The formation of a corporation (Inc.) might be a good business structure choice to incorporate your small or mid-sized Illinois business.
Here is why...
Incorporating in Illinois can accomplish things such as: protection of personal assets from business debts and obligations, limitation of personal liability, if the company or an employee is sued, and beneficial options like pass through taxation.
Additionally, the State of Illinois and the Illinois Department of Commerce and Economic Opportunity (DCEO) provides a wide range of incentives, grant programs, access to loans, and State Tax Incentives to small and medium sized businesses.
Steps to Incorporating in Illinois
1) Choose a Name for the Company
Perform a Name Search : The first thing you should do is conduct a name search to make sure you choose an appropriate name for your corporation and that it is available.
This name should be relevant to your corporation's industry, and the name should be easily searchable for the average person.
Naming Guidelines:Your corporation’s name must meet the following requirements:
- The name must contain the words “corporation,” “incorporated,” “company” or “limited,” or an abbreviation for one of those words.
- The name must be distinguishable from the corporate or assumed name of any other corporation or limited liability company on file with the Illinois Secretary of State or any name that is currently reserved or registered.
Reservation of Name: You can reserve a corporate name for 90 days by submitting an "Application for Reservation of Name" form via the Secretary of State. You can also use the Secretary of State online tool "Corporate Name Inquiry Form" to complete and be emailed a preliminary check of corporate name availability.
2) Prepare Articles of Incorporation
After you have selected an available name for company, you can prepare the Articles of Incorporation that will need to be filed with the Illinois Secretary of State.
Minimum Information to Include:
- Name of the corporation
- Corporate purpose
- Stock designation (class or series)
- Registered agent and registered office
- Name and address of Incorporators
3) Specify the Corporate Purpose
Usually, a corporation may state its purpose in general terms, which provides corporations with flexibility. Illinois authorizes the following general-purpose language:
“The transaction of any or all lawful purposes for which businesses may be incorporated under the Illinois Business Corporation Act of 1983.”
4) Specify Types of Stock
A corporation can have different types of stock ( "shares" or "shares of stock"), called classes or series. These types of stocks can have different advantages, for example one can offer voting rights while another may not. Your articles must contain the following additional information pertaining to shares:
- Number & classes of authorized shares: The articles of incorporation must list the number and class of shares that are authorized.
- List differences between classes: If there is more than one class of shares, the articles must list the differences between classes of common shares and the preferences, qualifications, limitations, restrictions and special or relative rights with respect to each preferred class of shares.
- Include specific language: If the articles authorize preferred or special shares, but you do not yet know their characteristics, the articles must include specific language indicating that the board of directors will determine these matters and put them in a resolution to be filed with the Secretary of State.
- List the number of issued shares: Shares are typically issued to owners of a corporation at the time the corporation is formed. The articles of incorporation must list the number of issued shares, itemized by class and series.
- State the total consideration: The articles must also state the total consideration paid for the issued shares. Consideration is something of value, such as cash, property or a promissory note, that is given to the corporation in exchange for the shares.
5) Specify the Registered Agent & Office
All corporations in Illinois must designate a registered agent to receive lawsuits and other legal documents in the corporation’s name.
Official correspondence is sent to the registered agent at the registered office.
Your registered agent must meet the following requirements:
- A registered agent must be either a person who resides in Illinois or a corporation whose articles of incorporation specifically authorize it to act as a registered agent.
- The registered office must be the registered agent’s business office. It must have an actual street address or rural route and box number, and it must be in Illinois.
6) Name the Incorporators
The incorporators prepare, sign and file the articles of incorporation. Their names and addresses are listed in the articles. If the incorporator is another corporation, the articles must show the corporation’s exact name and state of incorporation.
When specifying incorporators:
- There must be at least one incorporator.
- An incorporator must be at least 18 years old.
- If the directors are not named in the articles of incorporation then the incorporators may meet soon after filing with the State to choose the initial directors. After that, the incorporators have no further responsibilities.
7) File the Articles
You can file the Articles of Incorporation with the Illinois Secretary of State. The articles can be submitted by fax, mail, or online and will take up to two to three weeks. If a faster turnaround is required, online filing is the best option but does include an expedited processing fee.
After filing the articles...
1) Draft Corporate Bylaws
A corporation’s bylaws establish important procedures for the way your corporation will operate. Since Bylaws are an internal corporate document they are not required and do not need to be filed with the state.
Although corporate bylaws are not required, you should adopt them because they (1) establish your corporation's operating rules, and (2) help show banks, creditors, the IRS, and others that your corporation is legitimate.
Bylaws may be adopted by the board of directors or the shareholders, and
cannot be inconsistent with the corporations articles of incorporation or Illinois law.
Bylaws typically include:
- the number and duties of officers and directors,
- the way that officers and directors are chosen and
- the way that directors’ and shareholders’ meetings are called and conducted.
2) Appoint the Directors
Corporate directors are responsible for managing the corporation and setting corporate policies and strategies. Directors may delegate their management duties to committees or officers. Directors must always act in the best interests of the corporation and its shareholders.
- There must be at least one director.
- Illinois law does not specify a maximum number of directors.
- Directors do not have to be Illinois residents or shareholders of the corporation.
- The articles of incorporation or bylaws can establish eligibility requirements for directors.
3) Hold Your First Board of Directors Meeting
The first meeting of the corporation's board of directors (BOD) should be held soon after filing the articles. During this meeting the directors can appoint corporate officers, adopt bylaws, select a corporate bank, authorize issuance of shares of stock, set the corporation's fiscal year, and adopt an official stock certificate form and corporate seal.
The directors' actions must be recorded in corporate minutes that are prepared by the incorporator or any of the directors.
4) Set up a Corporate Records Book
Set up a corporate records book in which you keep all of your corporation's important papers, including minutes of director and shareholder meetings, stock certificates, and stock certificate stubs. Keep your corporate records book at the principal office of your corporation.
You can use a three-ring binder as the corporate records book; or order a special corporate records kit through a corporate kit supplier.
Ready to Incorporate?
If you know a corporation is the entity you need to form and know you only need to generate specific forms and additional documents, with minimal attorney feedback, then you might want to purchase any one of the PLC, Ltd "Business Essentials - Incorporation packages" or go to the "About Business Essentials" page to find out more about how to register for a free online account and gain access to view and request other "ad-hoc" online "Business Essentials" virtual legal services.
If you know that you have more complex needs, such as: help with deciding the type of legal entity to form, help with conducting name and/or TM search and registration, help with preparation of all forms and filing, help with any needed business licenses, help with the drafting of any customized agreements (between owners, founders etc) and, after formation, continued legal advice and guidance for your business - you can contact PLC, Ltd for an email consultation to find out more about flat-fee business formation packages and GC services offered. Click here to send a message request to open an email correspondence with PLC, Ltd so that we can discuss your business situation and needs and also determine whether working together will be a good fit.