How To Start a Business in Illinois
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If you’re planning to start a business in Illinois, you’re not alone. According to the 2019 Small Business Profile published by the SBA Office of Advocacy, a whopping 99.6% of Illinois businesses were considered small businesses, and nearly 46% of the private workforce in the state was employed by small businesses. Illinois offers a vibrant business climate with competitive tax rates and tax incentives available for businesses looking to relocate to or expand within the state.
However, starting a business in Illinois is not as simple as creating a website and tacking a sign on a door. A lot goes into formally and legally getting a business off the ground — deciding how to legally structure the business entity, registering your business and obtaining commercial insurance and permits are all important parts of the process. If you’re feeling daunted, here’s how to get started.
- How to establish a business entity in Illinois
- Costs of starting a business in Illinois
- How to get help covering costs
How to establish a business entity in Illinois
If you’re ready to start a business in Illinois, hold tight before you start making sales. Most businesses require a little legwork (and paperwork) to ensure they are operating legally. Here are the common steps you’ll need to follow, but keep in mind that they can vary depending on the size and type of your business.
Choose your business’s legal structure
You’ll need to decide how to structure your business legally, which dictates many other steps in starting a business in Illinois. Each option has different tax, financial and legal liability ramifications, so you should talk to a lawyer and/or accountant to determine the best one for your business.
In Illinois, you can choose from sole proprietorships, general and limited partnerships, limited liability partnerships, limited liability companies and “S” corporations and “C” corporations. Anyone who sells products or services is automatically considered a sole proprietor, and you don’t have to register the business with the government. On the flip side, you have more personal liability, meaning your personal assets can be at risk.
Other types of business entities in Illinois must have paperwork filed with the Secretary of State, For example, you’ll have to file articles of incorporation, which costs $175.
Name your business
If the name of your business is different from your full legal name, whether it’s a sole proprietorship or a general partnership, you are required by law to register the business name with your county clerk’s office; you can find your local county clerk online. You can also file a DBA (“doing business as”) if you’d like to be able to conduct business using other business names besides the one under which you’re officially registered.
Register your business
Regardless of your type of business entity, even if you’re a sole proprietor, you must register your business with the Illinois Department of Revenue before making any purchases, sales or hiring any employees. You can register online, via mail or in person.
The state of Illinois has an online portal, MyTax Illinois, where you can pay your state taxes and fees. In terms of federal taxes, most businesses that are not a sole proprietorship must also obtain an Employer Identification Number (EIN) from the IRS.
Apply for trademarks
If your business has a trademark or servicemark you want to protect, you can apply through the Illinois Secretary of State. To apply for either a trademark or servicemark, the application fee is $10.
Obtain necessary business licenses
Some businesses or professionals are required to get certain licenses or permits before they can start operating legally. The license requirements and costs will vary depending on your profession.
For example, massage therapists must complete an approved curriculum, have 600 hours of supervised experience and pay a $175 application fee, among other requirements, to get a license. Landscape architects, meanwhile, are required to graduate from a qualified program, pass an exam, have a minimum level of on-the-job experience and pay a $100 application fee.
There are other types of permits and licenses you may need, depending on what type of business you have. For example, if you plan to sell liquor, you’ll need to obtain a state liquor license, which costs $750 to obtain. You may also need certain licenses on a city level.
Not sure if you’re required to get one or what type you need? In the state of Illinois, the Illinois Department of Financial and Professional Regulation (IDFPR) is the main licensing agency for most career fields. Check the IDFPR website to see if your business needs to obtain licenses from the state. You can also contact your city government to find out if there are any permits or licenses you need on a local level.
Find a location
If your Illinois business will have a physical location, don’t get your heart set on a place until you understand the local zoning regulations. Also, if you plan to work from home, keep in mind that some professions are not allowed to operate out of a residence, while others are required to obtain a home occupation business license. For example, in Chicago, businesses that offer animal care, tutoring, catering or food-related services, massage and beauty/personal services aren’t allowed to operate out of a home.
If your realtor and/or lawyer isn’t able to confirm if your home or another property you’re viewing is properly zoned for your business, check the zoning map for your city or county.
