Start an Illinois S Corp

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We probably don’t have to tell you that starting your own business involves making a lot of choices. One of the biggest choices you can make for your business is what kind of entity and tax structures it will have. Many choose to run their businesses as S Corporations.

An S Corporation is an IRS-approved federal tax election that allows income, losses, deductions, and credits to pass through to the business’s shareholders. This way, certain business finances can be taxed at a shareholder’s personal income tax rate. Maybe this is a solid choice for you, but it’s important to have knowledge about running an S Corporation before you jump in. 

Start an S Corp in Illinois

If you don’t know much about S Corporations, that can change today. Our S Corporation Information page can educate you about many key features of an S Corporation. We can also walk you through the basic steps of starting this kind of corporation in Colorado right here. If you decide to run your limited liability company (LLC) or corporation as an S Corporation, we can help you get started.

How to Start an S Corporation in Illinois

Our Illinois LLC Formation Service and Illinois Corporation Formation Service help form Illinois businesses in a snap. And once you’re ready to run your new business, our large catalog of business development and maintenance services is available to help make your job as a business owner easy! 

1. Choose a Business Name

In many ways, starting an S Corp in Illinois begins with choosing a name for your state LLC or business corporation. You have a lot of business name choices, but the name needs to be distinguishable from other names in the SOS’s records. The name also needs to contain words that identify what kind of state business you started and can’t contain certain unauthorized words or characters.

2. Appoint a Registered Agent in Illinois

Your Illinois S Corp must have a designated person or business entity that can accept legal and official documents on its behalf. This individual is your business’s registered agent. To quickly locate a registered agent that can fulfill your business’s needs, you can use our Registered Agent Service.  

3. Choose directors or managers

Who you choose for your business’s leadership can be a crucial component in your business’s success. If you start a business corporation, you need to select a Board of Directors to oversee your business’s affairs. If you start an LLC, you need to select managers, or members with management authority, to oversee your business. 

4. File Articles of Incorporation/Organization with the Illinois Secretary of State

Once you’re ready to make your Illinois corporation or LLC official, you need to file formation documents with the SOS. You file Articles of Incorporation to start a business corporation, and you file Articles of Organization to start an LLC. Normally, you have to pay a filing fee when you submit these forms. 

5. File Form 2553 to turn your business into an S Corporation

Once you have your state paperwork for starting business corporations or LLCs in Illinois completed and out of the way, you file Form 2553 with the Internal Revenue Service to give your business S Corporation status. If you start an Illinois LLC, you need to federally designate it as a corporation by filing Form 8832 before you can file Form 2553. 

S Corporation Requirements and Limitations

Running your business as an S Corporation can offer many benefits, but the process isn’t without strict requirements and limitations. Before you can file Form 2553 to fulfill the above-stated S Corporation filing requirements, you need to make sure your business is eligible. If you want your business to be an S Corporation, your business must comply with the following: 

These limitations on your business practices might not be for you, but if they are for you, let’s move on to how you can choose S Corporation status. 

Pros and cons of creating an S Corporation

You’ve received a lot of information about why you might or might not want to run an S Corporation. It’s a good idea to review your needs and options with legal and financial professionals. In the meantime, let’s review some of the key factors that can help you decide on your next move. 

Pros

The many benefits of electing to run an S Corporation include: 

If you’re looking to run a smaller enterprise that limits your personal liability for financial and legal business issues, an S Corporation might be a great choice for you. 

Cons

Some drawbacks of running an S Corporation can include: 

These disadvantages might not be prohibitive drawbacks for your purposes. But again, it’s always a good idea to speak to legal and financial professionals about how S Corporation characteristics might affect your unique business needs. 

What to know before creating an S Corporation in Illinois

One of the first things to know is how your newly formed business is treated for tax purposes before you file to make it an S Corporation. If you form your business as a corporation in Illinois before you elect to run it as an S Corporation, the default status of your business is a C Corporation. This default C Corporation status has a unique set of benefits and disadvantages that you may or may not find desirable. Also, the requirements and characteristics of running an S Corporation could inform how quickly you want to turn your business into an S Corporation (if at all).

What is an S Corporation?

An S Corporation is a small business corporation that is more of a tax status than a stand-alone entity. Although you have to file state tax returns for an S Corporation, you don’t have to register an S Corp in Illinois to start it. In other words, instead of filing with the state, you’ll start an Illinois S Corp by registering it with the IRS. Once you’ve created an S Corporation, you can enjoy tax benefits you might not otherwise receive.  

What’s the difference between an S Corporation and a C Corporation? 

The reason why many choose to run S Corporations instead of C Corporations is to avoid double taxation. C Corporations are typically subject to double taxation because the corporation must pay income taxes on the money it brings in, and then the corporation shareholders must also pay income taxes on their share of the corporate income.

With S Corporation pass-through taxation, the corporation isn’t taxed directly. Instead, the untaxed profits get passed on to the shareholders who have to pay income taxes on their share of the corporate income. This tax structure can be one of the great benefits of an S Corp. However, due to the strict limitations on the number and types of shares allowed in S Corps, some might find their ability to raise capital in an S Corporation too limited. 

What are the requirements to create an S Corporation? 

As we stated above, you must have a domestic, eligible business and limit your stock to become an S Corporation. If your business is within the listed parameters and you file the proper paperwork with the IRS, you can likely take advantage of many S Corporation benefits. 

Can LLCs choose an S Corporation election? 

Yes. If your LLC can fulfill S Corporation requirements, it can choose an S Corporation election. You might want to make this election for your LLC for better tax options regarding matters such as self-employment taxes. Explore more about LLCs and taxes on our Tax Information for Limited Liability Companies page. 

How We Can Help 

You have a lot to think about before you decide to run your company as an S Corporation. But once you make the decision, our services can get you up and running quickly! If you’re looking to turn your LLC into an S Corporation, you can use our S Corporation Service to help get it done. And we have many other services to build up your new business venture. We’re here to support entrepreneurs like you from start to finish. If you need help forming, maintaining, or closing a business, we have services that can help you get where you need to go. 

Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

FAQs

  • What are the benefits of creating an S Corporation in Illinois?

    Among the many potential benefits of creating an S Corporation are asset protection and lighter tax liabilities.

  • How should I choose a name for my Illinois S Corp?

    You generally have plenty of flexibility when choosing a name for your S Corporation. However, the name must include the proper designation to show that you formed it in Illinois as a corporation or LLC, and it must be distinguishable from other names on record with the Secretary of State.

  • Should I identify my LLC as an S Corporation?

    You identify your LLC as an S Corporation by filing the proper paperwork and returns with the IRS and the Illinois Department of Revenue. There isn’t any requirement that your S Corp status is reflected in your company name.

  • How should I calculate taxes for my S Corporation? 

    It’s best to speak to a tax professional about how to best calculate taxes for your Illinois S Corp.

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