Forming an LLC in Illinois

I had set a deadline for myself to form an LLC by December 17th, 2005. It’s now the 20th, but I’ve finally learned presumably all of the information I needed to know. I didn’t think that starting a business should be something that requires lawyers and accountants, and so I wanted to learn what I needed to do. I figured that the government would be happy to provide such information and make it easy for anyone to know what is legally expected. While the government websites could be helpful for general information, they weren’t helpful in my particular case.

I don’t plan to partner up with anyone or hire employees; I’ll be working for and by myself. Limited Liability Companies were restricted to multiple members, but this past summer a change to the Illinois Limited Liability Act allowed single-member LLCs. A single-member LLC would be perfect for my needs, but it is hard to find information on them. LLCs are still new, and single-member LLCs even more so, and so most articles and government help are still geared towards incorporation. I ended up consulting an accountant to determine the main things I needed to worry about.

Note: I am not a lawyer. I am providing this information in the hope that it can be useful to someone, but it can’t be considered legal advice. Your mileage may vary, and so you should ask a CPA or lawyer about your own circumstances if you are not sure about anything.

To form a single-member LLC in Illinois, you need to file Articles of Organization with the Secretary of State and send along a check for $500. Once I place the filing in the mail, Once the Secretary of State files the paperwork, I have officially formed an LLC. This part I knew, but what I was concerned about was what I was obligated to do afterwards. What forms, taxes, fees, or family members am I required to provide to stay within the law?

According to the IRS, since I’m not hiring anyone or operating my business as a corporation or partnership, I don’t need an Employer ID Number. My CPA still suggested that I get one. It seems pretty easy to apply for one.

He also talked about the lack of a need to apply for an Illinois Business Tax number. I’m going to be reading more about this topic…

If you look at the list of LLC forms on the Illinois Secretary of State’s website, you’ll see one form called Domestic Limited Liability Company Annual Report. Out of all of my research, I found only one reference to the $250 yearly fee, and it didn’t even mention that the fee goes with this report.

It turns out, it does. As I understand it, the state will send me this already filled-out form. I just need to sign it, attach the $250 check, and I’m fine. The report is simple restating that I’m in charge of the company, so there is no need to submit a balance sheet or profit-and-loss statement.

The final thing to worry about: taxes. It turns out that I just need to file my 1040 along with Schedule C, and I’ll cover my Social Security and Medicare tax obligations.

Once again, in summary:

  • File Articles of Organization with Secretary of State along with $500.
  • Request Federal ID Number from IRS.
  • Pay annual fee by submitting $250 with signed annual report.
  • Submit Schedule C with 1040 when I pay my own taxes at the end of the year.

That’s it! It sounds easy…a little too easy. Of course, there is the issue of the federal tax, which is supposed to be pay-as-you-go. When you’re self-employed, you’re required to estimate your income and submit your tax obligations quarterly. David Michael wrote about his simple tax plan, which doesn’t sound too different from what a friend of mine does.

Hopefully this information helps someone. I’m also about to read “Your Limited Liability Company and You: An Operating Manual” by Anthony Mancuso. It was suggested to me by someone on the Association of Shareware Professional‘s newsgroup. If I learn anything new, I’ll try to post it here.

The best part? I feel confident enough to form the company without worrying about a huge backlash from any government agency or law. Now I can jump in and start making mistakes quicker. Faster mistakes means faster learning. B-)

[tags]business, llc[/tags]

41 comments to Forming an LLC in Illinois

  • Some good info there. I’ll be taking m’self through a similar process in the coming months (in maybe about 3). We’ll be going the corporation route, though (possibly an S-corp… haven’t discussed it with the lawyer yet).

    It is indeed a tangly mess in there — best of luck to ye as you file the papers and move forward. Did you decide to keep GBGames as your LLC’s name?

  • I figure that the worst that can happen is that I pick a new name to do business with and just pay for the extra name. I think I will hold off on forming an LLC until after January 1st so that I have the rest of the year to worry about fixing anything I mess up. B-)

    Good luck! I could give you the name/number of the CPA I talked to, if you would like.

  • Nice article! I recently setup an LLC too and after reading this article, I figured I might was well do a similar post for Wisconsin: http://www.biasecurities.com/blogs/jim/archive/2005/12/21/3878.aspx

  • Thanks, Jim! It’s amazing how easy it is once someone makes a simple list for you. B-)

  • Thanks for the article. They seem to want to make everything overly difficult for the average person looking to setup a business. Especially if we don’t feel like hiring a lawyer and accountant to do this. The worst part about Illinois is that they are nearly double every other state for filling an LLC.

  • I like to think of it as a simple obstacle to overcome to weed out those who wouldn’t try to overcome similar obstacles. Not that it doesn’t make it any more annoying, of course. B-)

  • Keith

    GBGames,

    I would appreciate the name/number of the CPA I talked to in Illinois.

