC is going to need its own bank account, separate from the bank accounts of its members and managers. You’ll need your LLC Employer’s Identification Number and a copy of its Articles of Organization from the above steps.
File your LLC’s Annual Report. Illinois law requires business owners to submit an Annual Report every year to the Secretary of State in order to continue operating in the state of Illinois. The submission requirement is mainly to validate the information you filed in your Articles of Organization. The report is due every year prior to the first day of your LLC’s anniversary month, and you should receive a form for this report at your company’s registered address about six weeks before it’s due. Your LLC’s members and managers have to sign this report prior to submission. The report can be filed online or by mail with Form LLC-50.1. Mail filing costs $250, and online filings costs $300.
We have reviewed the process for forming an LLC in Illinois and some of the benefits of this style of business formation. If you want to form an LLC in Illinois, it can always been beneficial to seek the assistance of a quailed attorney as the process can clearly be complex. For more, you can read our article "Why Forming an LLC May Help Your Real Estate Business."
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