To legally start a new business in Illinois, a business owner must file Articles of Incorporation with the Secretary of State’s office. There are two types of corporations under state law-closely held corporations and public corporations.
A close corporation has a limited number of shareholders who may be individuals, other closely held corporations, or foreign corporations.
Public corporations offer shares to the public at large and have no limit on the number of shareholders they may have.
In both types, shareholders manage the company through directors elected from among themselves.
How to start a company in Illinois
Step 1: Decide on a Business Structure
When starting a company in Illinois, entrepreneurs must choose whether to organize as a close corporation or a public corporation.
Both types require Articles of Incorporation and an initial report (Form 35-43), although the closely held company also needs to file organizational minutes with its initial report.
Step 2: Pick a Business Name
The business name must end with the words “Limited Company,” “Corporation,” or “Incorporated” (or their abbreviations) unless it is already registered in Illinois under another name.
Step 3: Register the Business With the State
To register a business in Illinois, entrepreneurs need Articles of Incorporation (Form 3500A) and an initial report.
These forms may be filed online, by mail, or in person at the Secretary of State’s office. The Illinois business registration application fee is $500 for closely held corporations or $1,000 for public corporations.
Information that must be included in the Articles includes:
- the corporate name;
- registered office address;
- initial directors;
- any agreements with shareholders;
- when stock will be available to shareholders.
The initial report requires information including officers’ and directors’ names, business start date, planned dissolution date if applicable and whether shares have been authorized.
How to File a DBA in Illinois?
Filing a DBA is also known as “Doing Business As” (DBA) is referred to legal requirements for opening a business under an alternate name.
While it is not mandatory in most states, you need to file a ‘DBA’ if you wish to open your business with another name other than your own.
How to Incorporate in Illinois (Form a Corporation)?
Incorporating your business offers limited liability protection to entrepreneurs and freedom from personal asset protection for company debts.
Formation requires filing Articles of Incorporation with the Illinois Secretary of State’s office, paying a $500 fee for closely held corporations or $1,000 for public corporations, and appointing initial directors.
Step 4: Obtain Your Federal Employer Identification Number
In order to do business in Illinois, you will need a Federal Employer Identification Number or EIN from the IRS.
To obtain this number, you can file online at http://www.irs.gov/Businesses/.
Step 5: Open Company Bank and Credit Accounts
After you have filed your Articles of Incorporation, it is time to open company bank and credit accounts.
This helps the company maintain separate finances from the founders’ personal finances.
You should check with your financial institution about opening a business account.
Step 6: Set-up An Accounting System
The company’s accounting records must be kept separate from the founders’ personal assets.
If you plan to use QuickBooks software, it is a good idea to set your company up prior to filing incorporation paperwork and obtaining an EIN.
Step 7: Obtain Licenses and Permits
Investigate what business licenses and permits your business may require to operate in Illinois, such as a sales tax permit if your business plan is to sell goods.
The Secretary of State’s website is a good resource for this information: http://www.sos.state.il.us/.
- Zoning Permit: Check whether the business location complies with your city’s zoning regulations.
- Health Department Permit: Many states require local health department licenses before any store can open, so call the local health department for more information on this permit.
- Fire Department Permit: This permit is obtained from the local fire department.
- Sign Permits: A local financial and professional regulation may require you to apply for a sign permit before putting up any signage.
- State Sales Tax Number/Resale Certificate: Depending on your product or service, you may need to register for a state sales tax number, which must be included on invoices and other company correspondence. For more details about obtaining this certificate, call the Illinois Department of Revenue at (217) 782-3336 or visit its website at http://www.revenue.state.il.us/.
Step 8: Hire Employees (if applicable)
If you plan to hire employees, be sure to investigate Illinois’ hiring process and workplace regulations.
For more information about this topic, call the Department of Employment Security at (866) 439-0499 or visit its website at http://www.ides.illinois.gov/.
Step 9: Obtain Business Insurance
Once you have filed incorporation paperwork with the state of Illinois, it is wise to purchase business insurance.
If your limited liability company (LLC) is sued or incurs liability due to accidents on company property, obtaining insurance can protect your company’s assets.
- Worker’s Compensation: In Illinois, companies with five or more employees must provide worker’s compensation insurance. To obtain this insurance, contact a worker’s compensation provider.
- Commercial General Liability Insurance: This is an umbrella policy that covers liability for accidents involving customers and company property. To find a commercial general liability policy, see a local agent or broker.
- Unemployment insurance: If your company has five or more employees, you are required to register for unemployment insurance.
Step 10: Systemize and Organize Company Financial Records
Your company will need to maintain financial records, including invoices, receipts, and ledgers. A good way to do this is by setting up your books on QuickBooks software before you begin filing corporation paperwork with the state of Illinois.
- File Incorporation Paperwork: As soon as incorporation papers are filed, open a business bank account in the name of the corporation so it can be a depository for all company funds.
- Assemble Company Documents: This includes a list of officers and directors or shareholders, an organizational chart detailing each person’s responsibilities, a list of stock purchase agreements, and any existing partnership agreements, if applicable.
- Open an Online Bank Account: In order to conduct online banking transactions, your company must have a separate online bank account, so it’s best to open one up before filing incorporation paperwork.
- Hire an Accountant: Once you have all company documents in order, hire an accountant who can set your company up with good bookkeeping practices. This will be particularly helpful when it comes time for tax time or filing annual reports, which are required by the state of Illinois.
Step 11: Branding and Marketing
Once you have filed corporation paperwork with the state of Illinois and opened a business bank account in your company’s name, it is time to start creating your business website, branding, and marketing your company.
- Create Your Company Logo: First, decide on colors that work well together, then design a logo or wordmark that conveys what services or products your company provides.