    Thank you and good luck with your enterprise.

    regards,

    Keith

  • Keith, if you talked to the CPA, how would I know the name or number? B-)

  • Mark

    What made you choose a LLC vs. an S Corporation? Do you know what makes one any better than the other? (my business would also be in Illinois).

  • I picked an LLC because it is a lot easier to maintain and run, especially as it is a business I am running part-time. Very part-time.

    Basically, if I chose a corporation, I would have to deal with all sorts of legal headaches and costs, such as filing papers and meeting minutes. Maybe a few years from now when I start running it full-time I will need the tax breaks that an S corp would give me, but for now, I get to do less maintenance to match the fact that I do less.

    I would consult an accountant. Give him/her your basic info, such as expectations for your business, and ask about the two choices. I believe most good accountants will do this consultation for free.

  • Julie

    Thanks for the info–saved me some research. Just one quick question–If you file the Articles do you have to also file the Application to Reserve a Name or is that redundant?

  • The Articles allow you to specify a business name separate from your name. In my case, I filed for “GBGames, LLC”. I didn’t need to reserve the name because I was filing to form the company.

    However, if you don’t want to file the company yet, but you already know you want a specific name, then you can reserve a name, preventing anyone else from forming a company using that name.

    If you are just going to file to form the LLC, then reserving the name separately would be redundant and more expensive than it needs to be.

    Good luck!

  • Gianfranco Berardi you can get more information about llc’s on that blog it has some useful articles

  • True, but the blog seems pretty general, and I needed info on Illinois, as well as even more specific info on single-member LLCs. It’s still a fairly useful link. Thanks!

  • LAUREN

    What about your Operating Agreement? Did your accountant supply you with one? Even with a single member LLC I know you need to have one.

  • Lauren, legally I don’t believe you “need” an operating agreement. That is, there isn’t a legal obligation in Illinois to have one. However, it is a good idea to have one. Perhaps I should write up an article on what goes in an operating agreement because once again I don’t believe you need to go to an accountant or lawyer to start a business.

  • A limited Liability company with only one… whatever. I wish you all the best. And you have done your home work too.

    Larisa
    as Don Lapre is da Man
    larisa@larisajoyreilly.com
    http://www.larisajoyreilly.com

  • Thank you, Larisa.

  • […] In Forming an LLC in Illinois, I described the steps necessary to create a limited liability company for yourself. The initial payment of $500 required something other than a regular check, and I used a cashier’s check when I created GBGames, LLC. I was not sure if I would need to go through the trouble of getting another cashier’s check to pay the $250 annual fee, but it turns out that you could send a regular check. […]

  • Ry

    Great blog, this made it really simple for me. Thanks for putting it together. I do have one question though. I want to form an LLC in Illinois but what my LLC name to be different then the name I use for my company. For example, TTT LLC is my company but I sell services under the name domain.com. Do I need to do anything special for that?

  • Ry, the form allows you to specify the name of the business on the first line. It must include the term Limited Liability Company or some abbreviation of it, and cannot include the words Corporation or anything like it.

    If you want to use a different name, or even multiple different names, then you should look into the term “Doing Business As”. Basically, you register a name that says, “Here is my company’s name, but I will also operate under this name.”

  • IllinoisLLC

    >>Submit Schedule C with 1040 when I pay my own taxes at the end of the year.

    So, that would take care of federal taxes for your single member LLC

    What would you need to do Illinois state taxes for a single member LLC?
    Are there additional tax forms you would need to file for Illinois?

  • I don’t know offhand. I just checked my tax filings for the past year, but I had nothing but the regular IL tax form. It is probably due to the fact that my business took a loss for the past year.

    I do believe that LLCs that are taxed as partnerships use IL-1065, but I will ask my accountant about the single-member LLCs and get back to you.

  • IllinoisLLC

    You would think it would be treated like a sole propietorship in Illinois.

    I wonder if the profit for the single member LLC is already accounted for in the Adjusted Gross Income that you put in Line 1 of the illinois tax form.

    I appreciate any clarification. 🙂

  • IllinoisLLC: I found out from my accountant that there are no special forms. You would just take your adjusted gross income from a line on your federal form and drop it into your Illinois form.

  • I also formed my LLC in Illinois. But I used mycorporation.com and it made it pretty simple and it was not that expensive. I think I paid $150, of course your way is Free 🙂

    I became an LLC because I understand that if anyone sued me, they could not touch my personal assets (i.e. home, 401k, etc).

  • IllinoisLLC

    I used the advice in this blog post and it’s worked out pretty well.

    Anyone know if you have to keep member minutes or create an operating agreement for a single member LLC?

    I can’t see what the point would be in recording that info as it would be like making an operating agreement with yourself. It’s not like there are other members to report to. But i wasn’t sure from a legal standpoint.

