How to Start an S Corp in Illinois
Forming an S corporation (S corp) in Illinois can offer valuable tax benefits under the right conditions.
This guide will walk you through the steps required to set up an S corp in Illinois and help you determine if it’s the right choice for your business.
Read on to get started and learn how an Illinois S corp could help lower your tax burden.
Pro Tip: Get a free consultation with a tax professional to determine if an S corp is right for you.
Factors to Consider Before Starting an S Corp in Illinois
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation requirements and restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from an Illinois S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S Corp tax calculator.
Pro Tip: Get a free consultation with a tax professional to determine if an S corp is right for you.
How to Form an Illinois S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the Internal Revenue Service (IRS) when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Want to form an S corp elsewhere? Check out our other How to Start an S Corp guides to learn more.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Illinois
Starting an Illinois LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Northwest to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Articles of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Illinois.
Be sure to choose a name that complies with Illinois naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Illinois LLC:
- Your name must include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.). If it is classified as a “low-profit LLC,” it must contain “L3C.”
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Your name cannot include any of the following terms: Corporation, Corp., Incorporated, Inc., Ltd., Co., Limited Partnership, and L.P.
- Your name must be the name under which your LLC conducts business unless you register for an assumed name.
- Your name cannot contain any word or phrase (e.g. trust, trustee, fiduciary) that indicates or implies that your LLC is in the business of a corporate fiduciary unless permitted by the Secretary of Financial and Professional Regulation. If the LLC is organized to accept or execute trusts, the name must contain the word “trust.”
- The name may not contain any word or phrase that is restricted by any other state statute (e.g., LLCs are not permitted to operate as banks or insurers in Illinois).
- Your name must be distinguishable from any existing business in the state. This includes Illinois reserved names.
You can also read the Illinois state statute about LLC naming guidelines for more information.
2. Is the name available in Illinois? You can use the business name search on the Illinois Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don’t plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Step 2: Choose Your Illinois Registered Agent
You must elect a registered agent for your Illinois LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC’s behalf. You will list your registered agent when you file your LLC’s Articles of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Step 3: File the Illinois LLC Articles of Organization
The Illinois Articles of Organization is used to officially register an LLC.
File Your Illinois Articles of Organization
OPTION 1: File Online With Cyberdrive Illinois
File Online– OR –
OPTION 2: File Form LLC-5.5 by Mail
Download FormState Filing Cost: $150, payable to the Secretary of State (Nonrefundable)
Mailing Address:
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL 62746
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your Illinois S corp for you, so you can focus on the things that matter most – growing you business.
Keep Your Illinois S Corp Compliant
To keep your business in good standing, it’s essential to comply with state and federal regulations. Here’s a comprehensive guide to maintaining compliance for your Illinois S corp.
File the BOI Report
To meet federal requirements, all LLCs must file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). This report helps ensure the federal government has accurate information on who owns and controls your business, promoting transparency and compliance.
You can file the BOI report through the FinCEN website.
Open a Business Bank Account
It’s important to separate your business finances from personal accounts to protect your LLC’s limited liability status. Setting up a dedicated business bank account also is essential for managing finances effectively and complying with state regulations.
Explore the best banking options for your business in our guide on the Best Banks for Small Business.
Obtain Necessary Business Licenses and Permits
Illinois requires businesses to obtain various licenses and permits, depending on the type of business and where it operates. Ensuring you have the correct licenses is crucial to legally operating your business and avoiding penalties.
To find out which licenses and permits you need, visit our Illinois Business License guide.
File Your Annual Report
Illinois LLCs must file an Annual Report with the Illinois Secretary of State. This report provides updated information about your business, such as its address and the names of its officers. The Annual Report is due each year before the first day of the anniversary month of your incorporation. Failure to file can result in penalties and could lead to the dissolution of your LLC.
You can file your Annual Report online at the Illinois Secretary of State’s website.
Understand Illinois’s S Corp Tax Obligations
In Illinois, S corps are subject to both state and federal taxes. Illinois imposes Personal Property Replacement Tax (PPRT) on S corporations, which is a percentage of net income. Additionally, your business must comply with federal tax obligations, including filing IRS Form 1120-S for S corporations. Understanding these tax requirements is important to maintain compliance.
For more information about state taxes, visit the Illinois Department of Revenue website.
Register for State Taxes
All Illinois businesses must register for state taxes with the Illinois Department of Revenue. This registration includes sales tax, use tax, employee withholding taxes, and any other applicable taxes. Proper registration is important to comply with state tax laws and avoid fines.
You can register for taxes online at the Illinois Department of Revenue’s website. To learn more about registering and collecting sales tax, visit the Illinois Department of Revenue’s Sales & Use Taxes page.
Start an Illinois S Corp FAQ
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
Illinois has many healthy industries, including manufacturing, agriculture, energy production, and more. You can structure your business as an S corp in all kinds of industries as long as it meets the S corp requirements set by the IRS.
You should always start your business where you plan to operate. Each state has its own tax structure, incentives, and business support systems to consider. By forming your S corp in Illinois, you can benefit from the state’s low tax rates and thriving economy.