Why Form a Corporation in Illinois.

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Choosing the Right Type of Illinois Corporation

As the sixth most populous state in the U.S., home to Chicago and the natural wonders of the Great Lakes, Illinois is a great place to live and to start a business. The Port of Chicago connects to the Atlantic through a network of lakes, and this state is a central hub for domestic and international travel. Known as a bellwether of culture and politics, Illinois is a place where great movements and businesses are born. The industries that dominate in Illinois include agriculture, manufacturing, services and energy.

What Type of Illinois Business Entity Should You Choose?

When it comes to starting a business in Illinois, you have a few options for the type of business you want to create. This is known as your “legal business entity,” and it defines how your business will be treated by the state, the law, the IRS and other official bodies.

Most new entrepreneurs have a choice of several business types — sole proprietorship, partnership, Limited Liability Company (LLC), S Corporation or C Corporation.

Here’s a quick overview of each.

  • Sole proprietorships and partnerships are the simplest type of business. They do not provide any special protections or benefits to entrepreneurs and can make your personal assets vulnerable. We do not recommend them.
  • Limited Liability Companies (LLCs) are a great option for smaller businesses. They are quick and easy to create, inexpensive to administer, light on regulation and have simple taxation and rules. You can learn how to create an LLC in Illinois here.
  • S Corporations are the simplest type of corporation an entrepreneur can create and are good for many types of businesses. The regulations, taxation, compliance and legalities are more complex than for an LLC, but they do provide tax advantages for their owners. You can find more information on S Corporations here.
  • C Corporations are the most complex type of corporation. They are best for large businesses and are a necessity if the business will be traded on public stock markets. C Corporations have much more significant regulation, compliance and legalities; they are not as tax efficient as S Corporations or LLCs. You can find more information on C Corporations here.
  • Other business entity structures include nonprofits, Limited Liability Partnerships (LLPs) and B Corporations, but they will not be relevant for the majority of entrepreneurs.

Advantages of a Corporation Over an LLC

There are several reasons an entrepreneur might choose to form a corporation instead of an LLC in Illinois.

  • If you want to pay lower self-employment taxes than an LLC, you will need an S Corporation.
  • If you want to easily transfer ownership through buying and selling stock, you will need a C Corporation or an S Corporation.
  • If you want up to 100 shareholders who are U.S. citizens or residents and want to issue one type of stock, you will need an S Corporation.
  • If you want more than 100 shareholders, want to issue more than one type of stock or have international shareholders, you will need a C Corporation.
  • If you want to allow the public to buy and sell shares in your company after an Initial Public Offering (IPO), you will need a C Corporation.

Here’s a side-by-side comparison between the various business types. This table focuses on the areas apart from company stock and shareholders.

General Comparison Between Business Entity Types in Illinois

Area
Sole Proprietorship/ Partnership
LLC
S Corp
C Corp

Fee for creating business entity?

Ongoing fee for maintaining business entity?

Limited liability?

Yes - strong

How ownership of business is determined

You are the business

By defined members

Private investors who own stock

Public investors who own stock

Management structure

N/A

As per operating agreement

Elected by shareholders

Elected by shareholders

Must be domestic business entity?

N/A

Have shareholders, directors and officers?

N/A

No - members only

Raising capital

Loans and financing

Loans and financing

Loans, financing and selling private stock

Loans, financing and selling public stock

File annual report?

Compliance and regulations

Very light

Light

Moderate

Heavy

Owner’s taxation type

Individual tax

Individual tax (pass through)

Distribution and individual tax (pass through)

Corporation tax and individual tax

This table shows the differences between Illinois business entities when it comes to issuing, buying and selling stock.

Stocks and Shares Comparison Between Business Entity Types in Illinois

Area
Sole Proprietorship/ Partnership
LLC
S Corp
C Corp

Maximum shareholders

N/A

N/A

100

Unlimited

Ownership/stock freely transferrable?

No

No

Yes

Yes

Shareholder nationality

N/A

N/A

U.S citizen or resident

Any

Public buying and selling of stock?

