Forming a business in Illinois is fairly straightforward and moderately priced, and the flat income tax rate makes planning simple since it doesn't shift as your income grows. Most of the real complexity shows up later, in local sales tax rates, particularly around Chicago. This lays out the process for 2026.
1. Which business structure fits you?
Illinois founders generally choose from four structures, and the right one depends on how much liability protection you actually need.
- Sole proprietorship. You and the business are legally one and the same, with nothing to file up front — but that also means you're on the hook personally for whatever the business owes.
- Partnership. Two or more people running things together, carrying the same liability exposure a sole proprietor would, just divided between partners.
- LLC. The standard choice for small Illinois businesses, largely because it separates your personal assets from the company's debts and lawsuits.
- Corporation, S-corp or C-corp. More formal and more paperwork-heavy, and usually only worth it once investors or multiple shareholders are involved.
For more detail, see our guide to choosing a business structure.
LLCs and corporations register with the Illinois Secretary of State's Department of Business Services, the state agency handling business filings. Sole proprietorships and general partnerships have no need to register there.
2. Register your business
Forming an LLC
Filing Articles of Organization (Form LLC-5.5) with the Secretary of State is what creates your Illinois LLC. The fee is $150, standard online processing runs about 5 to 10 business days, and paying an extra $100 gets you 24-hour expedited service.
You'll also need a registered agent with a physical Illinois address, reachable during business hours — either you, if you're based there, or a commercial service you hire.
No Illinois statute requires an operating agreement, but drafting one is still worthwhile, particularly with multiple members, since it's what actually spells out how decisions and profits get divided.
Sole proprietorships and DBAs
Sole proprietorships skip the Secretary of State entirely. Operating under an assumed name instead means filing an assumed name application with the county clerk where the business is located, and renewing it periodically.
3. Get an EIN
The IRS issues an Employer Identification Number free of charge, and the online application typically takes about 15 minutes. Opening a business bank account, hiring anyone, or filing most business tax forms all require one — even for a single-member LLC with zero employees.
4. Check licenses and permits
Illinois has no single statewide business license either. What applies to you depends on your industry and city: regulated professions need their own licensing, most cities and counties require a local business license, food businesses need health permits, and selling taxable goods means registering for the Retailer's Occupation Tax with the Department of Revenue. Our guides on professional licensing by industry and zoning laws for home businesses cover both areas in more depth.
5. Understand Illinois taxes
Personal income in Illinois is taxed at a flat 4.95%, so unlike a progressive-bracket state, the rate stays the same no matter how much you earn. LLCs taxed as partnerships or S-corps additionally owe a 1.5% Personal Property Replacement Tax on net income, stacked on top of regular income tax.
The state sales tax base is 6.25%, but local additions push combined rates above 10% in parts of Illinois and above 11% in some Chicago neighborhoods — among the highest combined rates anywhere in the country.
6. Stay compliant
Illinois LLCs file an Annual Report with the Secretary of State before the first day of their anniversary month every year, at a cost of $75. Filing more than 60 days late adds a $100 penalty on top of that fee, and continued non-compliance can eventually lead the state to 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?
Articles of Organization cost $150, and standard online processing takes roughly 5 to 10 business days.
What's the personal income tax rate in Illinois?
A flat 4.95%, with an added 1.5% Personal Property Replacement Tax for LLCs taxed as partnerships or S-corps.
How high is sales tax in Illinois?
6.25% at the state level, climbing above 11% in some parts of Chicago once local rates are added in.
When is Illinois's Annual Report due?
Before the first day of your LLC's anniversary month, every year, at a cost of $75.
What's the penalty for a late Annual Report in Illinois?
Filing more than 60 days late adds a $100 penalty.
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.