Forming a Corporation in Illinois

Here is an outline of the steps you need to follow in order to form a corporation (specifically, a "C corporation") in Illinois. You should also read the general section on forming a corporation for information that is applicable in any state. Additionally, you should familiarize yourself with the Illinois Secretary of State's website  and its Guide to Organizing Domestic Corporations, which contain valuable resources and information.

1. Choose a business name for the corporation and check for availability.

  • Illinois law requires that a corporation name contain the word "corporation," "company," "incorporated," or "limited," or an abbreviation of one of such words. Additionally, your corporation name must be distinguishable from other names on file with the Secretary of State. Other more obscure limitations apply -- see 805 Ill. Comp. Stat. 5/4.05 for details.

2. Recruit and/or appoint a director or directors for the corporation.

  • Under Illinois law, a corporation must have at least one director.
  • There is no minimum age requirement for directors, but incorporators (i.e., those who file the paperwork) must be at least eighteen years old.
  • Directors need not be residents of Illinois or shareholders of the corporation, unless the articles of incorporation so require.
  • The articles of incorporation may set forth the number of directors that will constitute the corporation's board of directors and identify the initial director or directors by name and address, but this is not required. If the number of directors is not set in the articles, it should be set in the bylaws.

3. Prepare and file articles of incorporation with the Secretary of State.

4. Record the certificate of incorporation and articles with the Recorder of Deeds.

  • After you file articles of incorporation, the Secretary of State will send you a "certificate of incorporation," which indicates that the state has accepted your articles. Within fifteen days of receiving this certificate, you must record both it and your articles of incorporation with the Office of the Recorder of Deeds in the county where your office is located.

5. Create the corporation's bylaws.

  • There is no set criteria for the content of bylaws, but they typically set forth internal rules and procedures for the corporation, touching on issues like the existence and responsibilities of corporate offices, the size of the board of directors and the manner and term of their election, how and when board and shareholder meetings will be held, who may call meetings, and how the board of directors will function. You are not required to file bylaws with the Secretary of State, but the corporation must keep a copy at its principal place a business. For general information on corporate bylaws, please see the Bylaws page.

6. Hold an organizational meeting.

7. Issue stock certificates to the initial owners of the corporation.

  • See the general section on Forming a Corporation for details. The Illinois statute relating to issuance of stock certificates is located at 805 Ill. Comp. Stat. 5/6.35 (scroll down). Unless the articles of incorporation state otherwise, the board of directors has the authority to set the "consideration" (i.e., the amount to be received) for each share of stock.

8. Obtain any required local licenses.

9. Determine what tax and other regulatory obligations the corporation has, and take care of any necessary registrations.

  • Request an Employer Identification Number (EIN) from the IRS. This can be done via its online application. There is no filing fee.
  • If you have one or more employees in Illinois, you must carry workers' compensation insurance. You may choose to obtain workers' compensation insurance for yourself, but you do not need to. (If you have a workers' compensation policy for your employees, you must contact your insurance company if you DO NOT want to be covered.)
  • As a small business owner or employer, there may be other informational returns that you have to file annually or semi-annually with the IRS. For more information, take a look at the IRS Guide To Information Returns.
  • Illinois's corporate income tax rate is 4.8% plus a 2.5% personal property replacement tax (7.3% total).
  • Illinois also imposes a franchise tax on corporations. The tax is based on the corporation’s paid-in capital in Illinois. The initial franchise tax rate is 0.15% of paid-in capital in Illinois, and the minimum payment is $25. After a corporation’s first year, the franchise tax is due annually at a rate of .10%, again with a minimum of $25.00.

10. Open a bank account for your business.

  • It is a good idea to keep your business's finances separate from your personal accounts. A good way to do this early on is by opening a bank account for your corporation. You will probably need a Tax ID number (EIN), a copy of the articles of incorporation, and a resolution identifying authorized signers if those names are not listed in the articles. Here is one example of the documentation that banks ask for.

Other Notable Requirements for Maintaining a Corporation in Illinois

  • Illinois requires certain documents to be kept at a corporation's principal place of business. The required documents are described in 805 Ill. Comp. Stat. 5/7.75 (scroll down).

Additional Steps and Information about Forming an S Corporation

  • An S corporation has the same basic organizational structure as a regular corporation, but some of the tax advantages of a partnership or LLC. An S corporation pays no federal income tax, except for tax on certain capital gains and passive income. Instead, the corporation's profits and losses "pass through" to shareholders, and profits are taxed at individual rates on each shareholder's Form 1040. Certain requirements and additional obligations apply -- please see the S Corporation page for details.
  • To form an S corporation, designate "S" status with IRS via Form 2553 within 2 months and 15 days of filing your articles of incorporation with Illinois. There is no additional paperwork that you need to file in Illinois.
  • Illinois does not recognize "S" status in the same way the federal government does. Illinois imposes personal property replacement tax on the corporate profits of an S corporation at a rate of 1.5% (as opposed to a total of 7.3% for C corporations). Here is the Small Business Corporation Replacement Tax Return.

Additional Steps and Information about Forming a Close Corporation

  • Illinois law has provisions relating to what is known as a "close corporation" -- a classification for a corporation with a small number of shareholders (thirty-five maximum) that does not issue stock to the general public. In general, running a close corporation permits a less formal management style under the auspices of a shareholders' agreement. Please see the Close Corporation page for details.
  • Running a close corporation generally requires a shareholders' agreement. This is an agreement among all the corporation's shareholders, in which they agree to the relaxation of various corporate formalities, such as holding frequent shareholder and board meetings. If you are interested in forming a close corporation, you should contact a lawyer.

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