If you want to start a business in Illinois, you’re in luck. Illinois has a range of incentives for new business owners, including a healthy labor market, relatively low-income taxes, and plenty of access to startup capital.

When you’re ready to join the ranks of entrepreneurs in the prairie state, follow the steps in this guide to start a business in Illinois.

Checklist for starting a business in Illinois:

1. Create a business plan

2. Check zoning requirements

3. Choose a business structure

4. Name your business

5. Register your business

6. Open a business bank account

7. Arrange permits and licenses

8. Insure your business

9. Understand your tax obligations

10. Hire employees

11. Meet all employer requirements

1. Create a business plan

We know you’re excited to get started, but please don’t skip this step. When you start a business in Illinois—or anywhere for that matter—you should come up with a detailed business plan.

A business plan can help you:

  • Map out all of your startup costs
  • Define short and long-term business goals
  • Analyze and outperform your competition
  • Create clear growth strategies
  • Identify additional opportunities to create profit
  • Attract investors and capital

If you need help drafting a business plan, you can use the Illinois Department of Commerce & Economic Opportunity’s business plan template as a starting point. You can also get help from the Small Business Administration and the Illinois Small Business Development Center.

2. Check zoning requirements

Next up: make sure you’re allowed to operate a business in the location(s) you plan to set up shop. Zoning requirements aren’t uniform across the state, so check municipal codes and contact your local government’s zoning or planning department to discover the zoning laws that apply to your town or city.

If you plan to run your business from home, see if your local jurisdiction places any specific restrictions on home-based businesses (for example, Chicago prohibits a long list of home-based business activities). Also, carefully review your lease (if you rent your house) and homeowners association rules (if applicable) to see if any of your home businesses are prohibited.

3. Choose a business structure

Work with a business attorney or CPA to determine the best legal structure for your business. Also known as a “business entity,” each business structure comes with pros and cons that impacts business setup, taxation, growth potential, and more.

You can choose one of the following business structure types in Illinois:

  • Sole proprietorship
  • General partnership
  • Limited partnership
  • Limited liability partnership
  • Limited liability company
  • S corporation
  • C corporation
  • Corporation

Refer to the Illinois Department of Commerce and Economic Opportunity’s business registration guide for a full rundown on each business structure type in Illinois and links to registration forms.

For more information on the pros and cons of each business entity type, check out our guide to business structures.

4. Name your business

Before you register your business with the Illinois Secretary of State, make sure the business name you want to use is available.

You can use the Illinois Department of Business Services Database to check that the name you want to use isn’t already in use or “confusingly similar” to another business’s name. It’s also smart to aim for a business name that you can also use as a domain name and a handle across all social media platforms.

Corporations and LLCs will elect their business name at the time of business registration. Sole proprietorships and general partnerships that plan to use a business name that’s different to the full legal name(s) of the owner(s) will need to register an Assumed Business Name. Also known as a DBA or “Doing Business As,” assumed business name registration can generally be done online via your local county clerk’s office.

5. Register your business

Ready to make your Illinois business official?! It’s time to make your service business official by registering it with the Secretary of State.

Follow these steps to register a business in Illinois:

  • Elect a registered or statutory agent. A registered agent is a person or entity that can accept public service of any court documents on behalf of your service business.
  • Complete and submit your formation forms. You can find the relevant business registration forms for your chosen business entity (LLC, partnership, etc) on the Office of the Illinois Secretary of State website. File your entity documents, such as your Articles of Organization, with the Illinois Department of Business Services, by U.S. Mail or online.
  • Register an assumed business name. This only applies to sole proprietorships or general partnerships that want to operate under a business name that’s different to the legal name(s) of the owner(s). Apply for an assumed business name with your county clerk’s office.
  • Obtain an Employer Identification Number. Most businesses also need an Employer Identification Number or “EIN.” This identifier acts like a social security number for your business, and it’s commonly used for paying federal and state taxes, opening a business bank account, and hiring employees. You can apply for an EIN online.
  • Register your service business with the Illinois Department of Revenue (IDOR). If you plan to hire employees, buy or sell products wholesale or retail, or manufacture goods, you’re required to register your business with the IDOR.

How much does it cost to register a company in Illinois?

From non-profit to corporation, the cost to register a business in Illinois typically ranges from $50 to $150.

  • Illinois LLC initial registration: $150
  • Illinois corporation initial registration: $150
  • Illinois non-profit initial registration: $50
  • Foreign LLC initial registration: $150
  • (this is so an out-of-state LLC can obtain a foreign qualification to do business in Illinois)
  • Foreign corporation initial registration: $150
  • (this is so an out-of-state Inc. can obtain a foreign qualification to do business in Illinois)
  • Limited partnership (LP) initial Registration: $150
  • Limited liability partnership (LLP) initial registration: $150
  • Sole proprietorship initial registration: There is no set registration fee. It costs $5 to file your assumed business name.

Refer to the Illinois Secretary of State website for a breakdown of Illinois business filing costs and processing times. Don’t forget that the total cost for starting your business will also include licensing fees, permits, and any equipment you may need for your business.

6.  Open a business bank account

It’s always a good move to separate your personal and business finances. Creating a business bank account is an easy way to achieve this. In Illinois, mixing your personal finances with your business finances can muddle the divide between you and your business (a common mistake), thereby putting your personal assets at risk in the event your business encounters legal issues. Isolating your cash flow with a business bank account establishes a clear line between which assets belong to you and those that belong by your business.

