LLC vs. S Corp in Illinois 2024: A Comprehensive Comparison

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LLC vs. S Corp in Illinois: Understanding the Differences

Embarking on the entrepreneurial journey in Illinois, also known as The Prairie State, is an exciting and transformative experience. Illinois LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in Illinois and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in Illinois.

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In Illinois, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in Illinois are required to pay an annual fee of $75 to maintain their legal status and stay compliant with the state regulations.

An LLC in Illinois offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in Illinois  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In Illinois, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in Illinois. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in Illinois

One of the main differences between LLCs and S-Corporations in Illinois lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in Illinois, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in Illinois benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in Illinois are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in Illinois opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in Illinois with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in Illinois, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • Illinois State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in Illinois, it costs $75, which can be paid to the IN Secretary of State. Additionally, before forming the LLC, you must pay $15.

On the other hand, if you form an S-Corporation in Illinois, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the IN Secretary of State to make these payments.

2. Liability Protection

LLCs and S-Corporations in Illinois provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in Illinois:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in Illinois is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your Illinois LLC or Illinois S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in Illinois have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in Illinois: LLCs or S-Corporations

While filing an LLC or S-Corporation in Illinois requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the Illinois Registered Agent.

To start an LLC in Illinois, you must submit the Articles of Organization to the Illinois Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your Illinois LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in Illinois to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in Illinois

Forming an LLC in Illinois involves several crucial steps. To start, you must file Articles of Organization with the Illinois Department of Revenue and pay the associated filing fee of $15. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In Illinois, the S-Corporation filing fee is $150 for filing in-person and by mail.

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The LLC formation and S-Corporation election processes can be completed through two ways, online and by mail. Online incorporation is available at Create an account/Log in to the SOS site, get the online form, fill it, and submit online, while offline incorporation can be done at Send the form by mail to Department of Business Services, Limited Liability Division, 501 S. Second St., Rm. 351, Springfield, IL 62746. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in Illinois varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in Illinois.

FAQs

What is an LLC in Illinois?
An LLC in Illinois is a limited liability company, a business structure that offers personal liability protection for business owners while maintaining the flexibility of a partnership.
What is an S Corp in Illinois?
An S Corp in Illinois is a corporation that has elected S Corporation status with the IRS. This means the corporation passes its income, deductions, and losses through to shareholders to avoid paying federal income tax.
Which one is more popular in Illinois – LLC or S Corp?
LLCs are more popular in Illinois due to their flexibility and ease of formation and operation.
How do I form an LLC in Illinois?
To form an LLC in Illinois, you need to file Articles of Organization with the Illinois Secretary of State and pay a filing fee.
How do I form an S Corp in Illinois?
To form an S Corp in Illinois, you need to first incorporate your business by filing Articles of Incorporation with the Illinois Secretary of State. Then you must apply for S Corporation status with the IRS.
Are LLCs taxed differently than S Corps in Illinois?
Yes, LLCs and S Corps are taxed differently in Illinois. LLCs are generally treated as pass-through entities, while S Corps have the option to be treated as such.
Can a foreign corporation form an S Corp in Illinois?
Yes, a foreign corporation can form an S Corp in Illinois as long as certain requirements are met.
Can a non-resident own an S Corp in Illinois?
Yes, a non-resident can own an S Corp in Illinois.
Can a non-citizen own an S Corp in Illinois?
Yes, a non-citizen can own an S Corp in Illinois.
Do LLCs have a limit on the number of members in Illinois?
No, there is no limit on the number of members in an LLC in Illinois.
Can an LLC be taxed as an S Corp in Illinois?
Yes, an LLC can elect to be taxed as an S Corp in Illinois.
Can an S Corp convert to an LLC in Illinois?
Yes, an S Corp can convert to an LLC in Illinois.
Can an LLC convert to an S Corp in Illinois?
Yes, an LLC can elect to be treated as an S Corp for tax purposes.
Does Illinois require LLCs to pay an annual fee?
Yes, LLCs are required to pay an annual fee in Illinois.
Does Illinois require S Corps to pay an annual fee?
Yes, S Corps are required to pay an annual fee in Illinois.
Which type of business entity requires more paperwork, an LLC or S Corp?
An S Corp generally requires more paperwork than an LLC in Illinois.
Can an LLC have non-voting members in Illinois?
Yes, an LLC can have non-voting members in Illinois.
Can an S Corp have more than one class of stock in Illinois?
No, an S Corp cannot have more than one class of stock in Illinois.
Which business entity type has more flexibility in Illinois – LLC or S Corp?
LLCs generally have more flexibility than S Corps in Illinois due to their ease of formation.
Can an LLC be managed by its members in Illinois?
Yes, an LLC can be managed by its members in Illinois.
Can an S Corp distribute profits unevenly among shareholders in Illinois?
Yes, an S Corp can distribute profits unevenly among shareholders in Illinois.
Is Illinois a good state for small businesses to form an LLC or S Corp?
Yes, Illinois is considered a good state for small businesses to form an LLC or S Corp due to its relatively low filing fees and business-friendly laws.
Are S Corps subject to more regulations than LLCs in Illinois?
Yes, S Corps are subject to more regulations than LLCs in Illinois due to their corporate structure.
Do LLCs and S Corps in Illinois provide equal protection from personal liability?
Yes, both LLCs and S Corps in Illinois provide personal liability protection for business owners.
Can LLC owners also work as employees of the company in Illinois?
Yes, LLC owners can also work as employees of the company in Illinois.
Is a single-member LLC considered a separate entity from its owner in Illinois?
Yes, a single-member LLC is considered a separate entity from its owner in Illinois.
Can an S Corp have more than 100 shareholders in Illinois?
No, an S Corp cannot have more than 100 shareholders in Illinois.
Are LLCs taxed at the business or personal level in Illinois?
LLCs are generally taxed at the personal level in Illinois.
How much does it cost to form an LLC in Illinois?
The cost to form an LLC in Illinois is $150.
How much does it cost to form an S Corp in Illinois?
The cost to form an S Corp in Illinois is $275.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in Illinois.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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