Many entrepreneurs consider starting a business in Illinois because it has a diverse economy with Chicago as a major commercial hub.
What you’ll learn
What you’ll learn
Key takeaways for starting an Illinois business
- Start by creating a business plan and choosing a legal structure based on it. Your choice between a sole proprietorship, LLC, and corporation will impact liability and taxes for years to come.
- LLCs and corporations must register with the Illinois Secretary of State
- You’ll need to set up a federal EIN with the IRS and state tax accounts through the Illinois Department of Revenue.
- Illinois has a flat personal income tax and a Personal Property Replacement Tax that applies to businesses.
- Hiring adds new obligations, like paid leave, unemployment insurance, and the Secure Choice retirement program.
There’s a couple of steps to take before you open the doors. That said, it’s all manageable, but there are some things to note before taking the plunge. Here’s how to start a business in Illinois that’s built to last.
Choose the right business structure for your goals
Your first real decision is what type of entity to form, because it affects your personal liability, how you’ll be taxed, and your ongoing paperwork obligations. Common structures to consider are outlined below.
- A sole proprietorship is the simplest and cheapest to start, but it offers no separation between yourself and the business. This leaves your personal assets exposed if the business is sued or takes on debt. A general partnership works the same way for two or more owners.
- A corporation, by contrast, is a separate legal entity that protects your personal assets and positions you to raise outside capital. However, it comes with more formalities and, for C corporations, the potential for double taxation.
- Finally, a limited liability company (LLC) tends to be popular for many new small businesses in Illinois. That’s because it shields your personal assets from liability, but has lighter administrative requirements than a corporation. It also gives you some flexibility around tax strategy. Ultimately, the best choice depends on your funding strategy and long-term business goals.
Register your business with the Illinois Secretary of State
If you start an LLC or corporation, you’ll need to register with the Illinois Secretary of State. Before filing the paperwork, look up your preferred business name in the state database to see if it’s available. You can reserve the name you want for a small fee – if you aren’t ready to file yet and Illinois will let you hold it for up to 90 days.
How much does it cost to start a business in Illinois?
For an LLC, the Articles of Organization filing fee is $150, though a series LLC costs $400. Keep in mind that fees can change from year to year as the state updates its pricing. Online filings usually take about a week to process, but you can pay an extra fee if you want a quicker turnaround.
Note that every Illinois LLC and corporation has to file an annual report with the Secretary of State. This entails a $75 fee, and the report must be filed before the day of your founding anniversary each year. Missing this can result in penalties and the dissolution of your business.
As you file for your business with the state of Illinois, it’s a good time to draft an operating agreement for an LLC or bylaws for a corporation. Illinois does not legally require an operating agreement, but it spells out ownership and how profits are shared, and banks usually want to see one before
Obtain an EIN and register for state taxes
With your entity formed, apply for a federal Employer Identification Number (EIN), your business tax ID number, through the IRS. It’s free to do and should only take a few minutes of your time. You’ll need the number to take the following actions:
- Open a bank account
- Hire employees
- Register to pay state taxes
Next, register with the Illinois Department of Revenue through the MyTax Illinois portal. The specific types of accounts you need will depend on your business. For example, any company that sells physical goods needs to register for sales and use tax.
Taxes to keep track of
- The general merchandise rate is 6.25% in Illinois, but local governments add to this.
- The total reaches 10.25% in Chicago, though qualifying groceries and drugs are taxed at a reduced rate.
- Illinois also has a Personal Property Replacement Tax (PPRT). This is on top of regular income tax and is collected by the state to fund local governments.
- C Corporations pay a 7% income tax plus a 2.5% replacement tax, for a combined 9.5% rate.
- Pass-through entities such as S Corporations and partnerships pay the replacement tax at 1.5% of net Illinois income. That’s true even though their profits otherwise flow through to owners, who pay the state’s flat 4.95% personal income tax.
Next, let’s see if there’s any documentation you’ll need as you get closer to getting your business off the ground.
Secure required licenses and professional permits
There’s no general business license in the state of Illinois. The specific licenses and permits you’ll need will depend on the industry and location. Start the process by researching whether your profession has a state license. Fields like accounting, cosmetology, and food all have specific licensing and permitting requirements.
Then you can explore local requirements in your area. For example, Chicago asks most businesses to obtain a city license through the Department of Business Affairs and Consumer Protection.
So what do you need to do to start a small business in Illinois on the licensing front? Confirm your state professional requirements, then check with your city and county. You may need a local license in hand before you legally open your doors. Build a simple system to track renewal dates so nothing lapses.
Small businesses love OnPay
“OnPay has the best customer service, is so easy to use and less expensive than all the other payroll services. All around WIN!”
— Kelly Brown, Emergency Cleaning Solutions
Final steps to launch your small business successfully
How do you start your own business as a beginner without getting overwhelmed? Take it one step at a time and get the foundations right. Two basics matter more than people expect.
- The first is a business plan. It doesn’t need to be long. Writing down what you sell, who your customers are, and how the money works forces you to pressure-test your ideas. Lenders will expect to see evidence that you’ve done this if you seek financing.
- Another important step is opening a business bank account and keeping that money separate from your personal finances. This protects your personal assets from liability and makes managing taxes much easier. You can defeat one of the main benefits of starting an LLC just by getting this wrong. Be sure to also set up a bookkeeping system early, save your receipts, and reconcile regularly so you don’t get too far behind.
Moving forward
From there, it’s often all about momentum. Every successful Illinois business owner started where you are now, and the process gets easier with each next step. When you’re ready to hire and set up payroll for the first time, you don’t have to figure it out alone. Reach out to the OnPay team for personalized help getting payroll up and running so you can get back to building your core business. Our team is looking forward to hearing from you!
Take a tour to see how easy payroll can be.
Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.