- Develop Your Company Slogan: Next, choose a slogan for your company; this can be a short phrase describing its services or products.
- Design Business Cards: The last step in branding is designing business cards which include all of the above elements (logo, slogan, and colors), as well as contact information like phone number and email address
Step 12: Annual and Ongoing Requirements
In order to keep your Illinois corporation in good standing, it must remain current on all annual and ongoing requirements.
1) Annual Fees: There is an initial $25 fee for filing incorporation paperwork, plus a yearly renewal fee of $15 payable to the Secretary of State’s office (Small Business Administration)
2) State Tax Requirements: Corporations are required to file and pay state taxes annually; visit the Illinois Department of Revenue for more details about these requirements (see Resources below).
3) Business Law Requirement: In addition, companies with employees should hold employee meetings at least once per year to provide updates on company policies such as discrimination and harassment
Pros and cons of incorporating in Illinois
- Great for business expansion: The state of Illinois has a location to meet businesses’ needs, from accounting services to marketing and management resources. It also offers many opportunities for networking with others in the same industry.
- Corporate tax deductions: In addition, corporate entities can take advantage of various federal and state tax deductions. For example, Illinois exempts corporations from paying property taxes on company buildings while allowing them to deduct operational equipment expenses from taxable business income
- Flexible business entity options: Corporations can also be taxed as partnership entities, meaning their profits are not subject to both state and federal taxes. This is great for businesses that want to avoid double taxation by filing separate federal income tax forms
- Ample business resources: Illinois’ Department of Business and Economic Development provides many informative resources to help businesses get started, including free meeting spaces in various locations around the state
- Filing fees are high: The filing fee for establishing a corporation is $25 compared to $50 in neighboring Indiana
- Annual report requirements are hard to meet: In addition, corporations must file annual reports within three months of their fiscal year ending date or face possible suspension or revocation by the Secretary of State. Failure to file annual reports could result in fines up to $1,000 plus other penalties plus tax delinquency charges.
How much does it cost to incorporate in Illinois?
As mentioned above, there is a $25 fee for initial incorporation paperwork and a $15 annual renewal fee.
Additionally, corporations must file annual reports within three months after their fiscal year ends.
Failure to do so could result in fines up to $1,000 plus other penalties plus tax delinquency charges.
Top 5 Tips on Registering a Business in Illinois
I. File as a “foreign” corporation: If your company isn’t located in Illinois but operates there, file as a “foreign” corporation with the State of Illinois
II. Gather necessary forms and fees: Make sure to gather all necessary business forms, such as articles of incorporation and state tax ID registration. Also, obtain the correct filing fee before beginning the process
III. Follow proper formalities: Follow proper formalities when incorporating by holding an initial meeting and organizing important papers into minutes
IV. Post sign requirements: Finally, be aware that you must post required signage at all entrances to your business’ property which reads, “a person cannot do business under any name other than what is filed with the Secretary of State.”
V. Failure to do so could result in fines up to $1,000 plus other penalties plus tax delinquency charges
How to Qualify as a Foreign Business in Illinois?
To qualify as a foreign business in Illinois, the company must meet one of the following eligibility requirements:
- Must have an office located in another state and file its returns using such address
- Operates wholly outside the U.S. and does not directly or indirectly conduct any part of its operations in Illinois
- It is organized under laws other than those of Illinois
- Doesn’t maintain a registered agent within the state
Transacting Business in Illinois
Illinois maintains two types of business structures: corporations and limited liability companies (LLCs), both of which are required to file annual reports with the Secretary of State.
Corporations can also be taxed as partnership entities, meaning their profits are not subject to both state and federal taxes.
Obtaining a Federal Tax ID in Illinois
To obtain an Employer Identification Number (EIN) to transact business in Illinois, complete Form SS-4, Application for Employer Identification Number.
This form should be submitted directly to the IRS or filed online through the EIN Online Registration System.
State tax ID number vs. federal tax ID number
Every corporation must have its own set of identifying numbers – one each from the Internal Revenue Service (IRS) and the state.
The EIN is required to open a bank account or apply for tax-exempt status. This number can be obtained by filing IRS Form SS-4.
How to File Annual Reports in Illinois?
Every not-for-profit corporation must file an annual report with the Secretary of State every year within three months after its fiscal year ends.
Failure to do so could result in fines up to $1,000 plus other penalties plus tax delinquency charges.
Also, if you are doing business under any name other than what is filed with the Secretary of State, then you must post the sign at all entrances stating that “a person cannot do business under any name other than what is filed with the Secretary of State.”
What are my responsibilities as an employer?
- To withhold Illinois withholding taxes from employees’ wages
- To report these wages on an Employer’s Quarterly Tax Report, Form RUT-50
- File annual reports with the Secretary of State every year within 3 months after your fiscal year ends.
How Do I Protect My invention, product, or idea?
An invention, product, or business idea can be protected by filing its trademark with the Illinois Secretary of State.
Through this process, you can register your trademark in order to use it exclusively for business purposes.
- File an application: To file a Trademark Registration Application, submit Form DTF 603 along with a $50 fee. As part of the registration process, you must submit a specimen or example of how your mark is used.
- Monitor your mark: Monitor your registered mark regularly so that you remain aware of any unauthorized uses around Illinois.
How Do I Legally Protect My Company Name?
Every company’s name must be unique and distinguishable from other existing businesses’ names within their respective industry.
It is important that you conduct a comprehensive search to ensure that your company name is protected in Illinois before you commence business operations.
The process for filing a fictitious firm name in Illinois varies from county to county.
As you can see, establishing your company is fairly straightforward and simple. It just requires a little bit of planning ahead.
These are things that should be taken into consideration before opening your doors for business.