What is an LLC?
An LLC is a business structure that protects the business owners from being personally liable for any business debts or liabilities. Filing for an LLC means establishing your business as a separate entity recognized legally by the state you are filing in. If you own a business and several assets, you may want to consider forming an LLC Each state has different laws on creating an LLC, and it is essential to follow these rules when filing to avoid rejection of your application. The following will describe the steps necessary to establish an LLC in Illinois.
What are some advantages of an LLC?
If you open up a business without filing for an L.L.C., i.e., run your business under a sole proprietorship model, you can personally be liable for any business costs. Applying for an LLC. can protect you if someone were to sue your business. If the party or individual suing your company were to win, your personal assets are not up for grabs if you operate under an LLC structure. There are other benefits as well, shown below.
Is an LLC the proper business structure for me?
This is an excellent option for anyone with a growing business who wants to separate their personal assets from their company. LLCs can be used to run and own almost any type of company.
Businesses in specific industries are restricted from operating as LLCs, including banks and insurance agencies. If you would like further information on whether an LLC is the best business structure for you, you should contact a business attorney to determine the best business structure for your company. To ensure you follow Illinois's guidelines and restrictions, contact an attorney with experience working in the state.
Who is an LLC best for?
An L.L.C. is best for those who desire the following advantages: asset protection, don't need to raise capital for business, and flexibility for taxes and business management. Below is a longer list of potential benefits you can gain from creating an LLC.
As mentioned above, an LLC limits your liability as a business owner. If, for instance, the L.L.C. business were to become bankrupt, only the assets belonging to that LLC can be taken. Your personal assets are not at risk.
Flexible Tax Management
There are many options when filing taxes for an LLC. You can go through pass-through taxation, similar to sole proprietorships, where the business net income passes through individual owners’ tax returns. However, if your business grows to above $10,000 in distributions each year, other options open up for tax filing, including obtaining S corporation tax status. This can reduce the overall tax burden under the right circumstances. For questions about tax solutions, we recommend using an accounting service to determine the best fit for your business.
It is relatively easy to file for an LLC in Illinois. There is little paperwork and expense associated with maintenance as well.
Forming an Illinois business as an LLC can improve your company's credibility. They are generally seen as more formal business structures than sole proprietorships.
There are limited restrictions on how to structure the ownership and management of an Illinois LLC. You can have a single or multi-member LLC. It can be managed either by the business members or a manager.
Unique name registration
No other company can use your name when you register for an L.L.C. in Illinois. This offers more flexibility with naming and is in contrast to sole proprietorships where they must use the owners' names or file for doing business as (D.B.A.) if they would like to operate under something besides their name.
What are some of the disadvantages of forming an LLC in Illinois?
In some states, there is the option to form anonymous LLCs. An anonymous LLC is where members are not required to list their names and addresses. Unfortunately, Illinois is not one of these states that allows withholding business member information. It is instead one of the states that require business members to list their names and addresses in the Articles of Organization, a foundational document necessary when establishing an LLC.
How to form an LLC in Illinois?
Before you start the filing process, it is crucial to perform specific steps to avoid delays or forfeiting the fees that come with filing.
Step 1: Choose your business name
In Illinois, there are specific rules you have to follow surrounding your business name. Your LLC name must be unique from any other LLC or corporation in Illinois. You can perform a business search here to check if your name is available. Another important thing to note is that having a unique name is not enough in Illinois. You have to make sure your name is not similar either. If your name is different simply by conjunction (“and” or “&”) or definite articles (“a”, “the”, or “an”) from another business already registered in Illinois, you will have to choose a different name. Illinois has other naming requirements that you can review in detail here.
You can reserve the LLC name by filling out Form LLC-1.15. The fee to reserve a name is $25, and Illinois will hold your desired name for 90 days. This is unnecessary but can give you flexibility when you file your final LLC application.
Step 2: Choose a registered agent
Illinois requires you to choose a registered agent to receive legal documents for your business. The agent must be either an Illinois resident or a company allowed to conduct business in the state. You or one of your business employees may also act as a registered agent. However, the agent must have an Illinois street address.
Step 3: Operating Agreement
You are not legally required to file an operating agreement in Illinois. Nevertheless, it is strongly recommended you do so anyway as it can provide many guidelines to follow in cases of disagreement between members. This can help smooth the process of starting a new business and reduce the chances of future conflict. Generally, this document will include the following:
- Percent of member interests in the L.L.C.
- Responsibilities and rights of all owners/ members
- Voting powers of all members
- Loss and profit share
- Meeting guidelines
- Next steps if a member wants to sell his/ her interest, dies, or becomes unable to continue their participation in the L.L.C.
Step 4: Articles of Organization/Formation
The Articles of Organization or Certificate of Organization is part of the formal legal document needed when filing for an L.L.C. at the state level. It creates the rights, duties, liabilities, and other obligations between each member and between the members and L.L.C. You need the following information to complete the form:
- Entity Name
- L.L.C. address
- Service of Process Address
- Registered Agent
- Signature of L.L.C. owner
The filing fee in Illinois is $150. You can perform this process online or submit the documents to the Secretary of State at the following address.
Submit the filing fee and all documents of the articles of organization to this address:
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL 62756
For additional information or if you need any assistance, you can email the Department of Business Services, Limited Liability Division or call 217-524-8008 ext. 7736.
Step 5: Request an Illinois LLC E.I.N
An E.I.N is an Employer Identification Number assigned by the IRS. This helps identify your business for tax purposes and is like a social security number for your newly minted LLC An E.I.N. must open a business bank account, file and manage federal and state taxes, and hire employees. If you previously operated under a sole proprietorship and already have an E.I.N., you will need to reapply for a new one. The IRS requires you to file for a new E.I.N. when converting to an LLC.
You can get an E.I.N. for free from the IRS. Click here for additional information. You can apply either online or through the mail.
Step 6: Obtain a certificate of good standing
When you finish setting up your LLC, you will need to complete Form LLC-50.25 to receive a certificate of good standing. This certificate ensures that your business complies with Illinois law and allows you to conduct business in the state. The fee to file for this certificate is $25. You can also expedite the process by paying an additional $20.
Step 7: File an annual report
One year after your LLC is formed, you will have sixty days from the anniversary date to complete an annual report.
You will have to pay penalties if you fail to submit by the deadline. If you fail to submit this report after 120 days after the anniversary of your LLC establishment, your LLC will be dissolved.
You don't need an L.L.C. to start a business. However, for many businesses, the L.L.C. benefits may outweigh the costs and hassle of filing for one. To determine whether you may benefit from one, consult your C.P.A., an L.L.C. filing agency, or your business attorney.
Establishing an L.L.C. shields business owners from being personally liable for business debts and expenses. This doesn't provide absolute protection as if an owner commits fraud, they will still be held accountable. However, it protects members' personal assets if the business were to be sued or undergo bankruptcy.
No, you do not require a lawyer when forming your L.L.C. However, anyone forming an L.L.C. should consider contacting a business lawyer to help navigate the process.
If you have additional questions, contact your business attorney for assistance.