Starting a corporation in Illinois involves a few steps like choosing initial directors, creating and approving corporate bylaws, and filing the Certificate of Incorporation.
The following step-by-step guide will show you how to start a corporation in Illinois.
1. Select a name for your corporation
Starting an Illinois corporation begins with deciding on a name for your business. The business name must adhere to Illinois naming guidelines.
General corporate name guidelines
Before deciding on a name for your Illinois corporation, keep the following guidelines in mind:
- The name you decide on must be your legal entity name and not an assumed name
- Do not include words like State Department or Treasury as it can confuse your corporation with a government agency
- If relevant, your Illinois corporation name must include the word “trust” if organized to execute and accept trusts
- It should contain the word cooperative if organized as a cooperative association for pecuniary profit
- It must contain the word “pawners” if organized as a pawners’ society
- Additionally, the Illinois corporation name should not include words that indicate that the corporation is in the banking, insurance, or corporate fiduciary business without authorization from the State Commission of Banks and Real Estate
- Your Illinois corporation name should be significantly different from any other business in the same state. This also refers to reserved names
- Your Illinois corporation name must include the word company, corporation, limited, Inc., or an abbreviation of one of these words
Feel free to refer to the Illinois state statute for more information and guidelines on naming an Illinois-based business.
Conducting a name availability check on the Illinois Secretary of State’s Business Search Portal is also recommended. This ensures that the name you’re considering isn’t already in use by another business in Illinois.
A trademark creates brand recognition using words, images, phrases, slogans, symbols, or a combination of all of these. Ultimately, a trademark ensures that your customers are never confused about who they are doing business with. The first step in trademarking your Illinois corporation name is completing a trademark such ensure that no one in the state is making use of the trademark. Thereafter, complete and file Form TM/SM-15 and file it with the Illinois Secretary of State.
Your entity name is the legal name of your Illinois corporation. It is the business name that you must include in all legal and formation documents.
DBA (Doing-business-as) name
An Illinois DBA or “doing business as” name is also known as an assumed name. Corporations that want to do business under another name aside from their legal entity name must register a DBA with the Illinois Secretary of State or with the county clerk where business is conducted.
2. Nominate a registered agent
All Illinois corporations are required to nominate and maintain a registered agent. Registered agents are often referred to as statutory, resident, or service of process agents.
Their primary role is to accept legal documentation from the state on your corporation’s behalf. Anyone may be nominated as it a registered agent, including yourself.
However, you should note that registered agents need to be available during normal business hours in addition to meeting the following criteria:
- The Illinois agent must be at least 18 years of age or older
- The Illinois agent must consent to the appointment
- The Illinois agent must have a street address in the state where business activities are conducted
3. Appoint initial directors at the organizational meeting
Prior to filing the Articles of Incorporation or the Illinois Certificate of Incorporation, you need to hold an organizational meeting and complete the following tasks:
- Executing the incorporator’s statement
- Determining your share structure
- Nominating initial directors
- Creating and approving bylaws
- Filing and executing the Articles of Incorporation
One of the most important steps in this process is to appoint initial directors to oversee the Illinois corporation. You’ll need to nominate at least one initial director, also called a corporate director, until the first shareholder meeting.
A corporate director is tasked with the adoption, amendment, and repeal of the corporate bylaws, as well as the election, supervision, and removal of corporate officers.
4. File Articles of Incorporation
Filing the Illinois Articles of Incorporation or the Illinois Certificate of Incorporation officially and legally forms your business in the state. The Articles of Incorporation must include some basics such as:
- The estimated gross amount of business
- The estimated value of property owned
- The names and addresses of the incorporators
- The names and addresses of the board of directors
- The number of authorized shares the corporation is going to issue
- The name and street address of the corporation’s registered agent
- The name and statement of purpose of your Illinois corporation
Once you gather the necessary information, go ahead and file the Articles of Incorporation online with Illinois Cyber Drive. Alternatively, you may download the Articles of Incorporation Form and mail it to the following state’s office address:
Secretary of State
Department of Business Services
501 S. Second St., Rm. 350
Springfield, IL 627564
5. Create and approve bylaws
Corporate bylaws are required by every Illinois corporation. While it’s not a state requirement, it’s still necessary and will help streamline how your corporation is run.
The bylaws are essentially a document that explains how the company is going to be operated and makes the rules clear for everyone involved. When creating your bylaws, note that they should include:
- What happens in the event of a shareholder’s death
- The process for holding meetings, voting procedures, etc.
- The time and place of the annual meetings of the shareholders
- Procedures outlining how directors are elected
Bylaws are essential for effectively running your corporation and, therefore, should be stored with your company’s corporate records in a safe place for reference as and when needed.
