If you plan on starting a new business in Illinois but are still unsure where to start, this step-by-step guide might help you outline your process in 16 easy steps.
Once a business owner makes the startup decision, they will be required to make even more decisions regarding the future of the entity.
For one, will you be starting an LLC, sole proprietorship or another business structure altogether? Have you established the ground plan for the formation process and other processes to ensure the long-term efficiency of your entity’s operation?
This article concerns these and other questions relating to the process of starting a small business, including the steps that could help you run a more stable company and the cost of each of the processes when starting an Illinois business.
Drafting a business plan is an excellent way to organize business solutions, company goals, and other essentials.
By analyzing the key elements of your business, you can ensure that every aspect of your future operations will be covered.
The structure of a business plan is directly tied to the individual specifics of each company and the wishes of its owners. But ultimately you will need to include the following points:
To sum up, a detailed business plan can help you work through the smallest aspects of running a company and actualize all your small businesses ideas.
The plan is designed to establish the foundations of a company’s internal operations and build the reputation of your business in order to draw potential investors and partners.
To learn more about drafting a business plan, be sure to check out the helpful guide from the U.S. Small Business Administration.
Finding the perfect name for your company is one of the key things on your agenda when you’re deciding on a business, considering how significant the role of a name is for your company’s success.
A good name should match your business purpose while also being unique, memorable and meet the state’s naming requirements.
The Secretary of State’s Business FAQ page provides all necessary information about naming parameters and how they shift depending on a business structure.
So if you plan to start a limited liability company, your entity should contain its business structure designation, either in full or in abbreviated form, e.g. LLC. The same goes for corporations.
Another crucial factor is the name’s availability.
Before you could go ahead and put your LLC name in the Articles of Organization, be sure to conduct a name availability search to ensure it hasn’t been taken by another Illinois entity, otherwise the Secretary of State will reject your application.
If you are still miles away from filing the formation forms but want to keep the rights to your chosen name, a good way to do it is to pay for a name reservation service.
There are a few types of business structures for entrepreneurs in America to choose from, each offering its own set of pros and cons.
The most common business types today include:
Entrepreneurs often lean towards either the LLC model due to its personal asset protection insurances or the sole proprietorship that offers perhaps the simplest formation process out of the lot.
Still, if you’re wondering which business structure is the best, you won’t be able to find one universal answer. So before you decide to jump on the bandwagon simply because a business structure is a popular choice, try to consider your individual circumstances first and how the pros and cons of each entity type play off of your assets.
Establishing timely legal communications is a vital part of running any form of business. This leads to the legal requirement for every LLC and corporation to employ a registered agent who will act as an intermediary with the state and process all official correspondence.
The Secretary of State makes this step mandatory for operating a business, largely to ensure that their office can contact your company at any time.
Designating a registered agent for your own business can be fairly flexible, and you can assign any legal entity or individual as long as they meet the following criteria:
The requirements for the Illinois registered agent are not overly strict, but you are not allowed to designate your LLC as its own registered agent.
It’s still much preferred to designate a registered agent service to carry out these duties. Professional companies for business solutions offer business formation and annual reporting services, significantly reducing your workload and allowing you to focus on your company’s steady growth.
Filing your registration documents officially creates your business, making it legal with the state. Keep in mind that formation requirements and related fees vary depending on the business type. More on that below.
Running a business with more efficiency usually compels corporations, sole proprietorships/general partnerships and almost all LLCs to obtain the Employer Identification Number (EIN) from the IRS.
This unique nine-digit code is similar to a personal Social Security Number in its functions. But where an SSN is attributed to a natural person, an EIN identifies your business on tax documents, allowing you to pay state and federal taxes, open business bank accounts, and hire employees.
When forming an LLC, the owners can choose against specifying their tax model, in which case an LLC will be classified as a “pass-through” entity by default.
This means that the entity is not obligated to pay federal income taxes or file an income tax return. All profits and losses will instead be filed with the personal tax returns of the LLC owner(s).
None of this exempts you from acquiring an EIN since the number is likely to figure in other tax obligations assigned by various industry boards or local jurisdictions.
If you are still unsure whether you need to file for an EIN, feel free to read up more on the subject on the official IRS website. They also let you apply for an EIN online to acquire your number on the spot.
Those who prefer working with paper documents can apply for an EIN using a Form SS-4. The form then needs to be filed with the IRS via the following methods:
Download, print, and fill out the appropriate form. Mail it to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Fax the appropriately filled out form to (855) 641-6935.
LLC and corporation owners are required to adhere to a certain set of rules in order to keep their personal asset protections intact.
One of such directives is keeping the personal and business finances completely separate which can be achieved by opening a business bank account specifically to conduct your entity’s financial transactions.
Personal asset protection is far from the only reason for a start-up business to open a business bank account. Other advantages for a separate account include:
Before you can open a business bank account, consider your options carefully. Specifically the details of the preferred bank, availability of its branches, and their location in relation to your main office.
