Launching a new business is undoubtedly an exciting endeavor, but where you choose to form it can make all the difference. Illinois stands out for entrepreneurs looking to create an LLC, because it offers business-friendly policies, manageable regulations, and a supportive environment for success.
However, to make a well-informed decision, you need to consider both the benefits and the limitations of doing business in the state. Take an in-depth look at the pros and cons of forming a limited liability company in the Land of Lincoln to help you determine if Illinois is the best option for your entrepreneurial journey.
As an entrepreneur, you have to consider each business structure's upfront costs before making your choice, especially if you're working with a limited budget. Fees for business licenses, LLC formation, and other registration necessities can really add up. If this is one of your top concerns, an Illinois LLC is undoubtedly one of your best options.
The filing fee for Articles of Organization in Illinois is $150, which is competitive compared to other states. For example, Massachusetts charges $500, Nevada $425, and Texas $300. Illinois provides small business owners with an affordable starting point, which is particularly valuable for entrepreneurs mindful of their initial expenses.
This cost advantage also extends to other business formation structures within the state. Forming a corporation only costs $180, and a limited partnership comes with variable costs based on partners.
Liability protection is one of the key advantages of forming an LLC over a sole proprietorship or general partnership. LLCs are considered independent from their owners, offering personal asset protection by design.
In Illinois, LLC members benefit from strong state protections that shield personal assets from business liabilities. This means creditors and stakeholders cannot target your personal savings, home, vehicles, or other investments to satisfy the debts or obligations of the LLC.
Illinois’ legal framework ensures these protections are robust and well-regulated, giving entrepreneurs added peace of mind when starting their businesses.
Illinois LLCs are pass-through taxation entities by default. This means that, instead of paying taxes at the corporate level, they pass their profits on to members, who then report them on their personal tax returns, avoiding double taxation.
LLC owners can also opt for alternative taxation if it presents better financial advantages for their businesses. For example, you can elect to be taxed as an S-corporation to reduce your self-employment tax obligation or as a C-corporation to access more tax deductions than what you'd get as an LLC. It's worth noting, however, that C-corporations are subject to taxation at both the corporate and individual levels.
To choose your federal income tax status, you'll need to fill out a specific small business tax form. Use Form 2553 from the Internal Revenue Service (IRS) when electing as an S-Corp and Form 8832 when choosing your tax classification, be it an S-Corp, C-Corp, disregarded entity, or partnership.
Illinois's low LLC maintenance fees are another reason the state is an excellent option for budding businesses. The annual report fee is only $75, which is much lower than states like Tennessee ($300 minimum), Massachusetts ($500), and California ($820).
This fee is also lower than the ongoing costs associated with business structures like corporations. While the filing fee for a corporation's annual report is also $75, this type of business entity incurs additional costs that LLCs don't, like franchise taxes. Limited liability partnerships (LLPs) also incur higher costs — they pay $100 per partner annually.
Illinois LLC owners have unparalleled flexibility when it comes to choosing their ownership and management structures. Depending on your preferences and capital, you can form a single-member LLC with only you as the member or a multi-member LLC with multiple owners.
With multi-member LLCs, you don't have to confine yourself solely to individual investors — corporations and other LLCs can be members, too.
Further, you have the freedom to choose between a member-managed structure or a manager-managed structure. The member-managed option may be suitable if you want to be involved in day-to-day operations or if you have a limited budget, while the manager choice may be ideal if you want to delegate responsibilities and have the budget to do so.
An LLC structure simplifies the process of adding new partners to the business, making it a good choice for growing companies. If you've outlined the process of adding a new partner to your LLC operating agreement, you just need to follow the strategy, amend your agreement, file the Articles of Amendment with the Illinois Secretary of State, and notify the IRS.
If you have not outlined the process, state laws will apply. This means you'll need to get unanimous approval from all current members before you amend your agreement and notify the Secretary of State and the IRS.
Of course, the road to running a successful LLC in Illinois is not without a few bumps and potholes. Here are some things to keep in mind before setting up an LLC in the Land of Lincoln.
Unlike general partnerships and sole proprietorships, Illinois state law (805 ILCS 180) requires LLCs to maintain a local registered agent to receive legal documents, such as subpoenas, on their behalf. While this may seem like an additional expense, especially for small businesses or startups with tight budgets, a registered agent can also provide significant benefits.
For many businesses, having a registered agent ensures that critical legal and compliance documents are handled promptly and professionally, reducing the risk of missed deadlines or oversight. Whether you opt for a commercial registered agent service or designate an individual within the company, this requirement can be a valuable safeguard for your business operations.
Financial institutions may be less willing to issue loans to LLCs compared to corporations because of their personal liability protection. Some lenders may ask you to sign a personal guarantee, essentially promising them that you'll cover the business debt out of pocket if your LLC is unable to pay. Unfortunately, this undermines the limited liability protection that an LLC is designed to provide.
It's harder for LLCs to raise capital than corporations because their ownership isn't divided into shares. This means that you can't issue stock when you need additional capital.
If you want to raise your capital from new investors, they must first join as members of the LLC, which, though relatively straightforward, is more complex than simply issuing shares of stock.
An Illinois LLC is an excellent option for entrepreneurs because it offers personal liability protection, a business-friendly tax structure, and ownership and management flexibility. Its formation and maintenance costs are also lower than those of other business structures and states, making it suitable for small business owners with limited budgets.
If you've settled on an Illinois LLC for your next venture, Stable can help you get things going quicker. With us, you receive a professional virtual address you can use for everything from LLC registration to business bank account opening. Plus, we provide comprehensive mail management services like mail sorting, scanning, and forwarding, ensuring you stay on top of all correspondence regardless of your location.
Get started with Stable today to set up your Illinois LLC with a permanent virtual address!
