Business Formation and LLCs

 Posted on October 24, 2025 in Commercial Real Estate

Starting a new business in Illinois is much more complicated than choosing a name and opening your doors. One of the most important – yet often overlooked – issues involves selecting the most beneficial legal structure. In many cases, the Limited Liability Company (LLC) offers the best balance between tax efficiency, flexibility, and liability protection.

The Illinois Limited Liability Company Act (805 ILCS 180/) provides new business owners with information on filing rules, fees, and management requirements for an LLC. An experienced DuPage County, IL business formation lawyer can guide you through the process, whether you are forming your first startup or converting an existing sole proprietorship. Understanding how LLCs in Illinois work can help you avoid costly mistakes down the line.

Choosing the Right Business Structure in Illinois

Choosing how to structure your business depends on the size of your business, the level of risk you are willing to bear, and your ownership structure. The four most common business structures include:

Sole Proprietorship: a Simple Business Structure

A sole proprietorship is the simplest and least expensive business structure, but it makes the owner personally responsible for all business debts and liabilities, placing personal assets, such as a home and savings, at risk.

Partnerships: Similar to Sole Proprietorships

A partnership is a business owned and operated by two or more people. It is similar to a sole proprietorship in that it requires less formal paperwork and is subject to pass-through taxation. Partnerships also make all general partners personally liable for the debts and legal obligations of the partnership, including those created by one partner on his or her own. Lack of continuity and the potential for conflict are other potential downsides of a partnership.

C Corporations and S Corporations: Strong Liability Protection

A corporation is a separate legal entity from its shareholders. While offering the strongest liability protections, it is much more complex to set up and manage. A corporation continues even if ownership changes. Downsides to corporations include double taxation, high startup and maintenance costs, extensive paperwork and regulatory compliance, and less control.

Limited Liability Company (LLC): The Most Common Choice for Small and Mid-Sized Businesses

An LLC combines the liability protection of a corporation with the tax benefits and operational simplicity of a sole proprietorship or partnership. Owners’ personal assets are shielded from business debts and lawsuits, and there are far fewer formal requirements than with a corporation. All LLC members must pay self-employment tax on their entire share of the company’s profits. LLCs are the most common choice for small and mid-sized Illinois businesses. LLC businesses generally have the most credibility with banks, investors, and clients.

How to Form an Illinois LLC

The first step involved in forming an Illinois LLC is to choose a unique name and verify the availability with the Illinois Secretary of State. Next, Articles of Organization (Form LLC-5.5) are filed, along with the filing fee. A registered agent with a physical Illinois address is appointed, and then some LLCs will create an operating agreement (not a requirement, but highly recommended). An EIN must be obtained from the IRS for tax and banking purposes, and the LLC must be registered for state taxes. To remain in good standing, LLCs must comply with annual reporting requirements.   

Why You Should Seek Legal Assistance When Establishing an Illinois LLC

While you can form an Illinois LLC without legal assistance, you could end up with costly mistakes if you do. A knowledgeable attorney will ensure the proper separation of your personal and business assets, ensure all necessary filings are completed correctly with the Illinois Secretary of State, and tailor a customized operating agreement.

The operating agreement prevents future disputes by clearly defining the distribution of profits and losses, the management structure and members’ roles, and the procedures for handling a business dissolution or a member’s exit. An attorney can also help you navigate regulatory and tax complexities, including business licensing and permits.

Contact a Naperville, IL Business Law Attorney

Forming an LLC in Illinois can provide flexibility and powerful protection – if it is done correctly. A DuPage County, IL business formation lawyer from The McCormick Law Firm, LLC can help ensure your LLC is correctly formed and remains fully compliant. You will work directly with Attorney McCormick, who offers discounts for military, veterans, and first responders. Call 630-517-8570 to schedule your free consultation.