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Fans of the Cubs, White Sox, and Cardinals can at least agree that an Illinois LLC is the best way to protect your personal assets from any claims asserted against your small business.
FORM AN ILLINOIS LLC IN 4 EASY STEPS
- Step One: Choose a Name
All Illinois LLC names must conform to certain requirements. Every name must contain “limited liability company,” “L.L.C.,” or “LLC,” and must be distinguishable from the name of every other LLC and corporation formed in Illinois or qualified to do business in Illinois. Additionally, the name cannot include the words “trust,” “trustee,” “fiduciary,” “corporation,” “corp.,” “incorporated,” “Inc.,” “Ltd.,” “Co.,” “Limited Partnership,” “L.P.,” “Olympic,” “Olympiad,” “Paralympic,” “Paralympiad,” “Citius Altius Fortius,” “CHICOG,” or “Chicago 2016.”
- Step Two: Draft and File Articles of Organization
Any natural person over the age of 18 can organize an LLC in Illinois by filing articles of organization with the Secretary of State. These articles of organization must contain: the name of the LLC, the principal place of business, the purpose of the LLC, the name and address of the LLC’s registered agent, the names and addresses of managers (if there are managers), the names and addresses of members (if there are no managers), the date of dissolution (which can be never), and the organizer’s name, address, and signature. Additionally, there are different forms on the Secretary of State’s website for traditional LLCs and Series LLCs, depending on which type of LLC you’d like to form.
When the organizer has filled out this form and added any additional provisions that the members want, it is sent to the Secretary of State with the $500 (paper) filing fee.
- Step Three: Operating Agreement
Illinois LLCs should have a written operating agreement to set forth the management and membership relations, although it is not required by law and does not have to be written.
- Ongoing: Compliance
EIN: If an Illinois LLC is going to have employees or multiple members, it will need to have an EIN. This can be obtained either through the I.R.S. directly, or through an incorporation service.
Annual Report: Illinois requires LLCs to file annual reports and pay a $250 fee (+$50 for every series of a Series LLC) to maintain their authorization to do business. This annual report requires the same information as the Articles of Organization, without the dissolution date.
Series: For a Series LLC in the Illinois, formation of a new Series requires filing a certificate of designation with the Secretary of State, which must have the name of the new series and the names and addresses of the managers or members (if there are no managers). The filing fee for this is $50.
WHY FORM AN LLC IN ILLINOIS?
The Benefits and Advantages of Creating an Illinois LLC
- Advantages of Forming an Illinois LLC
The Illinois LLC Act does not require LLC members to be listed with the Department of State if the LLC will have managers (although the managers will be listed with the Department). A “person” may organize an LLC, and the person does not need to be a member of the LLC. The definition of “person” includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s articles of organization with the Illinois Secretary of State.
Dealing with Business Partners
The Illinois LLC Act gives members contractual freedom to customize the duties each party to the LLC’s operating agreement owes to the other parties by distinguishing between member-managed and manager-managed LLCs. The Act provides that, within limits, members of member-managed LLCs owe fiduciary duties of loyalty and care to the LLC and its members. An LLC agreement cannot eliminate a member’s fiduciary duties, but it may reasonably “identify specific types or categories of activities” that do not violate the duties. In addition, an LLC agreement can specify a procedure for members or disinterested managers to authorize or ratify a transaction that would otherwise violate the duties.
But in manager-managed LLCs, the Act provides that members owe “no duties to the company or to the other members solely by reason of being a member.” The result is the LLC Act gives members power to choose the level of protection they want by choosing between a member-managed and manager-managed LLC.
Preventing Unwanted Business Partners
The Illinois LLC Act protects membership interests from members’ creditors. If a member assigns his or her membership interest for the benefit of his or her creditors, the assignee may not participate in the management of the LLC or become a member unless otherwise provided in the operating agreement or upon the approval of all the non-assigning members. The assignee has only a right to receive distributions allocated to the assigned membership interest.
Creditors Only Get Passive Rights, Not Control Rights
If a judgment creditor obtains a charging order against a member’s membership interest, the judgment creditor is entitled to only the distributions allocated to the membership interest. If a judgment creditor with a charging order forecloses on the distributional interest, the purchaser at the foreclosure sale has only the rights of an assignee. Furthermore, these are a judgment creditor’s exclusive remedies. These provisions enable members to protect their control of an LLC.
- Illinois Registered Agent Services
An Illinois LLC must list an Illinois registered agent for service of process. An Illinois LLC cannot act as its own agent for service of process, even if it has an Illinois address. A commercial registered agent service may act as an Illinois registered agent and office. If an Illinois LLC does not have a registered agent, the Illinois Secretary of State may declare it delinquent and not in good standing. The Secretary may then invoke “a penalty of $300 plus $100 for each year or fraction thereof beginning with the second year of delinquency until returned to good standing or until reinstatement is affected.”
- To Keep an Illinois LLC in Good Standing
The Illinois LLC Act requires LLCs to file annual reports, and if an LLC does not file a report, the Illinois Secretary of State may declare it delinquent and not in good standing. The Secretary may then invoke the same penalties applicable when an LLC does not have a registered agent.
The fee for filing the report is $250. This fee is required whether an LLC is domestic (Illinois) or foreign (out of state). Therefore, if you are living in Illinois or doing business there, you will owe this fee whether or not your LLC was formed in Illinois or elsewhere. You cannot avoid this fee simply by forming in another state. Because of this, people sometimes form an LLC in Illinois to avoid paying two states’ annual fees, one for the domestic company (Illinois) and one for the foreign LLC.
Because of the advantages of forming an LLC in Illinois, over 25,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Illinois. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Illinois with your Delaware LLC (Form Delaware LLC).
- Illinois LLC Act and Business Organization Statutory References
805 ILCS 180/1-5 “Definitions” 805 ILCS 180/1-35 “Registered Office and Registered Agent” 805 ILCS 180/5-1 “Organization” 805 ILCS 180/15-1 “Management of Limited Liability Company” 805 ILCS 180/15-3 “General Standards of Member and Manager’s Conduct” 805 ILCS 180/15-5 “Operating Agreement” 805 ILCS 180/30-5 “Transfer of a Distributional Interest” 805 ILCS 180/30-10 “Rights of a Transferee” 805 ILCS 180/30-20 “Rights of Creditor” 805 ILCS 180/50-1 “Annual Reports” 805 ILCS 180/50-15 “Penalty”
Illinois vs. Delaware LLC's: Which State Is Better?
|LLC Filing Fee
|Required to Name Members or Managers
|Reduce Fiduciary Duties?
|Charging Order as Exclusive Remedy
|Maximum Freedom of Contract
|Separate Equity Court?