Launching a new business is undoubtedly an exciting endeavor, but where you choose to form it can make all the difference. Illinois stands out for entrepreneurs looking to create an LLC, because it offers business-friendly policies, manageable regulations, and a supportive environment for success.
However, to make a well-informed decision, you need to consider both the benefits and the limitations of doing business in the state. Take an in-depth look at the pros and cons of forming a limited liability company in the Land of Lincoln to help you determine if Illinois is the best option for your entrepreneurial journey.
As an entrepreneur, you have to consider each business structure's upfront costs before making your choice, especially if you're working with a limited budget. Fees for business licenses, LLC formation, and other registration necessities can really add up. If this is one of your top concerns, an Illinois LLC is undoubtedly one of your best options.
The filing fee for Articles of Organization in Illinois is $150, which is competitive compared to other states. For example, Massachusetts charges $500, Nevada $425, and Texas $300. Illinois provides small business owners with an affordable starting point, which is particularly valuable for entrepreneurs mindful of their initial expenses.
This cost advantage also extends to other business formation structures within the state. Forming a corporation only costs $180, and a limited partnership comes with variable costs based on partners.
Liability protection is one of the key advantages of forming an LLC over a sole proprietorship or general partnership. LLCs are considered independent from their owners, offering personal asset protection by design.
In Illinois, LLC members benefit from strong state protections that shield personal assets from business liabilities. This means creditors and stakeholders cannot target your personal savings, home, vehicles, or other investments to satisfy the debts or obligations of the LLC.
Illinois’ legal framework ensures these protections are robust and well-regulated, giving entrepreneurs added peace of mind when starting their businesses.
Illinois LLCs are pass-through taxation entities by default. This means that, instead of paying taxes at the corporate level, they pass their profits on to members, who then report them on their personal tax returns, avoiding double taxation.
LLC owners can also opt for alternative taxation if it presents better financial advantages for their businesses. For example, you can elect to be taxed as an S-corporation to reduce your self-employment tax obligation or as a C-corporation to access more tax deductions than what you'd get as an LLC. It's worth noting, however, that C-corporations are subject to taxation at both the corporate and individual levels.
To choose your federal income tax status, you'll need to fill out a specific small business tax form. Use Form 2553 from the Internal Revenue Service (IRS) when electing as an S-Corp and Form 8832 when choosing your tax classification, be it an S-Corp, C-Corp, disregarded entity, or partnership.
Illinois's low LLC maintenance fees are another reason the state is an excellent option for budding businesses. The annual report fee is only $75, which is much lower than states like Tennessee ($300 minimum), Massachusetts ($500), and California ($820).
This fee is also lower than the ongoing costs associated with business structures like corporations. While the filing fee for a corporation's annual report is also $75, this type of business entity incurs additional costs that LLCs don't, like franchise taxes. Limited liability partnerships (LLPs) also incur higher costs — they pay $100 per partner annually.
Illinois LLC owners have unparalleled flexibility when it comes to choosing their ownership and management structures. Depending on your preferences and capital, you can form a single-member LLC with only you as the member or a multi-member LLC with multiple owners.
With multi-member LLCs, you don't have to confine yourself solely to individual investors — corporations and other LLCs can be members, too.
Further, you have the freedom to choose between a member-managed structure or a manager-managed structure. The member-managed option may be suitable if you want to be involved in day-to-day operations or if you have a limited budget, while the manager choice may be ideal if you want to delegate responsibilities and have the budget to do so.
An LLC structure simplifies the process of adding new partners to the business, making it a good choice for growing companies. If you've outlined the process of adding a new partner to your LLC operating agreement, you just need to follow the strategy, amend your agreement, file the Articles of Amendment with the Illinois Secretary of State, and notify the IRS.
If you have not outlined the process, state laws will apply. This means you'll need to get unanimous approval from all current members before you amend your agreement and notify the Secretary of State and the IRS.
Of course, the road to running a successful LLC in Illinois is not without a few bumps and potholes. Here are some things to keep in mind before setting up an LLC in the Land of Lincoln.
Unlike general partnerships and sole proprietorships, Illinois state law (805 ILCS 180) requires LLCs to maintain a local registered agent to receive legal documents, such as subpoenas, on their behalf. While this may seem like an additional expense, especially for small businesses or startups with tight budgets, a registered agent can also provide significant benefits.
For many businesses, having a registered agent ensures that critical legal and compliance documents are handled promptly and professionally, reducing the risk of missed deadlines or oversight. Whether you opt for a commercial registered agent service or designate an individual within the company, this requirement can be a valuable safeguard for your business operations.
Financial institutions may be less willing to issue loans to LLCs compared to corporations because of their personal liability protection. Some lenders may ask you to sign a personal guarantee, essentially promising them that you'll cover the business debt out of pocket if your LLC is unable to pay. Unfortunately, this undermines the limited liability protection that an LLC is designed to provide.
It's harder for LLCs to raise capital than corporations because their ownership isn't divided into shares. This means that you can't issue stock when you need additional capital.
If you want to raise your capital from new investors, they must first join as members of the LLC, which, though relatively straightforward, is more complex than simply issuing shares of stock.
An Illinois LLC is an excellent option for entrepreneurs because it offers personal liability protection, a business-friendly tax structure, and ownership and management flexibility. Its formation and maintenance costs are also lower than those of other business structures and states, making it suitable for small business owners with limited budgets.
If you've settled on an Illinois LLC for your next venture, Stable can help you get things going quicker. With us, you receive a professional virtual address you can use for everything from LLC registration to business bank account opening. Plus, we provide comprehensive mail management services like mail sorting, scanning, and forwarding, ensuring you stay on top of all correspondence regardless of your location.
Get started with Stable today to set up your Illinois LLC with a permanent virtual address!
