Articles of Organization

Forming your Illinois LLC requires filing the LLC's articles of organization, which must be signed by at least one organizer and delivered (original, a conformed copy, and a $500 filing fee) to the Business Services Department of the Illinois Secretary of State's office. An organizer may be a natural person at least 18 years old, or a registered business entity; in either case, the organizer(s) do not have to be members of the LLC.

A conformed copy is an exact copy of a document filed with a court that has been stamped with the filing date by the court clerk, who will also add any handwritten notations that are on the original, including dates and the judge's signature.

The articles must include:

• The LLC's name
• The address of its principal place of business (does not have to be in Illinois)
• The purpose(s) for which the LLC is organized
• The address of the LLC's registered in-state office
• The name of the LLC's registered agent at that office
• A statement regarding the LLC's duration (perpetual or for a specified period)
• Whether the LLC will be manager-managed or member-managed
• Names and addresses of initial manager(s) if manager-managed
• Names and addresses of initial member(s) if member-managed
• The name and address of the organizer(s)

The articles may also include any other internal operating provisions that the members choose to specify.

Your new Illinois LLC is considered "organized" once the articles of organization and a copy are delivered and the Secretary of State confirms that they comply with state requirements. One certified copy of the articles will be issued, and the other certified copy will be returned to the organizer or members.

Registered Agent and Office

Illinois LLCs must have a registered in-state agent designated to receive official state administrative and legal correspondence. The Illinois registered agent may be either an individual state resident or a corporation authorized to do business in Illinois. If the agent is a corporation, the corporation must be authorized by its articles of incorporation to act as an agent.

The LLC's registered office may be a place of its business in the state.

Operating Agreement

Next to its articles of organization, the most important document for an LLC is its operating agreement, which can be amended or repealed as allowed by the articles of organization or by state statute. Just like a corporation's bylaws, this isn't absolutely required as such by the state, but it's a key internal document that lays out how the LLC will operate. It should list the members, how much each one has invested, how any profits will be divided, and how much weight each member has when matters come to a vote.

It may also specify meeting requirements (notice, quorum, voting rules, etc.) and so on, but it doesn't have to. Normally, however, the operating agreement does include requirements from state law. It can also include limits or constraints on the power of the members to adopt, amend, or repeal the agreement. If there is more than one member, the operating agreement has to initially be approved by all the members in writing.

Membership in the LLC

An LLC must have at least one member. To become a member, an individual normally must make some kind of contribution by paying cash, transferring property to the LLC, or assuming an obligation to do so. Members may acquire an interest in the LLC after the articles of organization are filed; a person who acquires a membership interest directly from the LLC, or who is a transferee of a membership interest, may be admitted as a member with unanimous consent of the current members.

Even though a member of a member-managed company has the power to dissociate (withdraw) from the LLC at any time, there are still limitations. If the operating agreement does not specify the time or events upon which a member may dissociate, that member cannot dissociate from the LLC before the its dissolution and the winding up of the LLC's affairs. A member's dissociation from a member-managed company is wrongful only if it is in breach of a provision in the operating agreement. However, a member who wrongfully dissociates from a member-managed LLC is liable to the company and to the other members for damages caused by that dissociation, and that liability is in addition to any other obligation of the member to the company or to the other members.

Ongoing Requirements

Illinois LLCs are required to file a biennial (every two years) report with the Illinois Secretary of State within 60 days immediately preceding the first day of the anniversary month of its organization signed by a manager, member, or agent. The report must include:

• The LLC's name
• The street address of its registered office
• The name of the LLC's registered agent at that office
• The street address of its principal place of business.
• The names and addresses of its managers (or, if there are no managers, the members)
• Any additional information required by the Secretary of State based on the LLC's exact circumstances.

Illinois LLC's are also required to keep the following types of records open to inspection at its office:

• Names and addresses of each member
• Amount of cash each member has contributed, or a description and statement of the agreed value of the property or services each member has contributed or has agreed to contribute in the future
• Date on which members gained admission
• Copy of the current articles of organization and any relevant powers of attorney
• Copies of the LLC's federal, state, and local income tax returns for the preceding three years
• Copies of the current operating agreement
• Financial statements for the past three years

It's also a good idea for your LLC to keep minutes of the proceedings and committees of the owners or members.

Dissolution

Unless otherwise provided in the articles or operating agreement, an LLC is dissolved when any of the following occurs:

• An event specified as requiring dissolution in the articles or operating agreement
• Consent of the number or percentage of members specified in the operating agreement
• An event that makes it unlawful for all or substantially all of the business of the LLC to be continued, unless the illegality is corrected within 90 days
• A member or dissociated member applies for dissolution because a judicial decree was issued that one or more of the following conditions exist:
• The LLC's economic purpose is likely to be unreasonably frustrated
• It has become not reasonably practicable to carry on the LLC's business in conformity with the articles of organization and the operating agreement
• Another member has engaged in behavior related to the LLC's business that makes it unreasonably impractical to carry on the LLC's business with that member
• The LLC failed to purchase the petitioner's distributional interest
• The managers or members in control of the LLC have acted, are acting, or will likely act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioner
• On application by a transferee of a member's interest after a judicial determination that it is equitable to wind up the company's business.
• A court order mandates administrative dissolution

Taxes

An LLC offers some tax advantages over a corporation, including the availability of more deductions. Additionally, an LLC is not required to be a separate tax entity like a corporation. Instead, it can be a "pass-through entity" when it comes to taxes, so that the LLC owners report business losses or profits on their personal tax returns, in the same manner as a partnership.