Costs of starting a business in Illinois
In addition to the fees you may have to pay for the steps above, here are some of the other costs involved in starting a business in Illinois:
Most businesses in Illinois will be required to pay state and federal taxes in order to operate. While tax liability varies greatly from business to business, these are some of the more common state taxes you’ll encounter:
- Income tax: This varies depending on your business entity. If your business is a sole proprietorship, you’ll pay individual state income tax on your earnings, with the rate dependent on your tax bracket. Partnerships and limited liability companies will pay on the share of their income, in addition to a replacement tax. If your business is a corporation in Illinois, you’ll have to pay corporate income tax (currently 7% of net income), in addition to a replacement tax and franchise tax.
- Sales and use tax: Depending on your business, you may also be responsible for collecting and paying sales and use taxes.
- Property tax: If you own the property that you run the business out of, you’ll have to pay state property taxes.
- Withholding taxes: If you have employees, you may be responsible for withholding and remitting state and federal income taxes and FICA, which goes to Social Security and Medicare.
As a small business owner in Illinois, you’ll may need several types of insurance coverage, including:
- Unemployment insurance: If you employ at least one worker in each of 20 or more calendar weeks, or if you paid at least $1,500 in wages during a calendar quarter, you’ll likely be required to make unemployment insurance contributions. They’re paid to the Illinois Department of Employment Security (IDES). In general, the minimum a business would pay in 2019 is 0.475% of wages, and the maximum would be 6.875%.
- Workers’ compensation insurance: If you plan to employ a single person, even part-time or as a temporary worker, you have to obtain workers’ compensation insurance. While it’s required by the government, this type of insurance is sold in the private sector in Illinois, so you’ll have to obtain it from a licensed insurance agent.
- Auto insurance: If you drive as part of your business, it’s mandatory that you obtain auto insurance, and it must meet certain minimum amounts. If you own or lease vehicles that your employees will drive, you’ll need to obtain commercial auto insurance.
- Other forms of insurance: There are other forms of business insurance that aren’t required, but are advised to help protect your business from losses. According to the Illinois Department of Commerce, liability and fire insurance are essential. There’s also property insurance and insurance that covers key employees. Meet with an agent who specializes in commercial insurance to find out which types of insurance you’re required and advised to get.
How to get help covering costs
With all of these costs involved, it can be a financial struggle to get a business off the ground. If you need funding to help start a business in Illinois, there are several places to turn.
There are Small Business Administration (SBA) loans, which are guaranteed by the government but provided by traditional lenders. While they can be difficult to qualify for, they offer competitive terms. If you can’t qualify for an SBA loan, you can look to non-SBA business loans from a bank or an online lender. If you don’t need a large lump sum, you could also consider a business line of credit, which operates more like a credit card.
The state of Illinois also offers some resources that can help you obtain financing. The Illinois Financing Authority has some bond and loan programs to help businesses in the state with financing. There are several other loans, grants and government programs that could also make it easier to start a business in Illinois. You can check them out on the Illinois Department of Commerce’s resource page.
Additionally, if you’re not currently located in Illinois, but are considering moving to the state to open a business, the state’s Department of Commerce and Economic Opportunity offers various tax credits and exemptions as incentives. The state also offers several programs with financial incentives if you open your business in an area that the government is trying to revitalize. One is the Illinois Enterprise Zone Program, which rewards business owners who open shop in designated economically distressed areas. In return for choosing that location, you’ll get tax credits and exemptions on a long list of business taxes.
The bottom line
Starting a business in Illinois does require some legwork, including registering the name, getting taxes set up and obtaining any necessary permits and insurance. If you’re feeling overwhelmed by the process, a local small business lawyer and/or accountant can help you navigate it.
Keep in mind that there are also many free resources available to help you. A big one is the Illinois Small Business Development Centers, which are located throughout the state; they offer free one-on-one business advice and planning, support in creating business and marketing plans, assistance with obtaining financing and numerous free trainings and workshops. You can also access free business mentorship through the SCORE program, which operates throughout Illinois. This handbook by the Illinois Department of Commerce on starting a business in the state is also chock-full of helpful information.
While there’s a lot that goes into starting a business in Illinois, from taxes to licenses, keep in mind that there are numerous free resources that can help you along the way, in addition to state programs that can help reduce the costs of operation.