Last updated: February 25, 2026
Illinois is the fifth-largest state economy in the U.S., anchored by Chicago’s massive metro area and a diverse mix of industries from agriculture to finance to manufacturing. The state offers access to a large, educated workforce, major transportation hubs, and a straightforward LLC formation process through the Secretary of State.
This guide walks you through every step to legally start a business in Illinois, from choosing your structure to getting the licenses and tax registrations you need. We’ve compiled requirements from the Illinois Secretary of State, Department of Revenue, Department of Employment Security, and Workers’ Compensation Commission so you don’t have to piece it together yourself.
How to Start a Business in Illinois (Step by Step)
Step 1: Choose Your Business Structure
Your business structure determines your personal liability, tax treatment, and paperwork requirements. The most common options in Illinois:
- Sole Proprietorship – Simplest to start, but you’re personally liable for all debts. No state filing required (just an assumed name registration if using a DBA).
- LLC (Limited Liability Company) – Most popular choice. Protects personal assets, flexible tax treatment, and relatively simple to maintain.
- Corporation (S-Corp or C-Corp) – More formal structure with shareholders, directors, and officers. Better for businesses seeking investors or planning to go public.
- Partnership – For businesses with two or more owners. Can be a general partnership (GP) or limited partnership (LP).
For most small businesses, an LLC is the right choice. It gives you liability protection without the complexity of a corporation.
Step 2: Register Your Business with the State
LLC Formation via Illinois Secretary of State
Illinois business entities are registered through the Illinois Secretary of State, Department of Business Services at ilsos.gov.
| Item | Cost |
|---|---|
| Articles of Organization (Form LLC-5.5) | $150.00 |
| Expedited online processing (4-5 business days) | Additional $100.00 |
| Name Reservation (90 days) | $25.00 |
| Total to form an Illinois LLC (standard mail) | $150.00 |
| Annual Report | $75.00 |
How to file:
- Go to the Illinois Secretary of State online filing portal
- Choose a business name that includes “LLC,” “L.L.C.,” or “Limited Liability Company” – it must be distinguishable from existing entity names on file
- Designate an Illinois Registered Agent with a physical street address in Illinois (P.O. boxes are not accepted)
- Pay by credit card for online filing – standard mail processing takes several weeks; online expedited processing takes 4-5 business days for an additional $100
- Check filing status through the Business Entity Search
Assumed Business Name (DBA): If you plan to operate under a name different from your LLC’s legal name, file an assumed name adoption with the Secretary of State. The fee varies by calendar year ($30-$150). Sole proprietors and general partnerships file their DBA with the county clerk (typically around $50).
Federal EIN (Employer Identification Number)
After forming your LLC, apply for a free EIN from the IRS at IRS.gov. You’ll receive it immediately when applying online. You need an EIN to open a business bank account, hire employees, and file taxes.
Important: Register your LLC with the state before applying for an EIN, since the IRS application requires your legal entity name.
Step 3: Get Required Licenses & Permits
Local Business License
Illinois does not have a single statewide general business license. Instead, cities and municipalities require their own local business licenses. Requirements vary significantly by jurisdiction.
- Who needs one: Any person or business operating within an Illinois city or village
- Where to get it: Your city or village clerk’s office
- Cost: Varies widely by municipality (from under $50 to several hundred dollars)
- Chicago: Business licenses through the Chicago Business Licensing portal
- Renewal: Typically annual
State Professional License (If Required for Your Industry)
The Illinois Department of Financial and Professional Regulation (IDFPR) licenses professionals in dozens of regulated categories. You may need a state license if your business falls into a regulated category, including:
- Cosmetologists and barbers
- Private detectives and security agencies
- Real estate agents and brokers
- Architects and engineers
- Physicians, dentists, and nurses
- Roofing contractors
Check the full list of licensed professions to see if your business type requires a state license.
Note: Illinois does not have a statewide general contractor license. HVAC, plumbing, and electrical work are licensed at the municipal level.
Step 4: Register for State Taxes
Illinois Sales Tax (Retailers’ Occupation Tax)
If your business sells taxable goods or certain services, you must register for a sales tax account before beginning operations.
- State sales tax rate: 6.25%
- Local taxes: Additional city, county, and special district taxes
- Combined rates: 6.25% to 11.00% depending on location (Chicago ~10.25%)
- Registration: Free online at MyTax Illinois
- Important: Many services are exempt from Illinois sales tax – check whether your specific service is taxable
Illinois Income Tax
Illinois has a flat income tax rate of 4.95% for individuals. This applies to:
- Pass-through entities (LLCs, S-Corps, partnerships) – income flows through to owners’ personal returns at 4.95%
- C-Corporations – corporate income tax of 7.0% plus a 2.5% Personal Property Replacement Tax, for an effective rate of 9.5%
Register for income tax withholding through MyTax Illinois if you plan to hire employees.
