Illinois offers a straightforward, moderately priced path to forming a business, with a flat income tax rate that's easy to plan around. The complexity mostly comes from local sales tax, especially in Chicago. Here's what it takes to start a business in Illinois in 2026.
1. Which business structure fits you?
Before you file anything, it helps to know what you're actually choosing between.
- Sole proprietorship. No filing required to start, and you and the business are legally the same entity. Simple, but you're personally liable for whatever the business owes.
- Partnership. Two or more people running a business together, with the same liability exposure as a sole proprietorship, just split across partners.
- LLC. The most common structure for small businesses in Illinois. It separates your personal assets from the business's debts and lawsuits.
- Corporation, either S-corp or C-corp. More paperwork and more formality, usually worth it once you're bringing on investors or multiple shareholders.
For a deeper comparison, see our guide on choosing a business structure.
LLCs and corporations register with the Illinois Secretary of State's Department of Business Services, the agency that handles business filings statewide. Sole proprietorships and general partnerships don't register there.
2. Register your business
Forming an LLC
You form an LLC in Illinois by filing Articles of Organization (Form LLC-5.5) with the Secretary of State. The filing fee is $150, and standard online processing takes about 5 to 10 business days, with 24-hour expedited service available for an extra $100.
Every LLC needs a registered agent with a physical Illinois address, available during business hours. You can act as your own agent, or hire a commercial service.
Illinois doesn't require an operating agreement by law, but it's still worth writing one, particularly for multi-member LLCs, to spell out how decisions and profits get split.
Sole proprietorships and DBAs
Sole proprietorships don't file with the Secretary of State. If you're operating under an assumed name, you'll register it, an assumed name application, with the county clerk where your business is located, and it needs to be renewed periodically.
3. Get an EIN
An Employer Identification Number is free straight from the IRS and takes about 15 minutes online. You'll need one to open a business bank account, hire anyone, or file most business tax forms, even if you're a single-member LLC with no employees.
4. Check licenses and permits
There's no single statewide business license in Illinois either. What you need depends on your industry and city: professional licensing for regulated fields, a local business license from your city or county, health permits for food businesses, and a Retailer's Occupation Tax registration with the Department of Revenue if you sell taxable goods. Our guides on professional licensing by industry and zoning laws for home businesses cover both in more detail.
5. Understand Illinois taxes
Illinois has a flat personal income tax rate of 4.95%, so unlike progressive states, your rate doesn't change as your income grows. LLCs taxed as partnerships or S-corps also owe a 1.5% Personal Property Replacement Tax on net income, on top of the regular income tax.
Sales tax starts at a 6.25% state base, but local additions push the combined rate above 10% in parts of the state, and above 11% in some areas of Chicago, among the highest combined rates in the country.
6. Stay compliant
Every Illinois LLC files an Annual Report with the Secretary of State before the first day of its anniversary month each year. The fee is $75. File more than 60 days late and you'll owe a $100 penalty on top of the fee; keep ignoring it and the state can eventually dissolve the LLC.
Illinois business costs at a glance
| Item | Cost |
|---|---|
| Articles of Organization (LLC) | $150 |
| Annual Report (every year) | $75 |
| Late annual report penalty (60+ days late) | $100 |
| Registered agent service (optional) | $100 to $250/year |
| EIN | Free (IRS) |
| State income tax | 4.95% flat (+1.5% for partnerships/S-corps) |
| State sales tax | 6.25% + local, up to ~11% in parts of Chicago |
Frequently asked questions
How much does it cost to form an LLC in Illinois?
$150 for Articles of Organization, with standard online processing taking about 5 to 10 business days.
What's the personal income tax rate in Illinois?
A flat 4.95%, plus a 1.5% Personal Property Replacement Tax for LLCs taxed as partnerships or S-corps.
How high is sales tax in Illinois?
A 6.25% state base, pushed above 11% in parts of Chicago once local additions are included.
When is Illinois's Annual Report due?
Before the first day of your LLC's anniversary month each year, for $75.
What's the penalty for a late Annual Report in Illinois?
A $100 penalty applies if filed more than 60 days late.
Fees and rates above come from the Illinois Secretary of State and Department of Revenue as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to an Illinois-licensed attorney or CPA about your specific situation.