How to Start a Business in Illinois (Updated 2023)

To start a business in Illinois, you must take legal and operational steps to get your business up and running. On one hand, you must make sound business decisions at the start, such as picking out a viable business idea and name. But you must also take the time to register your business, apply for the necessary licenses and permits, and file your taxes.

Below are the steps you need to take to start your Illinois business.

1. Choose a Business Idea

Your first step in starting any business is to choose a business idea. Think about your own interests, skills, and your area of expertise. It's a good idea to have a background in the industry where you plan to build your business. For example, someone who's worked in a restaurant would typically have an easier time opening a restaurant than someone who's never worked at one.

Besides choosing an idea that fits your experience, you should evaluate the likelihood of success based on the interests of your community, and whether your business idea will meet an unmet need. For more tips, check out our article on how to evaluate business ideas.

Once you've got your idea, you should create a business plan. A business plan can help you evaluate your costs and potential for profit. When mapping out your startup costs, consider your financing options. Think about whether your business can raise some capital or whether a business loan is a better option. In general, investors and lenders want to see a business plan before providing financial assistance.

2. Decide on a Business Legal Structure

Your second step is picking a legal structure for your business. The most common types of legal structures for a small business are:

• sole proprietorships
• partnerships
• limited liability companies (LLCs), and
• corporations.

In Illinois, you can also choose to form a limited partnership or a limited liability partnership (LLP). Unlike a general partnership, limited partnerships and LLPs offer limited liability protections to some partners. You can also elect to become an S corporation, a tax entity, if you register with the state as a qualified business, such as an LLC or corporation.

If you provide professional services, you can form a professional corporation (also called a "professional service corporation") or a professional LLC in Illinois.

Each business structure has its advantages and disadvantages. Your legal structure will determine how your business is managed and taxed as well as the owners' liability for business debts. Some business structures require registration and have ongoing filing and fee requirements. You should consider what your business needs and can afford to choose the best ownership structure for your business.

3. Choose a Name for Your Illinois Business

Before you register your business under your chosen legal structure, you need to pick a business name. Make sure you pick a name that's unique and marketable.

Under Illinois law, you must pick a name that's distinguishable from any business name already on file with the Illinois Secretary of State (SOS). You can search for business names using the SOS's business entity search.

Entity name designators: Illinois law requires that you include words or abbreviations that identify your business's structure (for example, including a word such as "LLC" for LLCs or "incorporated" for corporations). See our article on how to form an Illinois LLC for more information.

Reserving your business name: You can reserve your business name for 90 by filing a name reservation application with the SOS. There's a separate application form for corporations and LLCs.

Filing an assumed name certificate: If you plan to do business under a name that's different from your legal name, then you must register that name—called an "assumed name," "trade name," or "DBA" (short for "doing business as"). For unincorporated entities (like sole proprietorships and general partnerships), the business's legal name is the owner's personal name. For incorporated entities (like LLCs and corporations), the company's legal name is the name that appears on the company's formation documents. Sole proprietors and general partnerships must register their assumed name with their county clerk and publish notice of their assumed name in a local newspaper. A corporation, LLC, or other incorporated entity must register their assumed name with the SOS.

If you'll do business online, you might want to register your business name as a domain name. In addition, to avoid trademark infringement issues, you should do a federal and state trademark search to make sure the name you want to use isn't the same as or too similar to a name already in use.

4. Register Your Business Entity With Illinois Secretary of State

To register your business in Illinois, you can complete and mail the appropriate organizational form to the SOS. These forms can be found on the business services publications/forms section of the SOS website. You have the option of registering your corporation or LLC online using the SOS's Online Services.

Here's how to form each type of business:

• Sole proprietorship: You don't need to file any organizational documents to start a sole proprietorship in Illinois.
• Partnership: You also don't need to file paperwork to create a general partnership in Illinois. However, it's a good idea to draft a partnership agreement to lay out the rules for how your partnership will be managed and how the assets and liabilities divided among the partners.
• Limited partnership: You must file a Certificate of Limited Partnership (Form LP 201) with the SOS to create a limited partnership.
• Limited liability partnership (LLP): To register an LLP in Illinois, you must file a Statement of Qualification (Form UPA 1001) with the SOS.
• LLC: You need to file Articles of Organization (Form LLC 5.5) with the SOS to form an Illinois LLC. You'll also appoint a registered agent in Illinois for service of process. You should also prepare an operating agreement to establish the basic rules about how your LLC will operate. An operating agreement is similar to a partnership agreement and will help avoid disagreements among the owners.
• Professional LLC: Licensed professionals can form an Illinois professional LLC by filing Articles of Organization (Form LLC 5.5) with the SOS just as they would if they were forming a regular LLC. Within the articles, you must indicate which professional services your professional LLC intends to provide. You'll also need to receive a certificate of registration from the Department of Financial and Professional Regulation (IDFPR).
• Corporation: File Articles of Incorporation (Form BCA 2.10) to form an Illinois corporation. You must also appoint a registered agent. You should also draft corporate bylaws to establish your corporation's internal operating rules.
• Professional corporation: If you perform professional services, you can form an Illinois professional corporation by filing Articles of Incorporation (Professional Service Corporation) with the SOS. This form is separate from the articles of incorporation filed for non-professional corporations.

