How to Start an S-Corp in Illinois


Steve Goldstein
Steve Goldstein
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Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Start an S-corporation in Illinois

Illinois, popularly known as The Prairie State, offers a bunch of benefits for business owners, especially the state capital Springfield has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in Illinois, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in Illinois. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In Illinois, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.

In this article, you will learn about how to start an s-corporation in Illinois. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in Illinois.

What is an S-Corp in Illinois?

An S corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in Illinois. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.

S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.

LLCBuddy Editorial Team

Limitation and Requirements of S-Corp in Illinois

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

If you are qualified for the limitations and requirements, you can apply for an S-Corp in Illinois.

How to Start an S-Corporation in Illinois?

To create S-Corp in Illinois, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement in Illinois, requesting an EIN, filing a form 2553.

Step 1: Register a Business Name in Illinois

After you have decided on the idea to start an S-Corp in Illinois, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an LLC, there is a complete guide on Illinois LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in Illinois.
  • Limit of restricted words that need a license in Illinois, for example, doctors, attorneys, etc.
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hiring the Illinois Registered Agent

The next step in starting an S-corp in Illinois is hiring a Illinois Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence in Illinois. Forming an LLC and an S-corp will be easier if you have Registered Agent in Illinois.

Step 3: File Your Illinois Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). Illinois Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In Illinois, the filing fee is $15.

In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.

Step 4: Creating an Operating Agreement in Illinois

After you have filed your Articles of Organization in Illinois, the next step is to create an LLC operating agreement in Illinois. The Illinois LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.

Step 5: Request for EIN in Illinois

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Illinois can be through the following:

  • Apply Online- You can apply for EIN online, the most desirable and fastest method for users.
  • Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.

Step 6: File Form 2553 for Your S-Corp Business in Illinois

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Illinois, you can send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

Advantages of Starting an S-Corporation in Illinois

Filing an S-Corp in Illinois has numerous benefits and advantages.

  • Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.
  • Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in Illinois apply for an S-Corp LLC.
  • Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.

FAQs

What is an S-Corp in Illinois?
An S-Corp in Illinois is a type of corporation that offers limited liability protection to its owners and is taxed as a pass-through entity.
How do I form an S-Corp in Illinois?
To form an S-Corp in Illinois, you must file Articles of Incorporation with the Illinois Secretary of State, appoint a registered agent, create corporate bylaws, issue stock, hold initial meetings and obtain any required licenses or permits.
What is the filing fee for an S-Corp in Illinois?
The filing fee for an S-Corp in Illinois is $150.
What is the deadline for filing an S-Corp in Illinois?
The deadline for filing an S-Corp in Illinois is within 30 days of the formation date.
What documents must be filed to form an S-Corp in Illinois?
The documents required to form an S-Corp in Illinois are Articles of Incorporation, corporate bylaws, a registered agent appointment form, and an initial meeting minutes form.
Do I need to obtain any licenses or permits to form an S-Corp in Illinois?
You may need to obtain any applicable state or local licenses or permits to form an S-Corp in Illinois.
What are the tax implications of forming an S-Corp in Illinois?
An S-Corp in Illinois is a pass-through entity, meaning that all income, losses, credits, and deductions are passed through to the owners and reported on the owner’s personal tax return.
What are the benefits of forming an S-Corp in Illinois?
The benefits of forming an S-Corp in Illinois include limited liability protection, pass-through taxation, and the ability to issue stock.
What are the risks of forming an S-Corp in Illinois?
The risks of forming an S-Corp in Illinois include personal financial liability and double taxation.
Does Illinois have any special rules for S-Corp?
Yes, Illinois has special rules for S-Corps, including rules on shareholder and director meetings and recordkeeping.
What is the minimum number of shareholders required to form an S-Corp in Illinois?
The minimum number of shareholders required to form an S-Corp in Illinois is one.
What is the minimum amount of capital required to form an S-Corp in Illinois?
The minimum amount of capital required to form an S-Corp in Illinois is $100.
How many directors are required to form an S-Corp in Illinois?
The minimum number of directors required to form an S-Corp in Illinois is one.
Are there any restrictions on who can be a director of an S-Corp in Illinois?
Yes, there are restrictions on who can be a director of an S-Corp in Illinois. An S-Corp in Illinois must have at least one director who is a US citizen or permanent resident and at least one director who is a resident of Illinois.
What are the recordkeeping requirements for an S-Corp in Illinois?
An S-Corp in Illinois must keep records of all corporate meetings, minutes, and resolutions.
Is there an annual report filing requirement for an S-Corp in Illinois?
No, there is no annual report filing requirement for an S-Corp in Illinois.
What is the process for dissolving an S-Corp in Illinois?
To dissolve an S-Corp in Illinois, you must file Articles of Dissolution with the Illinois Secretary of State and distribute any remaining assets to the shareholders.
Are there any tax implications for dissolving an S-Corp in Illinois?
Yes, there are tax implications for dissolving an S-Corp in Illinois. Any remaining assets must be reported as income to the shareholders and taxed accordingly.
How long does it take to dissolve an S-Corp in Illinois?
It typically takes 1-2 months to dissolve an S-Corp in Illinois.
Does Illinois require S-Corps to hold annual meetings?
Yes, Illinois requires S-Corps to hold annual meetings.
Do I need a registered agent to form an S-Corp in Illinois?
Yes, a registered agent is required to form an S-Corp in Illinois.
What is a registered agent in Illinois?
A registered agent in Illinois is an individual or business entity that is authorized to accept service of process on behalf of a corporation.
What is the difference between an S-Corp and an LLC in Illinois?
The main difference between an S-Corp and an LLC in Illinois is that an S-Corp is a pass-through entity and an LLC is a disregarded entity.
Can I convert an LLC to an S-Corp in Illinois?
Yes, it is possible to convert an LLC to an S-Corp in Illinois.
Is it more expensive to form an S-Corp in Illinois than an LLC?
No, the cost to form an S-Corp in Illinois is the same as the cost to form an LLC in Illinois.
Do I need to submit an annual tax return for an S-Corp in Illinois?
Yes, an S-Corp in Illinois must submit an annual tax return to the state of Illinois.
Is an S-Corp in Illinois required to pay estimated taxes?
Yes, an S-Corp in Illinois is required to pay estimated taxes on a quarterly basis.
Is there a minimum wage requirement for employees of an S-Corp in Illinois?
Yes, Illinois has a minimum wage requirement for employees of an S-Corp.
What are the requirements for forming an S-Corp in Illinois?
To form an S-Corp in Illinois, you must file Articles of Incorporation with the Illinois Secretary of State, provide the name and address of the corporation, provide the names and addresses of the incorporators, and pay the associated filing fee.
What is the filing fee to form an S-Corp in Illinois?
The filing fee to form an S-Corp in Illinois is $150.
Are there ongoing filing requirements for an S-Corp in Illinois?
Yes, an S-Corp in Illinois must file an annual report with the Secretary of State and pay the associated fee of $75.
Does an S-Corp in Illinois need to register to do business with other states?
An S-Corp in Illinois may need to register with other states in order to do business in those states. It is best to consult with an attorney to determine the specific requirements.
Are there annual taxes due for an S-Corp in Illinois?
Yes, an S-Corp in Illinois must file an annual tax return with the Illinois Department of Revenue and may owe taxes depending on its particular situation.

