How to Form a Corporation in Illinois

If you're looking to form a corporation in Illinois, you need to follow several important steps. You'll need to register your business with the state, prepare internal corporate documents, appoint company directors, and issue stock.

You can use our Online Corporation Service to start your corporation. This online service will form your Illinois corporation for you. It'll also provide you with everything you need including a corporate name check, articles, bylaws, a corporate records book, an incorporator's statement, minutes of the first meeting of the board of directors, stock certificates, and a stock transfer ledger.

1. Choose a Corporate Name

An Illinois corporation (or out-of-state corporation doing business in Illinois) must follow certain naming requirements. For instance, a corporation's name can't include any wording that would imply it's engaged in business activities that it isn't engaged in or that it doesn't have the authority to engage in.

Additionally, a corporation's name must contain one of the following terms or its abbreviation:

• "corporation"
• "company"
• "incorporated," or
• "limited."

The name of your corporation also must be recognizably different from the names of other business entities already on file with the Illinois Secretary of State (SOS). You can search the corporation/LLC entity database for names that are already in use. You can also email or call to do a preliminary name check. (805 Ill. Comp. Stat. § 5/4.05 (2024).)

If you have a name picked out but you're not ready to incorporate your business, you can reserve your chosen name. You can reserve an available name for 90 days by mailing an Application for Reservation of Name (BCA-4.10) to the SOS. As of 2024, the fee to reserve a name is $25. (805 Ill. Comp. Stat. § 5/4.10 (2024).)

2. Appoint a Registered Agent

Every Illinois corporation (or foreign corporation authorized to do business in Illinois) must have an agent for service of process in the state (also called a "registered agent"). A "registered agent" is a person or business that agrees to accept legal papers on the corporation's behalf if it's sued. The agent must have a physical street address in Illinois.

A registered agent can be:

• an individual who resides in Illinois, or
• a domestic or foreign corporation authorized to do business in Illinois (as long as the business's formation document authorizes it to act as a registered agent).

Before you designate a registered agent, make sure the agent agrees to accept service of process on your corporation's behalf. You'll list your corporation's registered agent in your articles of incorporation.

(805 Ill. Comp. Stat. § 5/5.05 (2024).)

3. File Articles of Incorporation

In Illinois, your corporation is legally created by filing Articles of Incorporation (BCA 2.10) with the SOS. You can file the articles online or by mail.

The articles must include:

• the corporate name
• the name and street address of the initial registered agent
• the corporation's purpose
• the name and address of each incorporator
• the number and class of of shares the corporation is authorized to issue and the consideration (money or property) the corporation will receive for the shares, and
• the preferences, qualifications, limitations, restrictions, and special or relative rights of each class of shares (if the shares are divided into classes).

(805 Ill. Comp. Stat. § 5/2.10 (2024).)

As of 2024, the filing fee is $150 plus an initial franchise tax payment assessed at a rate of $1.50 per $1,000 of paid-in capital represented in Illinois.

Technically, the minimum initial franchise tax is $25. However, starting in 2024, there's a franchise tax exemption amount of $5,000. If the tax amount minus the exemption amount is zero or less, no franchise tax is due. For example, if you owe $4,000 in franchise taxes, then you won't owe any franchise tax because the tax owed is less than the exemption amount. (805 Ill. Comp. Stat. § 5/15.35 (2024).)

4. Prepare Corporate Bylaws

You'll need to prepare initial bylaws for your corporation. Your corporation's bylaws are an internal document that sets out the company's operating rules. The bylaws can be prepared by the board of directors or the shareholders unless the articles of incorporation specify that only the shareholders can make, alter, or repeal the bylaws. (805 Ill. Comp. Stat. § 5/2.25 (2024).)

Your corporation's bylaws will be approved and adopted by the company's shareholders or directors. You don't need to file this foundational document with the state. (805 Ill. Comp. Stat. § 5/2.20 (2024).)

At the very least, your bylaws should include:

• the officer positions for the corporation (for instance, chief executive officer, chief operating officer, secretary, etc.)
• the rights and obligations of directors, officers, and shareholders
• the procedure for meetings of directors and shareholders
• the process for electing and appointing directors and officers, and
• how stock is classified and issued.

Besides providing a roadmap for your corporation's operations, your bylaws are critical for other reasons. Your bylaws help establish your business as a separate entity from its officers, directors, and shareholders—preventing others from piercing the corporate veil and holding individuals in the corporation liable for corporate debts. Bylaws can also help show banks, creditors, the Internal Revenue Service (IRS), and others that your corporation is legitimate.

You should put your bylaws, meeting minutes, and other important corporate papers in a corporate records book. You can use a three-ring binder or you can order a special corporate records kit through a corporate kit supplier. Keep this book at your corporation's principal office.

5. Appoint Initial Directors and Hold the First Board Meeting

Once you've incorporated and prepared your corporation's initial documents, you should appoint the company's directors (if you haven't already) and hold the first board of directors meeting. If the directors haven't been named in the articles of incorporation, then the shareholders should hold a meeting to elect the directors.

The directors must hold a first meeting to:

• adopt the corporation's initial bylaws
• elect corporate officers, and
• transact any other business matters that come up before the meeting.

(805 Ill. Comp. Stat. § 5/2.20 (2024).)

It might be a good idea for the directors to decide other initial matters at their first meeting. For instance, the directors can:

• select a corporate bank
• set the corporation's fiscal year
• authorize the issuance of shares, and
• adopt an official stock certificate form and corporate seal.

