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Most businesses with employees must file a quarterly IRS report that details the employment taxes that they owe. They must submit this information on IRS Form 941, also called the Employer’s Quarterly Federal Tax Return. Companies who don’t file it as required may face penalties.

What Is IRS Form 941?

Unlike individual taxpayers, who typically have to file just one tax return per year, many businesses are required to file quarterly tax returns. Companies use IRS Form 941 to calculate and record certain taxes they’ve withheld from employee paychecks over the preceding three months. The form reports the total federal income tax and Social Security and Medicare payroll taxes paid by the employer.

When a business fails to file its IRS Form 941 on time, or if it underreports its tax liability, the company can be subject to IRS penalties. For example, the IRS can impose a penalty of 5% of the outstanding tax bill for every month an overdue business return hasn’t been submitted, as well as an additional 0.5% monthly fee for late payment, for up to five months.

Who Needs to File Form 941?

Nearly all businesses that have employees are required to file a Form 941. There are, however, a few exceptions. Companies that usually aren’t required to file an IRS Form 941 include:

•  Seasonal businesses that don’t have any employees during the past quarter

•  Businesses that hire only farmworkers

•  Employers of household employees, such as housekeepers and full-time childcare workers

Recommended: What is a Sole Proprietorship?

Understanding Form 941 Sections

To fill out IRS Form 941 accurately, you need to know and understand the requirements of each section. The top section is for employer identification. It includes your employer identification number (EIN) plus your personal name, your trade name, and your address. There’s also a space to indicate which quarter you’re reporting on.

The rest of the form is divided into five parts.

•  Part 1: This is where you provide information about the business’s workers, including the number of employees, their wages, and details about the taxes withheld. It shows you how to calculate the tax that’s owed, along with any special adjustments. The numbers add up to either a balance due or an overpayment.

•  Part 2: This segment asks about your deposit schedule and tax liability for the quarter. In Part 2, you take the balance or overpayment from Part 1 and compute your total tax liability for the quarter. This doesn’t take into account adjustments like small business tax deductions and business tax refunds.

•  Part 3: Here you record if your business has closed or has stopped paying wages. The form also asks if you’re a seasonal employer. If none of those situations apply, you don’t have to complete this section.

•  Part 4: This section asks you to specify an employee, a paid tax preparer, or another person who is authorized to discuss this return with the IRS. This can be helpful for business owners who don’t prepare their tax returns themselves, but you are not required to provide this information.

•  Part 5: At the bottom of page 2, you’ll need to print your name, the date, and your best daytime phone number, and sign the form. Below that is an optional section in which paid tax preparers (that is, someone who is not in your employ) would enter their contact information and sign as well.

Recommended: What Percentage of Businesses Fail?

Step-by-Step Guide to Filling Out Form 941

Before filling out the form, you’ll want to look over the IRS’s Form 941 instructions. After that, gather the necessary basic information, starting with the business’s address and EIN. You’ll also need to tabulate the number of employees and the total wages and tips they received during the quarter.

Next, you’ll calculate or enter the total amount of federal income taxes, Social Security tax and Medicare tax you’ve withheld from all of your employees’ wages during the quarter. Typically your company’s payroll or accounting software will track these numbers and can give you the data. (It may even be able to complete Form 941 for you.)

Alternatively, you can get these numbers from:

•  Your monthly or semiweekly employment tax deposits

•  Your payment history in the Electronic Federal Tax Payment System (EFTPS)

•  Your bank account statements

If you’re making monthly deposits, it may be convenient to align your invoicing with that schedule. Consider adopting Net 30, a common business practice that encourages creditors to pay you within a month.

Regardless, with these figures, you’ll be able to fill out Part 1, and the results you get there will make completing Part 2 very easy. Parts 3, 4, and 5 are very simple and should only take a few minutes.

Calculating and Reporting Payroll Taxes

To calculate and report your payroll taxes correctly, the key parts of Form 941 are lines 5a, 5b, 5c, and 5d. That’s where you report the wages and tips that qualify as taxable for Social Security and Medicare, and multiply those amounts by the correct percentage. Pay special attention to where the decimal point is on the multiplier.

Recommended: What Is an Employer of Record?

Filing and Payment Options

If you’re wondering where to send Form 941 once complete, you have two filing options. You can mail it to one of the four IRS addresses listed in the instructions. Or you can submit the information online using the Modernized e-File (MeF) system available on the IRS website.

To make a payment, you can send a check or money order by mail using the Form 941-V voucher, which ensures that the IRS will process it correctly. Alternatively, you can pay electronically with a credit card, debit card, or digital wallet using one of the three payment processors authorized by the IRS.