To form an S corporation, you must first form a qualified entity eligible to elect S corporate tax status. For example, you must first form a corporation or an LLC that's taxed as a corporation. After you form your corporation or other applicable business with the SOS, you can file IRS Form 2553, Election by a Small Business Corporation, with the IRS to elect S corporation tax status. Tax laws can be complicated and differ among business entities. You might want to talk to an Illinois tax attorney before you officially register your business.

5. Apply for Illinois Licenses and Permits

Your business will probably need to apply for one or more licenses, permits, or registrations. You can find more detailed information in our article on Illinois business licenses.

Tax registration. If your business will sell goods or provide taxable services in Illinois, you must register with the Department of Revenue (DOR) to collect sales tax. If your business will have employees, you must register with the DOR for employer withholding taxes. You can register for both types of tax, as well as other business taxes, either online via the MyTax Illinois website or on paper using Form REG-1, Illinois Business Registration Application.

Employer identification number (EIN). If your business has employees or is taxed separately from you, you must obtain an EIN from the IRS. Even if you're not required to get an EIN, there are often business reasons for doing so. For instance, banks often require an EIN to open an account in the business's name and other companies you do business with could require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There's no filing fee.

Regulatory licenses and permits. You might be required to obtain a license or permit related to health and safety, the environment, building and construction, and specific industries or services. Different regulatory licenses are issued by different state agencies. Check the registrations, licenses, and permits section of the Illinois state government website for more information. For information about local licenses and permits, check the websites for any cities or counties where you'll do business.

Professional and occupational licenses. The IDFPR regulates many professions and occupations in Illinois. The IDFPR website has a section covering the professions and industries regulated by IDFPR. Each profession and occupation also is more directly regulated by its related state regulatory board.

6. Pick a Business Location and Check Zoning Regulations

You'll need to decide on a location for your business. When looking at potential spots, check local zoning regulations. Verify that the desired location is zoned for your type of business. You can usually find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department.

In addition to complying with zoning laws, you need to take time to calculate the costs of running your business in the proposed location, including rent and utilities. Refer to your business plan to evaluate whether you can afford your proposed spot during your company's early months. If you lease a commercial space, make sure to negotiate terms that'll work for your business in the long term.

You might not need a designated spot to run your business. You could have the option of running your business out of your home. If you decide to run a home-based business, again check your local zoning laws. You should also review your lease (if you rent your home) and homeowners association rules (if applicable)—either of which might ban some or all home businesses.

7. Register and Report Business Taxes

Illinois taxes every kind of business. More specifically, Illinois has a corporate income tax, a corporation franchise tax, and a personal property replacement tax. Most businesses (except sole proprietorships) will be subject to at least one of these three taxes. See our article on Illinois state business income tax for more information on state business taxes in Illinois.

Sole proprietorships: Sole proprietors pay state taxes on business income as part of their personal state income tax returns (Form IL-1040).

Partnerships: Partners pay state taxes on their share of the partnership income on personal tax returns. In addition, Illinois partnerships also must file Form IL-1065, Partnership Replacement Tax Return.

LLCs. Members pay state taxes on their share of LLC income on personal tax returns. In addition, LLCs themselves have to file an additional state tax form—either a partnership return or a corporation return—depending on how the LLC is taxed. Illinois LLCs must also file an annual report with the Illinois SOS. Read our article on Illinois LLC annual report and tax filing requirements for more information.

Corporations. Shareholders must pay state taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on their personal state tax return. The corporation itself is subject to various Illinois corporation taxes and must file an annual report with the Illinois SOS.

If you have employees, you must also deal with state employer taxes.

And, apart from Illinois taxes, you're responsible for federal income and employer taxes. Review IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business for more information.

8. Obtain Insurance for Your Illinois Business

You should consider investing in business insurance. A business insurance policy can protect both your company and your personal assets from unexpected events, such as personal injury lawsuits and natural catastrophes. Talk to an insurance agent about the different coverage options for your business.

You should consider getting general liability insurance to protect your business against claims relating to bodily injury or property damage. Your business might also benefit from cyber liability insurance to cover litigation and settlement fees following a data security breach.

For more, read our article on what types of insurance your small business needs.

9. Open a Business Bank Account

Regardless of your business structure, you should open a business account. Having a separate account will make it easier to track your business's income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection.

Additional Help With Starting Your Illinois Business

Visit the Illinois Department of Commerce and Economic Opportunity (DCEO) First Stop business resource on the DCEO website. The First Stop website has helpful information and resources for small businesses, including:

• the First Stop Business Information Center
• the Small Business Development Centers
• regulatory assistance program
• small business and startup resources
• step-by-step guide to starting a business, and
• publications and business guides.

In addition, the U.S. Small Business Administration has offices in Springfield and Chicago. These regional offices host seminars, workshops, and other events to help Illinois entrepreneurs.