Entrepreneurs will often go with the bank where they already have existing accounts, whether personal or from previous business endeavors, but this is not a hard rule.
To open a business bank account, you may be required to provide the following information:
If you run a business in Illinois, it’s important to remember how integral your business’ tax requirements are to your company’s financial plan.
The number of taxes and their specifics depends not only on Illinois state law but also on your field of operation, your office location, your business structure, and various industry requirements.
By default, LLCs are not required to pay federal income taxes or file a corporate tax return due to their “pass-through” status.
Any business earnings and losses on record are instead filed with the personal tax return of the LLC owners.
That said, the state gives you the right to select your taxation model, meaning you will be able to choose for your LLC to be taxed as a corporation.
Corporations can choose between the two 2 primary corporate taxation models:
Sole proprietorships and general partnerships require their owners to pay self-employment taxes due to their legal status as self-employed individuals rather than payroll employees.
In addition to the taxes tied to a specific business structure, an entity may be subject to other forms of taxation, including:
To learn more about state taxation and answer any remaining questions on the subject, feel free to visit Illinois’s Department of Revenue website.
At the early stages of starting your own business, you may consider dealing with bookkeeping and tax procedures on your own.
But the faster your business grows, the more complex these tasks will become, requiring more time and expert knowledge to handle them.
In this case, it would be more prudent to assign financial responsibilities to a professional who will be able to manage your documentation in a structured and compliant manner.
The Operating Agreement is an internal document designed to outline the company’s structure and operational guidelines.
There is no all-purpose template for an Operating Agreement since its contents are defined by entity owners to be applied to the individual specifics of their business. Still, most agreements share a few basic clauses, including:
Although it’s not mandatory to draft an Operating Agreement to legally start a business in Illinois, this document offers quite a number of indispensable advantages, including:
Given the elective status of the Operating Agreement, the Secretary of State website does not provide a state-approved template or restrict the document’s format.
There are 2 ways to obtain this document:
One of the few universal requirements here is to obtain the signatures of all owners to validate the Operating Agreement. Once approved, the agreement should be kept with other company documentation. There is no need to file it with the Secretary of State.
Filing your formation documents will technically be enough to officially register an entity business, but in some cases, this won’t be enough to actually run your business.
Most companies will likely require specific licenses in order to start operating in Illinois legally. The types of licenses as well as their fees and quantity all depend on the industry in which your business plans to operate.
Some of the more common licenses and permits include:
Acquiring business insurance is an excellent security measure in the event of future litigation, financial losses, and other unforeseen circumstances.
Even though forming an LLC or corporation protects personal assets by default, getting additional business insurance gives you a whole new set of advantages.
Some of the most common business insurance plans include:
Potential and new business owners who are still unsure about their choice can check out SBA.gov to learn more about business insurance.
Any fledgling company’s digital presence is vital for its growth, so much so that an underdeveloped online marketing strategy could be detrimental to the future of your business as a whole.
Establishing your business online can work in favor of its reputability and expand your customer base.
Creating a website for your company is practically a requirement for starting an online business that will be mostly relying on its online operations.
Even so, securing your online presence is one of the crucial steps to start a small business even if you don’t plan to shift your focus to the online market.
Getting your own website is pretty simple and doesn’t require any special web design or coding skills. You can simply hire a website building service like WordPress and Squarespace to create an accessible website for your company by way of easy drag-and-drop customization.
If that doesn’t suit you, you can always hire a web designer who will create a website from scratch for a fairly reasonable rate.
Getting a website may not be enough for an efficient marketing strategy, and many successful businesses also establish a steady online presence on social media, namely:
Social media management is an effective way to invest in startups and provide flexible business solutions like:
All this and more makes social media a uniquely effective tool for business marketing and development, not to mention a predominantly free one.
After you’ve launched your business, don’t expect your responsibilities to diminish. Instead of formation rules, you will be tasked with meeting the state’s ongoing compliance requirements on a regular basis.
This includes meeting annual or biennial business requirements determined by your jurisdiction and business type.
One of the main requirements posed to any Illinois business entity is filing an Annual Report. This document primarily serves as a timely method of informing the state about the changes that may have occurred in the company since the previous filing.
The filing period for an Annual Report depends on your registration month. Ideally, you should file it before the first day of your business’ anniversary month. Failure to do so will render your entity “noncompliant” and lead to a $100 late fee.
If you fail to resolve the non-compliance issue in 120 days, your company will earn a “delinquent” status which, in turn, can lead to serious penalties. The worst-case is the administrative dissolution in which the state forces entity closure without the owners’ consent.
Illinois is known to facilitate a rather welcoming environment for business formation and development thanks to the wide scope of free resources aimed to help new entrepreneurs.
SBA.gov provides information about the formation process in Illinois, including the detailed guide for businesses to start operation. The helpful document provides helpful small business resources like:
To learn more about starting and growing your business, be sure to also check out the Illinois district office webpage.