Also Read

Why Illinois S Corporation is So Important

One of the key reasons why Illinois S Corporation is crucial is because it offers the limited liability protection that sole proprietors and partnerships simply do not have. This means that if the business were to face any legal issues or debts, shareholders are not personally liable for the company’s debts and obligations. This provides a significant level of protection for business owners and allows them to separate their personal assets from the business assets.

Moreover, another important aspect of an S Corporation is its pass-through taxation feature. Unlike traditional C Corporations, S Corporations are not subject to corporate income tax. Instead, the profits and losses of the business are “passed through” to the shareholders, who report the income on their individual tax returns. This helps in avoiding the double taxation that many C Corporations face, making S Corporations a more favorable option for small business owners.

Additionally, S Corporations offer flexibility when it comes to ownership structure. Unlike C Corporations, which can have an unlimited number of shareholders, S Corporations are limited to 100 shareholders. This allows for a more close-knit group of owners who can make decisions about the direction of the business more efficiently. Furthermore, S Corporations can have different classes of stock, which can be appealing to investors and make it easier to raise capital.

Another key benefit of an S Corporation is the ability to transfer ownership more easily. In the event that a shareholder wants to sell their shares or transfer ownership to someone else, it can be done without causing the corporation to dissolve or create complicated tax consequences. This level of flexibility is invaluable for business owners who may want to bring on new partners or investors in the future.

Lastly, Illinois S Corporations enjoy certain tax advantages that can benefit the business and its shareholders. For example, shareholders can receive both a reasonable salary and dividends from the corporation, allowing them to reduce their overall tax liability. Additionally, S Corporations are not subject to Illinois Personal Property Replacement Tax, making them an attractive option for business owners looking to minimize their tax burden.

In conclusion, the benefits of an Illinois S Corporation are undeniable. From limited liability protection to pass-through taxation, ownership flexibility to tax advantages, there are numerous reasons why this business structure is so important for entrepreneurs in Illinois. By carefully considering the advantages that an S Corporation offers, business owners can protect their assets, streamline their operations, and maximize their tax benefits.

Conclusion

In conclusion, starting an S-corp in Illinois is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Articles of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in Illinois.

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