You have assessed the feasibility of your business idea and created a plan to get started. What comes next? How do you turn your idea into a legally recognized Illinois business? Here are the four things you should do first.
1. Choose an organization structure for your business.
There are several ways to organize businesses in Illinois, each with its own legal and tax implications. Your form of business determines which income tax return forms you must file.
The most common forms of business are:
- Sole proprietor: A person who owns the business and is personally responsible for its debts.
- Partnership: An arrangement in which two or more individuals share the profits and liabilities of a business venture. Types of partnerships include general partnerships, limited partnerships, limited liability partnerships, or limited liability companies.
- Corporation: A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses.
Before selecting a business type, you may want to consult an attorney or accountant for assistance in determining which one is best for your business. The library also has many excellent books covering the legal requirements on each of these formats; look for titles published by Nolo.
2. Decide on a business model or format.
Like your organization structure, your business format will have legal and tax implications depending on where you do business and what kind of product or service you are bringing to market. When choosing a business format, consider the following:
- Will you be making a product or offering a service?
- Will your customers find you online or at a brick-and-mortar store location?
Other options for budding startups might include creating a new product and selling it to another company or buying an established business that you might take over and operate or buy a franchise.
3. Register your business with the state of Illinois.
When the operating business name is different from the owner’s full legal name(s), the Illinois Assumed Name Act requires sole proprietorships and general partnerships to register the business name with the county clerk's office of the county where they reside.
In Illinois, many businesses are required to be registered and/or licensed by the Illinois Department of Revenue. If you plan to hire employees, buy or sell products wholesale or retail, or manufacture goods, you must register with the IDOR by applying for a tax account number on the MyTax Illinois website and submitting Form Reg-1: Illinois Business Registration Application, online or by mail. Registration should take 2-3 days and will cost approximately $150. You will receive a certificate of registration that must be displayed in your place of business. An Employer Identification Number (EIN) also will be assigned.
Depending on your business type, you may also need specialized registrations (e.g. a liquor license or a professional license). The Illinois Department of Financial and Professional Regulation is the main licensing agency for the State of Illinois for most professions. Individuals must be licensed prior to conducting business as one of the professions listed on their website.
4. Obtain the necessary licenses and permits.
A business license from a city, village, or county may be required in certain circumstances. The license gives you the right to conduct business activities in that location. A license may not be necessary if customers do not visit your place of business. (For example, online-only companies probably will not need a local license.) The extent of the application process will depend on a business’ reach (local, state, national). Be sure to check with your locality, as heavy fines may be assessed if you do not obtain the required license.
Some municipalities and counties impose their own taxes in addition to the state and federal taxes that most businesses are responsible for. New businesses should contact their local revenue department to determine if additional taxes apply to their business activities. Many communities restrict advertising, regulate pricing, or require zoning permits. Contact your city or county clerk's office for information on local restrictions.
For more information on starting a business in Illinois, check out the NaperLaunch BizVids Startup in Illinois series or register for an upcoming NaperLaunch Academy workshop. You can also make a one-on-one appointment with a NaperLaunch business librarian.