6. Select a share structure
Shares represent the ownership of interest of the shareholders or owners of a corporation. Therefore, the total number of shares authorized must be listed.
The maximum number of shares the corporation may issue is referred to as authorized shares. The number of authorized shares actually issued to owners or shareholders is, in fact, known as the issued shares.
The amount of money that your shareholders paid for each share should also be disclosed. You need to disclose the number of approved shares as well as a number of issued shares for each class if you have more than one class of share.
7. Obtain an EIN
All business owners, in other words, every business entity in the state of Illinois will need to apply for an Employer Identification Number, also known as an EIN. The EIN may also be referred to as a Federal Tax Identification Number.
This custom nine-digit code is issued by the Internal Revenue Service or federal government to all business entities, including small businesses and C corporations in the state. Essentially it is a Social Security number for your corporation.
The EIN is useful in several instances, such as opening a corporate bank account for your company, submitting federal and state taxes, and hiring employees for your company. The
EIN is completely free of charge when you apply online through the IRS. Alternatively, you may download IRS Form SS-4 and then mail it to the following address:
Internal Revenue Service
Attention: EIN Operation
Cincinnati, OH 45999
The quickest way to obtain an EIN is by filing an online application. However, please note that you should print your EIN before closing your session, as the IRS website is only operational during certain hours.
8. File Illinois state taxes
Your Illinois corporation may be liable for the following taxes:
- Corporate income tax: Corporations in Illinois are liable for corporate income tax. With adjustments, corporate income tax is charged a flat rate of 7% of federal taxable income.
- Franchise tax: Your Illinois corporation must pay an annual franchise tax. This is a tax on the privilege of having an Illinois corporation. Franchise taxes are due every year on the anniversary of the formation of the corporation and is dependent on the corporation’s net worth.
9. Illinois business licenses and permits
The state of Illinois does not have a general business license; however, depending on the type of business or type of corporation you’re running as well as its location, many cities may require business licenses before you can legally operate your business.
- Professional license: Prior to offering certain types of services, and if you are running a professional Corporation, you’ll need to obtain a professional license. Some of the common professions requiring licensing in the state of Illinois include detectives, physical therapists, interior designers, barbers, cosmetologists, and more
- Resale certificate: You’ll want to obtain a resale certificate if your new business plans on buying merchandise to resell.
10. Annual report requirements in Illinois
All Illinois corporations are required to file annual reports. The reports must be submitted each year to the Illinois Secretary of State, Department of Business Services, and are required to stay in good standing with the state.
11. Costs of starting a corporation in Illinois
The filing fees below apply to all Illinois corporations:
- Name reservation: $25
- DBA name: $5 – $100
- Articles of Incorporation: $150
- Annual report: $150 – $300
- Illinois Certificate of Good Standing: $10
Next steps after forming a corporation
After forming your Illinois corporation, a few additional steps are in order:
Hire a business consultant
Hiring a business consultant for your Illinois C corp is recommended as it prevents your business from paying taxes. Additionally, it helps you avoid penalties, costly tax errors, and fines. Moreover, this consultant will help make payroll and bookkeeping much easier, leaving you with additional time to focus on your growing corporation.
If you have an Employer Identification Number, then you’re already registered as an employer and can go ahead and hire employees for your corporation. Each new employee you hire will need to fill out a 1-9 Employment Eligibility Verification Form from US citizenship and immigration services.
This form does not need to be submitted to any government agency but must be kept on file for a minimum of three years after the date of hire.
Thereafter, the employee needs to provide you with the signed Withholding Allowance Certificate, also referred to as Form W-4. This form determines how much federal income tax needs to be withheld from the employee’s paycheck.
Additionally, Illinois employees must report employees as well as re-hired employees to the Illinois Department of Employment Security.
There are many good reasons to form a corporation in the state of Illinois. Some of them include limited liability protection, corporate tax benefits, appeal to investors, a more formal management structure, and unlimited capital generation.
Corporations have a much easier time generating capital than an LLC or limited liability company. They also enjoy several tax benefits that LLCs do not. Additionally, a limited liability company office personal asset protection in the event that your business is served with legal action. The business structure you choose depends on your business’s specific situation.
So proprietorships do not have to pay to have the startup documents drafted, nor do they have to pay state filing fees. Additionally, sole proprietorships enjoy fewer administrative costs while running the business as they do not need to file regular reports with the state.
Yes, non-citizens are allowed to start corporations in Illinois. However, you will need a physical mailing address in the US as well as a US bank account.
C corporations are considered separate legal entities unless they elect the S corporation status. Therefore, C corporations pay corporate income tax. Additionally, income paid to stock owners or shareholders is also taxed on the shareholder’s personal income tax return. This is also known as double taxation.