Learn what you need to know about starting a company in Illinois, from licenses and permits to taxes and insurance.
This article discusses starting a business in Illinois, including:
- Select a Business Concept
- Choose a legal structure.
- Select a Name
- Establish Your Business Entity
- Licenses and permits must be applied for.
- Choose a business location and make sure it complies with zoning regulations.
- Examine Your Tax Reporting and Registration Requirements
- Obtain Coverage
- Open a Bank Account for Your Company
Here's a quick rundown of the main steps to starting your own company in Illinois:
1. Pick a Business Concept
Take some time to brainstorm and research business ideas. Consider your own interests, expertise, capital, availability, and the reasons why you want to start a business at this time. You should also consider the chances of success in terms of community priorities and whether your business idea would fill a gap in the market. More information on how to test business ideas can be found in our post.
Consider writing a business plan after you've chosen an idea to assess your chances of making a profit. You'll have a better understanding of the startup costs, the competitiveness, and money-making strategies if you make a plan. Before offering financial support, investors and lenders may want to review your business plan, and you should be prepared by writing one before you begin soliciting funds.
2. Choose a legal framework
The following are the most common legal frameworks for a small business:
Corporation, sole proprietorship, partnership, and limited liability company (LLC).
Restricted partnerships and S corporations are examples of unique implementations of each of these systems. Consider which business entity structure provides the liability security you desire as well as the best tax, financing, and financial benefits for you and your company.
3. Choose a Name
If you're forming an LLC or a company, you'll need to make sure your name is distinct from that of other businesses already registered with the Illinois Secretary of State (SOS). You can look for available names on the SOS website by doing a name search. By submitting an Application for Reservation of Name, you can reserve an available name for 90 days. For LLCs and corporations, some name conditions apply (such as using a term like "LLC" or "Company" for LLCs and "Company" for corporations). For more detail, see How to Form an LLC in Illinois and How to Form a Corporation in Illinois.
Is your company a sole proprietorship or a partnership with a corporate name that differs from the legal name of the owner (in the case of a sole proprietorship) or the surnames of the actual partners (in the case of a partnership)? If that's the case, you'll need to file an assumed business name with the county clerk where you do business. You must also make your assumed name filing public. For more information, go to the related county's website.
If you want to conduct business online, you may consider registering your company name as a domain name. Furthermore, to prevent trademark infringement problems, you can conduct a federal and state trademark search to ensure that the name you choose to use is not identical to or too similar to one that is already in use. For more details, see How to Conduct a Trademark Search.
4. Create a legal entity for your company.
Sole proprietorship: In Illinois, you don't need to file any organizational paperwork with the state to start a sole proprietorship.
In Illinois, you don't need to file any organizational paperwork with the state to form a general partnership. All relationships should have a written partnership agreement, even though it is not legally necessary. If there is ever a disagreement between the partners, the partnership agreement may be very useful. You must file a Statement of Qualification with the Illinois SOS to join a limited liability partnership (often used by professionals).
Articles of Organization must be filed with the Illinois Secretary of State in order to become an LLC in Illinois. For service of process in Illinois, you'll also need to name a registered agent. Furthermore, though it is not necessary by statute, you can draft an operating agreement to lay out the fundamentals of how your LLC will work. The operating agreement does not need to be submitted to the state.
Corporations: You must file Articles of Incorporation with the Illinois Secretary of State to become a corporation in Illinois. For service of process in Illinois, you'll also need to name a registered agent. You can also prepare bylaws to define your corporation's internal operating rules, even though it is not legally necessary. The state does not require bylaws to be filed. S Corporations must also send IRS Form 2553, Small Business Corporation Election, to the IRS.
5. Submit applications for licenses and permits
Registration with the IRS. You must register with the Illinois Department of Revenue (DOR) to collect sales tax if you want to sell products in the state. Employer withholding taxes must be registered with the DOR if your company will have employees.
You must receive a federal Employer Identification Number (EIN) from the IRS if your business has employees or is taxed separately from you. Even if you aren't legally required to have an EIN, there are several business reasons to do so. Banks frequently require an EIN to open a business account, and other companies with whom you do business may also require an EIN to process payments. An EIN can be obtained by filling out an online application on the IRS website. There is no charge for filing.
Permits and licenses issued by regulatory agencies.
Different state agencies grant various regulatory licenses. The Illinois Environmental Protection Agency, for example, may issue environmental permits, while the Illinois Department of Labor may issue employment-related licenses. For more details, go to the state government's illinois.gov website and look under Registration, Licenses, and Permits. Check the websites of any cities or counties where you intend to do business for updates on municipal licenses and permits.
Licenses for professions and occupations. The Illinois Department of Financial and Professional Regulation regulates a wide range of professions and occupations (IDFPR). The IDFPR website has a section dedicated to IDFPR-regulated professions. Each profession and occupation is also more closely supervised by the state regulatory board that oversees it.
6. Choose a business location and verify zoning regulations
You'll need to choose a location for your business and research zoning regulations in your area. Take the time to measure the costs of running your company in the desired area, including rent and utilities, before committing to a location. You should use your business plan to see if you can afford your ideal location in the early stages of your venture. It's also a good idea to double-check that the location is zoned for your form of company. Check your municipal codes and contact your town's zoning or planning department to find zoning laws for your town or city.
Running your business out of your home is a viable alternative to opening a new location. Check your local zoning laws again if you plan to start a home-based company. In addition, check your lease (if you rent your house) and homeowners association rules (if applicable) to see if any of your home businesses are prohibited.
7. Examine your tax filing and reporting obligations.
Any type of company is taxed in Illinois. Illinois has a corporate income tax, a business franchise tax, and a personal property substitution tax, among other things. Except for sole proprietorships, most companies would be subject to at least one of these three taxes. For more background on state business taxes in Illinois, see Illinois State Business Income Tax.
Sole proprietorships are businesses that are run by one person. As part of their personal state income tax returns, they pay state taxes on company income (Form IL-1040).
Partnerships. On their personal tax returns, partners pay state taxes on partnership revenue. Partnerships in Illinois are also required to file Form IL-1065, Partnership Replacement Tax Return.
LLCs are limited liability companies. In their personal tax returns, members pay state taxes on their share of LLC revenue. Furthermore, LLCs must file a separate state tax form, either a partnership return or a company return. The basic type used will be determined by the LLC's federal tax classification. Illinois LLCs must also file an annual report with the Illinois Secretary of State.
Corporations are a type of company. Shareholders must pay state taxes on the corporation's dividends. In his or her personal state tax return, a shareholder-employee with a salary must also pay state income tax. In addition, the company is subject to a variety of Illinois corporation taxes. Finally, businesses must file an annual report with the Illinois Secretary of State.
You must also comply with state employer taxes if you have workers.
8. Purchase insurance
Business insurance will shield your company and your personal properties from the effects of unforeseeable events like personal injury litigation and natural disasters. An insurance provider will assist you in determining which coverage choices are best for your business, such as general liability insurance to protect you against allegations of bodily injury or property harm, or cyber liability insurance to cover lawsuits and settlement costs after a data security breach.
9. Open a bank account for your business.
Whatever type of business you start, you can open a separate business account to make tracking your income and expenses easier. If you own a limited-liability company, such as an LLC or a corporation, you must open a separate bank account to protect your assets.
Request a consultation with an Illinois Attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.
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