If you’re having difficulty paying your business’s quarterly taxes, it might be worth talking to an accountant about the pluses and minuses of covering the debt with a small business loan.

Common Mistakes to Avoid When Filing Form 941

Make sure that your filing is free of mathematical errors, such as inaccurate wage and tip reporting.

Per the IRS, use the fractions of cents line (line 7) only for rounding issues related to the employee share of Social Security and Medicare taxes.

And remember, if you’re a seasonal employer and you didn’t have any employees this quarter, then check the box in Part 3, on line 18. Doing this accurately can help you avoid a small business audit.

Overall, rest assured that errors on Form 941 are common enough that the IRS has a form just for amending it: Form 941-X.

The Takeaway

Employers are responsible for calculating and paying employment taxes each quarter. On the federal level, this typically involves IRS Form 941, which records the amounts your business will pay for employees’ income tax and payroll taxes. Understanding the details and deadlines of this form will help you meet your tax filing and payment obligations, while also avoiding penalties whenever possible.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What does IRS Form 941 do?

Form 941 is the Employer’s Quarterly Federal Tax Return, used by businesses to calculate and report employee wages and the Social Security and Medicare taxes paid by the employees. It also indicates whether an additional tax payment is required for the quarter.

Do I have to file a Form 941 if I have no employees?

No. Businesses that don’t have employees don’t have to file the 941 form. This includes seasonal employers that don’t need workers during a particular quarter.

What happens if you don’t file a Form 941?

If a business is required to submit Form 941 but doesn’t, it risks penalties. The IRS will charge a failure-to-file fine of 5% of the unpaid tax total, plus 5% for each additional month the tax remains outstanding, up to a maximum of 25%. The IRS also charges interest on penalties, calculated based on the day the taxes were due.

The business could also face a failure-to-pay penalty of 0.5% of the unpaid tax amount, assessed each month.

Photo credit: iStock/Jertography

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q424-042

Articles of organization are official documents that you must file with your state to set up a limited liability company (LLC). Each state will have its own set of information requirements, though certain basic details are common. To help you file your LLC’s articles of organization with confidence, here’s a quick overview.

Definition and Purpose of Articles of Organization

The document you use to apply for an LLC designation for your business is known as the articles of organization. The Secretary of State typically supplies the necessary forms for your state. In some states, the office may be known by another name, such as Arizona’s Corporation Commission.

The form is often a single page, including just a handful of questions, though you are free to include additional details. You can even find a suitable online template to draw up your own document, as long as the pages you submit include all the required facts for your state.

The articles of organization that you file are the official basis of your LLC designation. Business owners who want to operate in multiple states as an LLC vs. a sole proprietorship must file articles of organization in each state where they plan to do business. This is known as foreign qualification.

Recommended: Small business loans

Key Components

Your state will ask for some identifying information when you file articles of organization for your LLC. Though each jurisdiction has its own list of questions, articles of organization typically require these details:

•  The LLC’s name: Once you’ve chosen your LLC’s unique name, you’ll register it as part of the articles of organization. At the state level, you’re identifying it as a business entity name. The Small Business Administration also suggests protecting your LLC’s name via registering a trademark at the federal level, a “doing business as” (DBA), and a domain name for your business website address.

•  The LLC’s business address: Your articles of organization should include a principal office address where official communications from the state can be sent.

•  Member names: All of the owners of an LLC are considered members. These could be individuals or other business entities. If you’re the only owner of the company, depending on the state, you’ll be creating an LLC or a single-member LLC (SMLLC).

•  Registered agent’s name and address: Your articles of organization will also include the name and address of your registered agent. The registered agent accepts documents and official correspondence on the LLC’s behalf. This role may be filled by a person or a company. Some states prohibit the LLC to act as its own registered agent — but even if your state allows it, some experts suggest that doing so could introduce privacy issues and other problems.

Recommended: How To Form an LLC in Illinois

How Articles of Organization Differ from Operating Agreements

By filing articles of organization, you officially register with your state the formation of your LLC. It contains the basic outlines of your business entity, including company names, members, and contact information. The document is considered public record as soon as it’s filed. The official information is also relevant for the IRS, as choosing to form an LLC gives you certain tax benefits along with reducing your personal liability.

Your operating agreement, in which you record additional rules for your LLC, is an internal document that describes how the company is to be run. It sets out all the details about ownership percentages, members’ duties and powers, distribution of profits and losses, and the like.