N/A

N/A

No

Yes, after IPO

No. of classes of stock

N/A

N/A

One

Many

A Quick Note on the Differences Between Illinois S Corporations and C Corporations

When a corporation is initially created, it is automatically assumed to be a C Corporation and only becomes an S Corporation (and will be taxed as such) if you file the IRS Small Business Tax Election form 2553.

In most cases when we discuss “corporations” in this guide, we’re talking about both C Corporations and S Corporations. If anything is relevant to just one or the other, we’ll declare that.

Advantages of Forming a Corporation in Illinois

Illinois corporations have several benefits for business owners.

  • Corporations provide the strongest form of liability protection possible. They insulate your personal assets and finances from those of your business.
  • This means that any liabilities created by your corporation (debts, obligations, damages, bankruptcy or other liabilities) should not impact your personal money, property or assets — they are considered to be completely separate from a legal perspective.

Advantages of Forming an S Corporation in Illinois

In addition to the general benefits above, Illinois S Corporations provide several other advantages.

  • S Corporations can have up to 100 shareholders.
  • Running an S Corporation in Illinois is simpler than running a C Corporation.
  • It is easy to transfer ownership in an S Corporation by selling your stock.
  • In some cases, part of the income from an S Corporation can be paid as a “distribution” rather than “salary,” so it would not be subject to self-employment tax. Find out how this can save you money using our S Corporation tax calculator.
  • LLCs can choose to be taxed as S Corporations to take advantage of this.
  • You can find more advantages of forming an S Corporation in Illinois.

Advantages of Forming a C Corporation in Illinois

In addition to the general benefits above, Illinois C Corporations provide several other advantages.

  • Ownership in a C Corporation is very fluid and determined by who owns stock in the business.
  • C Corporations can list their shares on a public stock exchange. This stock can be bought and sold by anyone.
  • C Corporations can sell stock to investors inside and outside the U.S.
  • C Corporations can issue more than one type of stock.
  • C Corporations can raise more funds by issuing more stock.

Points About Forming a Corporation in Illinois

Here are some areas to be aware of when you’re creating a corporation in Illinois.

  • Corporations are formed on the state level. You will need to form a new corporation for any state where you want to have an office or do business.
  • All Illinois corporations must issue stock to shareholders.
  • All Illinois corporations must hold Annual General Meetings (AGMs).
  • All Illinois corporations must have an elected Board of Directors.
  • All Illinois corporations must appoint officers.
  • Money earned by Illinois C Corporations will be subject to “double taxation” through tax paid on both company profits and dividends paid to shareholders.
  • Only U.S. citizens and residents can own stock in Illinois S Corporations.
  • S Corporations are limited to 100 shareholders and one class of stock.
  • All Illinois corporations must follow stringent compliance, rules and regulations. This includes financial reports, adopting bylaws, corporate formalities and the like.

Are you ready to start your Illinois corporation? If so, we can help. We provide comprehensive corporation formation services for both S Corporations and C Corporations in Illinois.

Start Your Illinois Corporation in Six Steps

Now that you’ve decided a corporation is right for you, here’s how to form one. At Incfile, we make the corporation formation process easy. With prices starting at just $0 plus the Illinois filing fee, you get excellent value too.

Start your Illinois S Corporation now
Start your Illinois C Corporation now

Starting Your Illinois Corporation — Useful Resources

Illinois Secretary of State website
Business information from the Illinois Secretary of State
Checking name availability for your Illinois corporation

Form an Illinois Corporation Without Breaking the Bank

Incfile provides a cost-effective service to help you create your corporation. We guide you through the process and handle most of the administrative steps on your behalf, such as filing the Articles of Incorporation or Certificate of Formation. Our basic package also provides a free Registered Agent service for the first year. If you're looking for help to start a corporation, we can help you start an S Corporation or a C Corporation .

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State filing time

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Filing Time and Price

The state charges this amount to file a new business entity. This fee goes directly to the Secretary of State.

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Compliance Requirements

This report is mandatory and must be filed within the specified time frame in order for the entity to remain in good standing with the state. Failure to file this report can lead to the company being revoked or administratively dissolved.

Other State Requirements
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Additional resources, guides, and articles for better decision making.

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