How to form an S Corporation in Illinois
Introduction
An S corporation is a popular business structure for small businesses because it provides the limited liability for shareholders that corporations offer, and the pass-through taxation that sole proprietorships and partnerships have. Illinois has its own rules for forming an S corporation, so you must follow them in addition to federal requirements.
What Does An S Corporation Do?
An S corporation offers protection from personal liability from your business’s debts and obligations. While you will still be responsible for filing taxes on behalf of your business, you will not be personally liable for paying those taxes if there are insufficient funds to cover them at tax time. The same goes for any lawsuits against your company that result in damages paid by its assets (or by you).
In addition, since an S corporation passes through income directly to its shareholders on their tax forms instead of being taxed at corporate rates (which can be quite high), profits can be distributed among owners without incurring additional taxes beyond what they would owe as individuals based on their own incomes (if they’re incorporated in other ways).
Illinois Rules For Forming an S Corporation
There are some states that have their own rules for forming an S corporation. In Illinois, you must follow the federal requirements as well as state requirements. Illinois has a minimum number of shareholders that you must have before forming an S corporation and paying taxes using this method—the same number applies to all states.
Name Your S Corporation
- Determine a name for your new S corporation. You must choose a business name that is different from any other corporation or LLC in Illinois. Your name can include the words “corporation,” “incorporated,” or “limited” if you want, but it should not include the words “company,” “co.,” or any abbreviation thereof. For example, if you choose to use your own name as your business’s name (e.g., John Smith), you may not also register under the names of J & J SMITH INCORPORATED or JOHN & JANE SMITH LIMITED LIABILITY COMPANY because these other options would be considered misleading and/or confusing due to their similarity with official government titles and references to partnerships—which are prohibited by law in Illinois’ corporate statutes.[1]
Following this rule will save time later on: when registering an S corporation’s legal address at its principal office address every year; when filing annual reports with the state; and when filing tax returns with both federal agencies as well as state agencies if applicable.[2]
Appoint Registered Agent
- You must appoint a registered agent in each state where you conduct business.
- The S corporation can be the registered agent, but it must have an agent in Illinois.
- You can appoint a registered agent online or by mail, fax or email.
File Articles of Incorporation
Once you decide to form an S corporation in Illinois, you’ll need to file articles of incorporation with the Trademark Avenue. You can file online or by mail; the filing fee is $100. Articles of incorporation must be filed within 90 days of incorporating in order for your business to be recognized by the state as an S corporation.
Create Bylaws
To form an S corporation in Illinois, you must create bylaws. Bylaws are a set of rules for your business that can include procedures for how the board of directors and shareholders can act and information about how to hold shareholder meetings. They are not required, but they are recommended because they help ensure that your business is run correctly.
Include these provisions in your bylaws:
- A statement that only natural persons may serve as shareholders and officers; these terms cannot be used interchangeably
- The number of directors who will serve on the board (typically three or five)
Hold an Initial Shareholder Meeting
To form an S corporation in Illinois, hold an initial shareholder meeting. The shareholders must be present at this meeting, or they may be represented by a proxy. At this meeting, you will also need to approve bylaws and elect directors and officers. Any amendments to the articles of incorporation should also be approved by your shareholders within 120 days after incorporation if you want them to take effect immediately rather than at some point in the future.
The meeting must be held either in person or by conference call if all parties consent; otherwise, it can only be conducted via written consent from all parties involved (Illinois Compiled Statutes Ch 515/3-100).
Apply for EIN
The first step in forming an S corporation is to apply for an employer identification number (EIN). An EIN is a unique identification number that the IRS issues to each business in the United States. If you don’t already have one, you can apply for it online, by mail or by phone. We recommend applying as soon as possible because some banks and other institutions will require your EIN before they open an account on your behalf.
When Can You File as an S Corporation?
When you form your business, you’ll have to decide whether to file as an S corporation or a regular corporation.
You can file as an S corporation right away, but you may want to wait until your business is established. The benefit of waiting is that you have more information about your business before you file. For example, if one of the shareholders withdraws from the company and receives some of the liquidating value for his stock because he wants out, it affects whether he has debt-financed income or not. If he does have debt-financed income because this person withdrew from the company when it was in debt, he has been paid off with money that was originally loaned by someone else so now they need tax advice on how they should treat this withdrawal on their taxes so they don’t end up owing more than they actually owe!
Conclusion
With the right information and some preparation, you can form an S corporation in Illinois. It’s not as complicated as it may seem at first glance, but there are a lot of rules that you must follow. Make sure that your business name is available before filing any paperwork with the state or federal government. Also, be sure to keep good records of all shareholder meetings so they can be referenced later if necessary (or just for your own reference). Visit Trademark Avenue’s website for any query or more information regarding the procedure.