Many states don’t require that you file an operating agreement, but it’s important to create one — especially if your LLC has multiple owners. Spelling out the rules now can head off conflicts later, so many experts suggest hiring a professional to draw up the agreement. This may mean you have to loan money to your LLC to cover the cost.

Having an operating agreement in place can also be helpful if you apply for a startup loan later. Lenders considering your application will want to know the specifics of how your company works.

Recommended: Comparing LLC Business Loans

Filing Process for Articles of Organization

Once you have all of the information required for your articles of organization, it’s time to file the document with your state. Here’s what to expect at each step of the process.

1.   Check your state requirements. Most LLCs are governed by the Secretary of State within your state. Visit the agency’s website to find out how to send in your articles of organization. There may be an online form you can fill out, a mailing address, or both.

2.   Complete any prerequisites. Find out what else your state wants you to do in order to launch your LLC. For instance, you may need to reserve a business name in advance.

3.   Pay a filing fee. Most states require you to pay a filing fee to form your LLC. This is considered a business expense, so you can pay from your business bank account if you already have one.

4.   Sign and submit your articles of organization. After completing all the information required by the state, one member can sign and submit the articles. This can be done online or through the mail.

Within a few days, you should receive an approval from the state; it’s often faster if you apply online. Once approved, you can register for an employer identification number (EIN) with the IRS. Then you can open bank accounts for your LLC and set up a business line of credit.

State-Specific Requirements

States each have their own exact requirements for articles of organization for an LLC. The fees and forms will be different in every state, so it’s important to research how LLCs are formed in the areas where you intend to do business.

Also note that some states require a different structure for professional service firms. Instead of an LLC, you may need to form a professional limited liability corporation, or PLLC. Licensed professionals such as attorneys and dentists may fall under this category, depending on your state.

Recommended: How To Form an LLC in Georgia

Common Mistakes to Avoid

Here are some common mistakes to avoid when filing your articles of organization with the state:

•  Missing information: Applying online can help you avoid submitting your form with incomplete details and prevent illegible handwriting from slowing down your application.

•  Issues with your LLC name: Your chosen name may be too similar to another LLC in the state, or be missing a word such as “LLC.” Many states have rules about disallowed words, too; ask about restrictions in your state. Finally, make sure you’ve written the LLC name consistently throughout your forms.

•  No filing fee: Your articles of organization won’t be processed if you haven’t paid the state filing fee.

Recommended: What Is a PLLC

The Takeaway

Creating articles of organization for an LLC is an important step before you form your company. Research specific state regulations before filing to make sure you include all the necessary documents. Make membership and registered agent decisions in advance. As you file your articles of organization, consider creating an operating agreement for internal use at the same time.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What information is typically required in LLC articles of organization?

You usually need to include your company name, a business address, names of all the members/owners, and the name and address of a registered agent who will accept official correspondence on behalf of the LLC.

How do you file articles of organization for an LLC?

Articles of organization for an LLC are filed with the state in which you choose to operate. Check the state’s secretary of state website for information and forms that you can either file online or send through the mail.

Can I make changes to my LLC’s articles of organization after filing?

Yes, you can make changes to your LLC’s articles of organization as long as you follow any related protocol in your operating agreement. You can make changes by submitting articles of amendment to your state; check with the filing office to learn what forms are available. You’ll also want to amend your operating agreement to accord with the new information.

Are LLC articles of organization the same as an operating agreement?

No, LLC articles of organization are different from an operating agreement. (Confusion can arise because operating agreements are sometimes called articles of operation.) Articles of organization are filed with the state to provide contact and ownership details of the LLC. An operating agreement is an internal document outlining things like profit sharing, member duties, and decision-making processes.

How long does it take for LLC articles of organization to be approved?

Approval times for LLC articles of organization depend on your state and also on the time of year. In some states, you can pay a fee to expedite the LLC’s approval. Overall, though, filing online is usually faster than sending your forms by mail. Also, the process may be slower if your articles of organization contain errors or are missing information.

Photo credit: iStock/GaudiLab

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q424-103

Securing a loan for a business acquisition can be more complicated and time-consuming than getting other types of loans. Lenders will want to evaluate not only your existing business (if you have one) but also the business you plan to purchase. You’ll likely have to document both businesses’ valuations, credit history, operating expenses, existing assets, cash flow, and more.

But taking the extra steps to get a business acquisition loan can be worthwhile even if you have cash on hand. Using a loan to buy an existing business can help you skip the startup stage and move right into established operations. Plus, an acquisition loan can help you purchase a higher-priced business that you can’t afford with cash alone, or it can provide a convenient way to buy out a partner in your current company.

