Get all of the information you need to start and run a small business.
Here's an overview of the key steps you'll need to take to start your own business in Illinois.
Take time to explore and research ideas for your business. At this stage, take into consideration your own interests, skills, resources, availability, and the reasons why you want to form a business. You should also evaluate the likelihood of success based on the interests of your community, and whether your business idea will meet an unmet need. Read our article for more tips on how to evaluate business ideas.
After you select an idea, consider drafting a business plan to determine your chances of making a profit. When you create a plan, you will have a better idea of the startup costs, your competition, and strategies for making money. Investors and lenders will want to review your business plan before providing financial assistance, and you can be prepared by drafting a plan before you start soliciting funding.
The most common legal structures for a small business are:
There also are special versions of some of these structures, such as limited partnerships and S corporations. You'll want to consider which business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. Read our article for information on how to choose the best ownership structure for your business.
For LLCs and corporations, you will need to check that your name is distinguishable from the names of other business entities already on file with the Illinois Secretary of State (SOS). You can check for available names by doing a name search on the SOS website. You can reserve an available name for 90 days by filing an Application for Reservation of Name. There are certain name requirements for LLCs and corporations (like including a word such as "LLC" for LLCs or "Company" for corporations). See How to Form an LLC in Illinois and How to Form a Corporation in Illinois for more information.
Is your business a sole proprietorship or partnership that uses a business name that is different from the legal name of the business owner (for a sole proprietorship) or surnames of the individual partners (for a partnership)? If so, you must register an assumed business name with the county clerk in the county where you transact business. In addition, you must publish your assumed name filing. Check the website for the relevant county for more information.
If you plan on doing business online, you may want to register your business name as a domain name. See Choose and Register a Domain Name for more information. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. See How to Do a Trademark Search for more information.
Tax Registration. If you will be selling goods 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.
EIN. If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business's name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There is no filing fee.
Regulatory licenses and permits. These can cover areas such as:
Different regulatory licenses are issued by different state agencies. For example, environmental permits may be issued by the Illinois Environmental Protection Agency and employment-related licenses may be issued by the Illinois Department of Labor. Check the Registration, Licenses, & Permits section of the state government's illinois.gov website for more information. For information about local licenses and permits, check the websites for any cities or counties where you will do business.
Professional and occupational licenses. Many professions and occupations are regulated by the Illinois Department of Financial and Professional Regulation (IDFPR). The IDFPR website has a section covering Professions Regulated by IDFPR. Each profession and occupation also is more directly regulated by its related state regulatory board.
You'll need to pick a location for your business and check local zoning regulations. Before you commit to a location, take time to calculate the costs of running your business in the desired spot, including rent and utilities. You can refer back to your business plan to evaluate whether you can afford your desired location during your company's early months. You should also be sure to verify that the spot is zoned for your type of business. You might find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department. Read our article for more tips on picking a location.
One alternative to opening your business at a new location is running your company out of your home. If you decide to run a home-based business, again check your local zoning laws. In addition, review your lease (if you rent your home) and homeowners association rules (if applicable), either of which might ban some or all home businesses.
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 Illinois State Business Income Tax for more information on state business taxes in Illinois.
Sole proprietorships. Pay state taxes on business income as part of their personal state income tax returns (Form IL-1040).
Partnerships. Partners pay state taxes on 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. The specific form used will depend on how the LLC is classified for federal tax purposes. Illinois LLCs also are required to file an annual report with the Illinois SOS. See Illinois LLC Annual 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 his or her personal state tax return. Moreover, the corporation itself is subject to various Illinois corporation taxes. And, finally, corporations 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, there are always federal income and employer taxes. Check IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business, available at irs.gov.
Business insurance can protect your business and your personal assets from the fallout of unexpected disasters, such as personal injury lawsuits and natural catastrophes. An insurance agent can help you explore the different coverage options for your business, which might include general liability insurance to protect you against claims relating to bodily injury or property damage, or cyber liability insurance to cover litigation and settlement fees following a data security breach. To learn more, see Nolo's article, What Types of Insurances Does Your Small Business Need?
No matter the type of business you form, you should consider opening a separate business account to make it easier to track your income and expenses. If you own a business with limited liability, such as an LLC or a corporation, you must open a separate bank account to maintain your liability protection. To learn more, see Opening a Business Bank Account.