LLCs do not pay state franchise taxes, but they do have to pay an annual LLC reporting fee of $250.

Articles of Incorporation

Before actually conducting business, Illinois state law requires that a new corporation's articles of incorporation be filed with the state Secretary of State. The articles must be signed by at least one incorporator, who can be either a natural person at least 18 years old or a corporation. The incorporator delivers the articles of incorporation to the Secretary of State's office, and also establishes the number of initial directors in either the articles or at the organizational meeting. The articles must include:

• The incorporators' names and addresses
• The corporate purpose-but, since Illinois allows a corporation to be formed for any legal business activity, this can be a general business purpose
• The number of shares of each class of stock the corporation is authorized to issue
• The number of shares proposed to be issued, as well as the consideration or payment to be received for such shares

Unlike some other states, Illinois does not require the names of the corporation's initial directors to be listed in the articles of incorporation.

Unless stated otherwise, the state assumes that 100 percent of the corporation's paid-in capital (the amounts paid by shareholders for their initial shares) is located within Illinois; this is frequently the situation for most small, newly-formed corporations. This means that your corporation's state franchise tax will be calculated on the basis of the corporation's entire paid-in capital. A tax professional can tell you if you should allocate property and business outside Illinois, and thereby reduce your Illinois franchise tax.

Additional provisions may also be included in the articles, such as:

• Additional qualifications for directors
• Specific provisions to regulate the corporation's internal affairs
• Voting majority requirements
• An estimate of the value of all property to be owned by the corporation in the following year, both in and out of Illinois

There is a minimum $175 fee-a $150 filing fee and a minimum $25 franchise tax. The franchise tax part of the fee is computed at a rate of $1.50 per $1,000 of the corporation's paid-in capital, with a $25 minimum. "Paid-in capital" is the total amount of payment the corporation expects to receive from the initial shareholders when stock is issued to them, minus any commissions or expenses incurred in connection with the issuance of shares. The corporation can have paid-in capital of up to $16,667 and pay the minimum $25 franchise tax.

Registered Agent and Office

Illinois corporations must maintain a registered agent within the state-a person or office designated to receive official state administrative and legal correspondence. The agent must have the same business office address as the registered office and be either an individual residing in the state or a corporation with the authority to conduct business in Illinois.

A copy of the filed articles of incorporation must be recorded with the clerk of the county where the resident agent resides.

Bylaws

Bylaws describe the corporation's basic operating principles from both the managerial and legal perspectives. Corporations must maintain their bylaws at their main executive office, but are not required to file them with the state.

The incorporators or board of directors should adopt the corporation's bylaws at its initial meeting-making sure that they do not conflict with the articles of incorporation-and keep them updated. The corporation's board of directors can adopt, amend, or repeal bylaws, unless the articles of incorporation reserve this right to the shareholders.

Corporate bylaws should include at least the following:

• How, when, and where shareholders and directors meetings are held
• What authority directors have, how many there are, and how long they serve
• How consensus on major decisions is reached with and without meetings
• Duties and responsibilities of officers and how long they serve
• How stock is issued
• Requirements for providing annual financial information to shareholders

Directors and Officers

The board of directors makes major decisions for the corporation. Directors must be natural persons who are at least 18 years old, and there must be at least one director. The bylaws may establish the number of directors (except for the initial directors, which is determined by the incorporators) and prescribe other qualifications for directors that are not inconsistent with the articles of incorporation.

Officers of the company must be listed in the bylaws or elected by the board. The secretary has authority to certify the bylaws, resolutions and other corporate documents. An officer may simultaneously hold more than one corporate office unless otherwise prohibited by the corporation's bylaws.

Required Reports

The corporation must file an annual report with the Illinois Secretary of State within the 60-day period prior to the month of incorporation. This report must include:

• The corporation's name
• Its principal office address
• The names and addresses of the corporation's directors and officers
• The address of its registered office
• The name of its registered agent at that (in-state) office
• Information about stock share classes, share volume, and paid-in capital
• Information about the corporation's property value and/or location
• Information about the corporation's status as a woman- or minority-owned business

Taxes

The Illinois corporate income tax rate varies based on the amount of the corporation's income and other factors. The state requires payment of a franchise tax and license fee as mentioned above for the exercise of franchises in the state; this is usually due at the time the corporation files its share issuance reports.

The state of Illinois recognizes "S corporation" status. A "subchapter S" corporation or "S-corporation" is one that chooses to be treated as a pass-through entity for tax purposes, meaning that the tax-related information for the "S-corp" is filed as part of the owner's individual income tax.