Types of Loans for Business Acquisition

Numerous types of business loans are available to help you purchase a business. Each lender has its own borrower requirements and application process, but there are many similarities among them.

In general, even though they require more paperwork, business acquisition loans are easier to obtain than startup loans.

SBA Loans for Buying a Business

You can use an SBA 7(a) loan for a variety of purposes, including acquiring all or part of a business, securing equipment financing, or buying a business partner’s share of your existing company. Loan amounts max out at $5 million and terms can be as long as 25 years. They may require a minimum down payment of 10%.

You apply for SBA loans directly through private lenders, but because the funding is backed by the federal government, the SBA still has to approve your application. Working with one of the agency’s preferred lenders can expedite the process. This could be a good option to consider if you’re trying to buy a business within a tight timeline.

Traditional Bank Loans

Many banks will also operate outside the SBA’s 7(a) system to offer small business loans for an acquisition. Most will likely be packaged as traditional business loans.

However, you can also find specifically designed business acquisition loans. In these cases, lenders focus on the financial health of the target company. The application and approval process often requires additional due diligence.

Other options include a business line of credit, which may have a faster approval time. Another advantage of a business line of credit: Depending on the lender, credit limits can reach $500,000 or even more, providing more room for a business to expand.

Personal business loans also exist. However, they typically top out at $100,000, which may not be enough for you to buy the business you want.

Seller Financing Options

Another way to buy a business is with seller financing, a type of loan that doesn’t involve a formal lender. Instead, you generally make a down payment and then pay off the seller over time. Rather than receiving a lump sum, the seller gets regular payments on the debt, including both principal and interest. This can be a convenient method of buying out a business partner.

This kind of financing (also known as owner financing) may seem less formal, but it typically comes with a promissory note, a legally binding document that outlines the terms of the deal. With seller financing, the repayment term tends to be about seven years. You may also need a larger down payment of 30% or more, which is much higher than for SBA or bank loans.

The benefit is that it may be easier to qualify for seller financing than for a bank loan. You may also be more likely to receive information and support from the previous owner, since they have a financial interest in the business’s ongoing success.

Recommended: How to Buy a Business

Qualifying for a Business Acquisition Loan

When you’re figuring out how to get a loan to buy a business, bear in mind that every lender and type of financing will have different eligibility criteria. Still, there are some basic requirements you can expect no matter how you choose to fund your acquisition. Here are many of the documents you’re likely to need.

•  Credit scores: Lenders typically review both your business and personal credit scores as part of the financing decision. Minimum personal credit scores vary by lender, but many set it between 650 and 690.

•  Letter of intent: When you’re applying for a business loan to purchase a business, you may need to already be under contract with the seller. A signed letter of intent outlines the terms of the transaction. Just like when buying a home, you can include a clause that the deal is contingent to being approved for financing.

•  Business and personal tax returns: You’ll very likely need to provide several years’ worth of tax filings for yourself and for the business you’re aiming to buy.

•  Business financial statements: Expect to provide up to three years’ worth of documents for the company you’re buying, including profit and loss statements, balance sheets, and cash flow statements.

•  Business plan: Outlining your plan for the business along with your management experience gives the lender more confidence that you’ll be able to successfully manage the newly acquired company.

•  Debt service coverage ratio: This number compares the business’s net operating income versus its current debt obligations (including interest and leases). A higher ratio is better because it indicates there is more cash than debt.

•  Down payment: Down payment requirements are usually reserved for seller financing and SBA loans. It can range anywhere between 10% and 30% of the loan amount and demonstrates to the lender that you’re financially invested in the business you plan to buy.

💡 Recommended: Improving Business Loan Chances

Preparing Your Loan Application

Given the many different types of loans to buy a business, plus alternative financing options to consider, the application process can be complex and even confusing. You can get started with a basic to-do list including these steps:

•  Have an offer in place. Before you can qualify for financing, you’ll likely need your offer accepted by the seller with terms finalized in the letter of intent. That means you should have gone through the review and valuation process with the business to make sure you’re happy with the deal.

•  Work with the seller. As you saw from the loan application requirements, you need quite a few financial documents from the seller. Ideally, you’ve already acquired those documents during the negotiation stage, but it’s still smart to maintain ongoing communication in case the lender requests additional statements.

•  Know your credit scores. Checking your personal and business credit scores well ahead of your business purchase gives you more time to improve in case they’re lower than you expected. Plus, you can check for errors and get a rough sense of the interest rates you qualify for.

•  Prepare your tax returns. You’ll need three years of tax returns when applying for a business acquisition loan. But you (or the company you’re buying) may also need to finish filing for the current year if you’re applying for a loan during tax season.

