How to form an LLC in Illinois

Illinois Secretary of State charges $150 to file Articles of Organization. The annual report is $75, due in the LLC's anniversary month. Realistic year-one cost: $150. Ongoing yearly cost: $75 plus the 1.5% Personal Property Replacement Tax on LLC profits.

Online filings through the Illinois SOS portal approve in 7–10 business days. Expedited 24-hour processing is available for $100 extra ($250 total). Mail filings take 3–4 weeks.

The PPRT is a 1.5% tax on LLC profits attributed to Illinois (different rates apply to corporations and S-corps). It was created to replace the old personal property tax on businesses. It applies even though Illinois has "no LLC franchise tax." LLCs file PPRT through the Illinois Department of Revenue (IDOR) on Form IL-1065 (multi-member) or IL-1120 (if elected as C-corp).

No franchise tax for LLCs (the corporate franchise tax was repealed in 2021, and it never applied to LLCs the same way). However, Illinois does levy the Personal Property Replacement Tax (1.5% on LLC profits), which functions similarly.

In the LLC's anniversary month each year. The fee is $75 if filed on time. Filings 60+ days past due incur a $300 penalty. LLCs that don't file for 6 months can be administratively dissolved.

Yes. Illinois has no residency requirement for LLC members or managers. You only need an Illinois-based registered agent. Out-of-state owners commonly use a commercial registered agent service.

For Chicago-based businesses or those with deep ties to the Illinois finance, logistics, or manufacturing sectors: yes. For businesses without a Chicago footprint, the $150 filing + $75 annual report + 1.5% PPRT is more expensive than many neighboring states. Indiana, Wisconsin, and Iowa offer cheaper alternatives if you don't need Chicago specifically.

Statewide sales tax is 6.25%, but Cook County (Chicago) layers additional taxes that can push the combined rate to 10.25% or higher. If you sell taxable goods in Chicago or Cook County, register with the Illinois Department of Revenue through MyTax Illinois.

Illinois LLCs are pass-through entities by default, meaning profits flow to members and are taxed on their personal state returns at Illinois's flat 4.95% individual income tax rate. Illinois also imposes a 1.5% Personal Property Replacement Tax (PPRT) on net income for partnerships and LLCs taxed as partnerships, which is a unique Illinois-specific levy paid directly by the business. Members who are Illinois residents must pay both federal self-employment tax and state income tax on their share of earnings. If your LLC elects S-corp or C-corp taxation, different rates and filing requirements apply through the Illinois Department of Revenue. Illinois has no separate LLC franchise tax, but the $75 annual report fee to the Secretary of State is still required each year.

Yes, non-residents can form an Illinois LLC without any requirement to be a state resident — the Illinois Limited Liability Company Act imposes no residency requirement on members or managers. You will need a registered agent with a physical Illinois street address to accept legal documents on your behalf, which can be a commercial registered agent service if you have no Illinois presence. If you form an Illinois LLC but primarily operate in another state, that state may require you to register as a foreign LLC there and pay its fees separately. Out-of-state owners should also be aware that Illinois requires a registered agent change to be filed promptly if the agent resigns, so choose a reliable provider. Non-residents still owe Illinois taxes on income sourced from Illinois business activity.

Illinois does not issue a single statewide general business license, so forming your LLC with the Secretary of State does not automatically cover licensing requirements. Depending on your industry, you may need a professional license from the Illinois Department of Financial and Professional Regulation (IDFPR) — this applies to fields like healthcare, real estate, contracting, and cosmetology. Most cities and counties in Illinois have their own local business license or business registration requirements; for example, Chicago requires a City of Chicago Business License for most businesses operating within city limits. Sales-tax-collecting businesses must also register with the Illinois Department of Revenue for a Retailer's Occupation Tax permit. Check both the state agency relevant to your industry and your local municipality before you begin operations.

To voluntarily dissolve an Illinois LLC, members must first authorize dissolution according to your operating agreement or by unanimous consent, then file Articles of Dissolution with the Illinois Secretary of State's Department of Business Services. The filing fee for Articles of Dissolution is $5 if filed by mail or in person, and you can file online through the Illinois Secretary of State's website. Before or alongside dissolution, the LLC must wind up its affairs — paying outstanding debts, notifying creditors, liquidating assets, and distributing remaining funds to members. Illinois also requires that all outstanding annual reports and fees be current before dissolution will be approved; any delinquent reports must be filed and fees paid. Once the Secretary of State accepts the Articles of Dissolution, the LLC's legal existence ends and you should also cancel any local business licenses and close state tax accounts with the Illinois Department of Revenue.

Illinois law does not legally require an LLC to have a written operating agreement, but the Illinois Limited Liability Company Act strongly encourages it and gives operating agreements broad authority to customize how your LLC is governed. Without a written operating agreement, your LLC will be governed entirely by Illinois's default statutory rules, which may not reflect your actual intentions — for example, default rules allocate profits equally among members regardless of their capital contributions. A well-drafted operating agreement should cover membership percentages, voting rights, profit and loss allocations, procedures for adding or removing members, and what happens if a member wants to exit. For single-member LLCs, an operating agreement is especially important to reinforce the separation between personal and business finances, which helps protect limited liability status. Banks and outside investors in Illinois often require a copy of the operating agreement before opening accounts or entering deals with your LLC.

Illinois single-member and multi-member LLCs are taxed as pass-through entities by default, meaning LLC profits flow to your personal return and are taxed at Illinois's flat 4.95% individual income tax rate. On top of that, Illinois imposes a 1.5% Personal Property Replacement Tax (PPRT) directly on LLC net income, filed via Form IL-1065 or IL-1040 Schedule SE depending on entity election. Illinois also has a 6.25% state sales tax, with local rates averaging 2-3% in the Chicago metro, so sales-tax-nexus businesses face a combined rate of 9-10% in many ZIP codes. There is no Illinois franchise tax on LLCs, which removes one cost layer present in states like California or Delaware.

Illinois is one of the strongest states in the country for logistics and food processing LLCs due to its geography and infrastructure: Chicago sits at the intersection of six Class I railroads, two major interstate corridors (I-90 and I-55), and O'Hare International Airport, one of the busiest cargo airports in North America. The Illinois Department of Commerce and Economic Opportunity (DCEO) also administers targeted incentive programs for manufacturers and food processors, including the EDGE Tax Credit and the River Edge Redevelopment Zone program for qualifying locations. Illinois is home to major food processing companies like Archer Daniels Midland, Kraft Heinz (regional operations), and Mondelez, creating a dense supplier and distribution ecosystem that benefits smaller LLCs in the same sector. If your LLC operates in cold storage, freight brokerage, food co-manufacturing, or agricultural processing, Illinois's market density justifies its higher tax cost.

Indiana charges $95 to file an LLC (versus Illinois's $150), has no personal property replacement tax, and imposes a flat 3.05% individual income tax rate — significantly lower than Illinois's combined 6.45% effective rate on LLC profits. Wisconsin charges $130 to form an LLC, levies a 7.65% individual income tax rate on the highest bracket (though lower brackets start at 3.54%), and has no equivalent to Illinois's PPRT, making Wisconsin's tax profile mixed depending on profit level. The practical advantage of an Illinois LLC over either neighbor is market access: Chicago's professional services, healthcare, and finance ecosystems are substantially larger than Indianapolis or Milwaukee, and many B2B contracts with Illinois-headquartered firms prefer or require a domestic Illinois entity. For remote or online businesses with no Illinois customers, Indiana or Wyoming often offer lower total cost of ownership; for businesses actively serving the Chicago market, the Illinois LLC premium is usually justified.