  • IllinoisLLC, as far as I was able to learn, unless your state specifically requires it, you don’t need an operating agreement. I believe Illinois does not, and so far I still haven’t written one for my business. It’s been on my todo list for a long time. B-) It would definitely be a good idea, though. For instance, if you want to hire someone, maybe it would be a good idea to put in writing from the start that they can’t become a partner or that becoming a partner would require X% dollars.

    You also don’t need to keep meeting minutes, but you should record decisions that are legal or accounting in nature. If you decide to elect to be taxed as a corporation, you should record this decision. If you decide to create a new product, you don’t need to record this decision. Basically, if you decide to do anything and it seems like a good idea to record the decision, then create meeting minutes for it. It’s as simple as writing down the decision, and then signing it with a date.

    If you don’t record such important decisions, your limited liability may be at stake. If a court decides that your LLC is just a cover for your own personal hobby or something similar because you have a lack of paperwork showing your legal and accounting business decisions, they could go after you instead of your business.

  • Mary Jo Gilmore

    The Annual Report – do I need to file that at the time I file for the
    LLC Articles of Organization or is that something that is done in a year?

    Thanks for all your help – you saved me a bunch of money!
    MJ

  • Mary Jo Gilmore

    One other question – on the Articles of Organization form, No. 5 says
    the purpose the LLC is organized – are they wanting what your
    business does or are they wanting the purpose you’re doing it, such as to protect your personal assets?

    Thanks again,
    MJ

  • Mary Jo: The annual report is actually something that the government sends to you. You verify that the information is still correct, attach a regular check to it, and send it back. I actually refer to my own experience this past year with it on http://gbgames.com/blog/?p=591

    Line 5 wants to know the purpose of your business, which can be as generic as the line that is already provided. In fact, I didn’t modify the answer that is listed on the sheet already, and it is perfectly fine to do so.

  • Al

    You indicated when you formed your LLC that “He also talked about the lack of a need to apply for an Illinois Business Tax number. I’m going to be reading more about this topic…”

    Did you ever end up having to file for an Illinois Business Tax Number?

    Or did you have to register the business according to the following from the Sate of Illinois Business Portal?

    “To Register
    Register with IDOR before you make any sales or when you hire an employee. For those businesses that have sales or use tax liability in Illinois, you will receive a Certificate of Registration that must be displayed in a prominent location in the place of business to which it applies. To register your business and receive your Certificate of Registration and Illinois Business Tax number ( i.e., your “tax” number or IBT no.), you have these options:

    * Register electronically with on-line Business Registration application (1-2 days)
    * Complete and mail Form REG-1 (PDF 77 KB) PDF, Illinois Business Registration Application (6-8 weeks) ”

    Thanks Al

  • Al: Basically, since I am not involved with purchasing physical goods, such as a restaurant or a storefront might, there isn’t really a need for one. At least, that was my understanding. My business is more virtual than brick-and-mortar, and I don’t intend to hire an employee anytime soon.

    If either of those two circumstances change, I’ll have to remember to get one. I otherwise only have a Federal Tax ID for my business.

  • This is a very good summary of what you need to do to form your own limited liability company in Illinois. As you point out, for a single member LLC, it is pretty simple. I would just add two cautions:

    1. If you need the LLC formed quickly, you should use the Secretary of State’s expedited service ($100 extra). It is explained on the Secretary of State’s website. Otherwise, you may have to wait several weeks to find out if and when the LLC was formed.

    2. In Illinois, you must specify whether the LLC is member-managed or manager-managed. Most single member LLCs are member-managed, but you should be aware that if the LLC is manager managed and the manager is the member, the LLC Act requires that the operating agreement be in writing.

  • […] If you are interested in learning how to form an LLC in Illinois, please read my earlier blog post Forming an LLC in Illinois. Also read through the comments, since people have asked some good questions since I’ve […]

  • JS

    Hey – Great information ! One question here. I am going to set up an LLC in Illinois (have one out of state but I an now in OL and it’s cheaper to set up a new one than file for an out of state entity). It will be doing web site development. As far as I know services do not have to collect sales tax. Can anybody confirm and clarify when sales tax has to be collected ?

    Thanks !

  • JS: I am not too sure about sales tax rules, but I did find this helpful information from Nolo Press’ website: Sales Tax on the Internet: Who Pays It, Who Doesn’t. I hope it helps!

  • […] felt good because my income easily paid for my web hosting and domain name, but the legal costs of forming an LLC and filing the annual reports totals $1000 over two years. My income hasn’t paid for half of […]

  • […] how do you start? I wrote an article about Forming an LLC in Illinois, and running an LLC is much easier than running an S Corporation. If you don’t know the […]

  • Its an old post! Setup costs of a LLC in Illinois is the most expensive in the US. The filing fees now is over $700! However, its the best way to go if the owner is Illinois resident…many form LLCs in Delaware or Nevada to avail of tax flexibilty, startup costs etc but for a small scale business operated by one individual, there is no point of doing so.

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