Illinois Unemployment Insurance (If Hiring Employees)
If you plan to hire employees, you must register for unemployment insurance with the Illinois Department of Employment Security (IDES).
- Registration: Through MyTax Illinois within 30 days of start-up
- New employer rate (2026): 3.35% (multiplied by state experience factor) plus 0.55% fund building rate
- Taxable wage base (2026): First $14,250 per employee
- Quarterly reporting: File quarterly through MyTax Illinois
New Hire Reporting: Report all new hires to IDES within 20 days of their first day on payroll.
Step 5: Get Business Insurance
Insurance requirements depend on your business type and whether you have employees:
Workers’ Compensation
Illinois requires workers’ compensation insurance for virtually all employers – there is no minimum employee threshold. Even one part-time employee triggers the requirement.
| Situation | When Required |
|---|---|
| Most businesses | Any employee (including part-time) – no minimum threshold |
| Exemptions | Sole proprietors, partners, corporate officers, and LLC members may exempt themselves |
| Agricultural exception | Farms with fewer than 400 working days of labor per quarter (excluding family) |
Penalties for non-compliance:
- Up to $500 per day of non-compliance
- Minimum fine of $10,000
- Corporate officers can be held personally liable
Learn more at the Illinois Workers’ Compensation Commission.
General Liability Insurance
While not always legally mandated, general liability insurance is practically essential for most businesses. It protects against claims of bodily injury, property damage, and advertising injury. Many clients, landlords, and government contracts require proof of coverage.
Illinois Business Guides by Industry
Every industry has different licensing, permit, and insurance requirements. Choose your business type for a detailed breakdown of everything you need in Illinois:
- How to Start a Cleaning Service in Illinois – Local licenses, insurance, workers comp requirements, and cost breakdown
- How to Start a Food Truck in Illinois – Health permits, commissary rules, fire safety, Chicago requirements, and sales tax
- How to Start a Daycare in Illinois – DCFS licensing, background checks, training, ratios, and facility requirements
- How to Start an HVAC Business in Illinois – Local contractor licensing, EPA 608 certification, and insurance
- How to Start a Hair Salon in Illinois – IDFPR cosmetology license, salon registration, and sanitation rules
- How to Start a Landscaping Business in Illinois – Pesticide licensing, environmental compliance, and workers comp rules
- How to Start a Private Investigation Business in Illinois – IDFPR licensing, experience requirements, exam, and costs
Illinois Business Resources & Official Links
| Resource | What It’s For |
|---|---|
| Illinois Secretary of State (Business Services) | LLC formation, annual reports, assumed names |
| SOS Online Filing Portal | File Articles of Organization, annual reports, name searches |
| Illinois Department of Revenue | Sales tax, income tax, withholding registration |
| MyTax Illinois | Register for tax accounts, file returns, make payments |
| Department of Financial & Professional Regulation (IDFPR) | Professional and occupational licensing |
| Workers’ Compensation Commission (IWCC) | Workers’ comp requirements and compliance |
| Department of Employment Security (IDES) | Unemployment insurance, employer registration |
| IRS EIN Application | Free federal tax ID number |
| Illinois New Hire Reporting | Report new employees within 20 days |
Frequently Asked Questions
How much does it cost to start an LLC in Illinois?
The filing fee for Articles of Organization with the Illinois Secretary of State is $150 (standard mail). Online filing adds a $100 expedited processing fee ($250 total). After formation, you’ll pay $75 per year for the required Annual Report, due on the first day of your LLC’s anniversary month.
Does Illinois require a general business license?
Illinois does not have a single statewide business license. Instead, cities and municipalities require their own local business licenses. Some industries also require a state professional license from the Department of Financial and Professional Regulation (IDFPR).
What is Illinois’s income tax rate?
Illinois has a flat income tax rate of 4.95% for individuals. Pass-through entities like LLCs and S-Corps pass income through to the owner’s personal return. C-Corporations pay 7.0% corporate income tax plus a 2.5% Personal Property Replacement Tax, for an effective rate of 9.5%.
Do I need to collect sales tax in Illinois?
If you sell taxable goods, yes. Illinois’s base sales tax rate is 6.25%, plus local taxes that can push the combined rate to 11.00% (Chicago is about 10.25%). Many services are exempt from sales tax. Register through MyTax Illinois before you begin collecting.
When is the Illinois LLC Annual Report due?
Annual Reports are due on the first day of the month in which the LLC was organized. You can file up to 45 days early. The fee is $75. Failure to file can result in administrative dissolution of your LLC.
Do I need workers’ compensation insurance in Illinois?
Yes – Illinois has no minimum employee threshold for workers’ compensation. If you have even one employee (including part-time), you must carry workers’ comp insurance. Penalties for non-compliance include fines up to $500 per day with a minimum of $10,000, and corporate officers can be held personally liable.
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