Although with sole proprietorships and general partnerships, the account can be in your name (since you and your business are one and the same), for limited liability entities (LLCs, Corporations), you will need to have an account registered to the business itself. It’s also important to note that a separate bank account is a legal requirement for the latter two business entities, and without it your liability protection could be voided.

To register a bank account in the name of your business, you’ll be required to use an Employer Identification Number (EIN). This is basically a Social Security Number for your business.

When you’ve determined whether you will use a personal or business account, you just have to decide which bank suits you and your needs best; local, national, and neo banks all have their perks and privileges.

7. Arrange permits and licenses

Depending on the nature of your service business, you may need to arrange business licenses and permits at the federal, state, and local levels. For example, a food business will have different licensing requirements than a fitness center; one requires an Illinois liquor license while the other likely doesn't.

Follow these steps to check which business licenses and permits you may need:

Visit the Illinois.gov business portal for information on businesses regulated by the state, and consult your local county clerk’s office for local regulations to know more about business licenses.

8. Insure your business

No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a smart idea. While forming an LLC or corporation offers some personal asset protection, additional business insurance can also protect your business assets in cases of lawsuits, damages, and unforeseen circumstances.

The business insurance you need will depend on your industry and chosen business structure type. Work with a licensed insurance agent to find out which types of insurance are applicable to your business.

Here are common types of business insurance in Illinois.

Required business insurance in Illinois (applicable only if you have employees)

  • Workers’ compensation insurance. Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
  • Unemployment insurance. Provides benefits to workers after a loss of job through no personal fault.

Recommended business insurance in Illinois

  • Professional liability insurance. Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
  • Commercial property insurance. Covers property damage to business-owned properties and possessions as a result of fire, theft, or storm.
  • Disability insurance. Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.

Read more: What type of small business insurance do I need?

9. Understand your tax obligations

Unless you really know what you’re doing, work with a CPA to understand and meet all of the tax obligations that apply to your business. A qualified pro can tell you which federal, state, and local taxes apply to your business and help you keep track of filing and payment deadlines.

Below, we've listed the tax obligations and types of business taxes in Illinois that you may need to be aware of as a service business owner. Note that the taxes your business will deal with will ultimately depend on the nature of your service business, your chosen business structure, and other factors.

Income tax

  • Sole proprietorships. Owners pay state taxes on business income as part of their personal state income tax returns (Form IL-1040).
  • Partnerships. On their personal tax returns, partners pay state taxes on partnership revenue. Partnerships in Illinois are also required to file Form IL-1065 (Partnership Replacement Tax Return).
  • Limited liability companies. In their personal tax returns, shareholders pay state taxes on their share of LLC revenue. In addition, LLCs must file a separate state tax form (either a partnership return or a company return.) The basic type used will be determined by the LLC's federal tax classification. Illinois LLCs must also file an annual report with the Illinois Secretary of State.  
  • Corporations. Members should pay state taxes on the entity’s dividends. On their personal state tax return, a shareholder-employee with a salary must also pay state income tax. Furthermore, the company is subject to several of Illinois corporation taxes. Lastly, corporations must file an annual report with the Illinois Secretary of State.

Sales tax

If your business will collect sales tax, it must register with the Illinois Department of Revenue (IDOR). Ask your CPA if sales tax applies to your service business.

Local taxes

Some municipalities and counties in Illinois also impose their own set of taxes on businesses. As a new business, contact your business’s local revenue department to ask if you need to pay any additional taxes throughout the year.

Employer taxes

If you plan to hire employees, your business must register with the Illinois Department of Revenue and comply with state and federal employer tax obligations (e.g. withholding employee taxes).

Annual reports (LLCs, Corporations, Non-Profits)

In Illinois, LLCs, corporations, and non-profits are required to required to submit an annual report to the Secretary of State once a year. This report is due before the first day of your business’ anniversary month (the month it was formed). So, for instance, if you originally formed your business on April 19, your Annual Report would be due by March 31.

If this applies to your business, you (or your CPA) can file your business’s annual report online. The filing fee is $75 and you can opt to pay an additional $50 for expedited processing.

Be vigilant with this filing deadline. If you haven’t filed an annual report 60 days after its due date, you’ll be charged a $100 late fee. And if you don’t file an annual report for 120 days, the state will dissolve your business.

10. Hire Employees

When you hire staff in Illinois, you need to comply with  federal and local hiring requirements.

Some of the key steps to hiring employees in Illinois include:

  • Obtain an Employer Identification Number (EIN). Before hiring your first employee, you need to get an employment identification number (EIN) from the U.S. Internal Revenue Service.
  • Verify your employees. You will need to have each employee complete an I-9 form. US law requires employers to verify an employee's eligibility to work in the United States.
  • Register with the New Hire Reporting Program. All employers must report newly hired employees to a state directory within 20 days of their hire or rehire date. In Illinois, you can register here.

11. Meet all employer requirements

If you hire employees, you’ll need to meet all Illinois employer requirements (federal and local) to remain in good standing with the state and avoid unnecessary legal issues.

Ready to start a business in Illinois?

Whether you plan to run your service business from home in Chicago or from a commercial space in downtown Aurora, the state of Illinois has the resources, labor diversity, and economic climate to aid entrepreneurs in starting and growing businesses.

Follow the steps in this guide to start a business in Illinois. And once you’ve made it through the business registration, stick around and give Durable a try.

Durable is a free platform that has everything you need to start and grow a service business. Build a business website in minutes, and make invoicing, customer management, and review management a breeze. Try Durable today—it’s free!