If you want your corporation to be taxed as an S corporation, the directors should approve the election of S corporation status at the first meeting as well.

The incorporator should also fill out an "Incorporator's Statement" listing the names and addresses of the initial directors. The incorporator should sign the statement.

Record the board of directors' actions in corporate minutes. Place these corporate minutes and the Incorporator's Statement in the corporate records book.

6. Issue Corporate Stock

Once you've registered your corporation and had your first directors' meeting, you should issue stock in return for capital contributions. You might've already issued stock to the incorporators and other initial investors. Once a person or business has been issued stock, they become a shareholder (also called a "stockholder"). Shareholders can contribute cash, property, services, or all three.

Shareholders' Agreement and Stock Certificate

Typically, when a corporation issues shares, the corporation and shareholders will agree to a shareholders' agreement (also called a "stockholders' agreement"). This agreement lays out the corporation's and shareholders' rights and obligations.

Small corporations often issue paper stock certificates to represent stock ownership. One of the corporation's officers or directors should sign the certificate or the certificate should bear the corporate seal. You should also include the share's par value somewhere on the certificate. The "par value" is the lowest amount the share can be sold for. If there isn't a par value, you can say there's none on the certificate.

List each shareholder's name and contact information in the corporation's stock transfer ledger.

Securities Laws and Exemptions

Typically, shares are classified as securities under state and federal securities laws. Securities laws require corporations to follow certain rules when offering and issuing stock, such as registering the sale with the U.S. Securities and Exchange Commission (SEC).

However, many small corporations don't have to worry about securities laws. Small corporations often make private offerings for their shares, and federal law exempts private offerings from being classified as securities. A "private offering" is a non-advertised sale to a limited number of people (generally 35 or fewer). See our corporations FAQ for more.

You should review the Illinois Securities Law of 1953 for more information on state securities requirements and exemptions. The SOS has a helpful webpage on selling securities that goes over state registration requirements and fees, registration exemptions, and licensing requirements for broker-dealers and salespersons.

If you have specific questions, talk to an Illinois business attorney who has experience with the state's securities laws.

7. File an Annual Report

All corporations registered or authorized to do business in Illinois must file an annual report with the SOS. The annual report is lengthier than other states and requires information about your corporation's shares, property, and paid-in capital.

You must file the report every year by the last day of the third month before your corporation's anniversary month. For example, if your company was incorporated on May 7, then you must file your report every year by the end of February (three months before May). You can see a chart of the report due dates on the instructions for your annual report (Form BCA 14.05).

(805 Ill. Comp. Stat. § 5/14.05 (2024).)

Your annual report can be filed online or by mail. However, you must file your report by mail if any of the following are true:

• your corporation has more than six officers or directors
• your corporation owns property outside of Illinois or does business outside of Illinois. or
• there have been changes in the authorized shares, issued shares, or paid-in capital.

As of 2024, the filing fee for an Illinois annual report is $75. You must also include your corporation's annual franchise tax with the report. The annual report form and instructions provide details on how to calculate your corporation's franchise tax.

8. Obtain an EIN and Comply With Tax Requirements

Your corporation must have a federal employer identification number (EIN). You can apply for an EIN online through the IRS website. There's no filing fee.

In addition, all corporations doing business in Illinois must register with the Illinois Department of Revenue (IDOR). You can register your business with the IDOR either online through MyTax Illinois or by mail using the Illinois Business Registration Application (Form REG-1).

Illinois corporation income and replacement tax: Your corporation must pay a business income tax and a personal property replacement tax (PPRT). To pay these taxes, your corporation will file Form IL-1120, Corporation Income and Replacement Tax Return with the IDOR. As of 2024, the Illinois business income tax rate is 7% of net income, and the PPRT rate is 2.5% of net income (or 1.5% for S corporations). Your corporation could be required to make quarterly estimated payments. For more, see the income and replacement taxes webpage on the IDOR website.

Illinois sales and use tax: If your corporation will sell taxable goods and services, you must collect and pay sales tax to Illinois. In Illinois, the term "sales tax" refers to occupation taxes levied on retailer's receipts and use taxes that are paid by customers. Most retailers will use Form ST-1 to report and pay sales tax. You'll make periodic payments—either monthly, quarterly, or annually. Review the sales and use taxes section of the IDOR website for information about tax types, tax rates, exemptions, filing and payment requirements, as well as forms and resources.

Illinois wage withholding tax: Illinois employers must withhold and pay employee income taxes to the IDOR. You can register to pay withholding tax through MyTax Illinois. You'll need to pay withholding taxes semiweekly or monthly using Form IL-501, Withholding Payment Coupon. You must also file quarterly reports forms using Form IL-941, Illinois Withholding Income Tax Return. Check out the IDOR's withholding income tax section for more information.

Illinois unemployment insurance (UI) tax. If your corporation has employees, you need to register with the Illinois Department of Employment Security (IDES) using MyTax Illinois. You'll need to file monthly or quarterly UI contribution and wage reports. Use Form UI-3/40 to pay contributions each quarter. You can visit the IDES website for more information on how to report and pay your UI tax.

Illinois taxes can be fairly complicated. You should talk to a local tax professional for help with calculating your taxes.

For more on starting a corporation, including sample forms and bylaws, you can read Incorporate Your Business, by Anthony Mancuso (Nolo).