The Takeaway

Getting a loan to buy a business is likely to involve a few more steps than a general working capital loan. Whether you’re looking for an SBA loan, owner financing, or a traditional bank loan, you can take some actions in advance that could make the process smoother. For example, even before you apply, it’s prudent to pull together important financial documents and make sure your business plan is on point.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What types of loans are available for buying a business?

Loans you can use to buy a business include SBA 7(a) loans, traditional bank loans, and seller financing.

How do I qualify for a business acquisition loan?

To qualify for a business acquisition loan, you’ll need a letter of intent outlining the terms of the sale, financial statements from the business, a sound business plan outlining your ability to run the new business, and both personal and business credit scores, tax returns, and bank statements.

What documents do lenders require when applying for a loan to buy a business?

Lenders require an array of documents when you’re applying for a loan to buy a business. Among them will be a letter of intent, tax returns, profit and loss statements, cash flow statements, debt disclosures, and more.

What are the advantages of using an SBA loan to buy a business?

Using an SBA loan to buy a business may help you strike a deal with the seller since the loan is guaranteed by the U.S. government. Benefits to you also include competitive interest rates, the potential for large loan amounts, and longer periods for repayment.

How much down payment is typically required for a business acquisition loan?

The down payment you need depends on the type of business acquisition loan you get. SBA loans usually require a 10% minimum down payment, while seller financing may call for as much as 30%.

Photo credit: iStock/FG Trade Latin

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q424-100

Small businesses are thriving in Illinois. In 2023, businesses with fewer than 20 employees created 74% of jobs in the state. Creating an LLC in Illinois for your new business requires just a few steps and comes with a number of potential tax benefits. If this business structure sounds like the right fit for you, keep reading to learn how to set up an LLC in Illinois.

1) Select a Name for Your Illinois LLC

Start your LLC name designation by making sure another business doesn’t already use your idea. The state of Illinois makes it easy with an online name search of existing corporations and LLCs.

You can also submit a corporate name availability inquiry form for a preliminary check on existing company names. The form lets you include three potential names for your business. You should get a response by the end of the next business day.

Once you decide on an LLC name, you can submit a name reservation form to keep it on hold for you while you finish the process of forming an LLC in Illinois. Names will be reserved for up to 90 days at a cost of $25 per name. This step isn’t mandatory, but does help guard against someone else registering your ideal name before you do.

Recommended: What Are the Tax Benefits of a Limited Liability Company (LLC)?

2) Choose a Registered Agent

Prior to submitting your LLC application to the Illinois Secretary of State, you must assign a registered agent to your LLC. This person or corporation accepts correspondence from the secretary of state on behalf of your company. You can act as your own registered agent in Illinois as long as you’re in one of the following categories:

•  A person residing in Illinois

•  A corporation authorized to act as a registered agent in Illinois

The registered office must match the business office address of the registered agent and must have a street or road address or a rural route and box number. (Just having a P.O. box is not enough.) It’s important to keep this address up to date. If your LLC doesn’t maintain a registered agent and office on file, you risk having your company dissolved by the state.

3) File Articles of Organization

After finalizing your business name and designating your registered agent, setting up an LLC in Illinois requires filing articles of organization. The Illinois secretary of state outlines seven requirements:

1.   LLC’s name

2.   Address of the principal business location

3.   Effective date of the LLC’s articles of organization

4.   Registered agent’s name and registered office’s address

5.   LLC’s purpose

6.   LLC’s term of existence

7.   Names and business addresses of initial managers or members

You’ll need to submit two copies: one signed original document and one copy. You must also pay a $150 filing fee via credit card, certified check, cashier’s check, money order, Illinois attorney check, or certified public accountant’s check. For expedited 24-hour service, the fee jumps to $250. Otherwise, the approval process should take 10 business days.

To avoid getting your articles of organization returned, make sure your documents are complete and signed legibly. Also, your LLC’s purpose clause should also be as specific as possible; if it’s too broad, the state may not accept your filing.

At this stage you may decide to loan money to your LLC to cover the costs of hiring a registered agent and filing (or refiling) your articles of organization.

Recommended: Top Small Business Grants in Illinois

4) Create an Operating Agreement

An operating agreement isn’t required when you’re creating an LLC in Illinois, but it can be helpful to have on hand, especially if the company has more than one owner or member. An operating agreement should create clear guidelines for running the company and managing the finances — servicing any startup loans, for example — in order to prevent potential conflict in the future.

Here are some common clauses you may want to include in your operating agreement to ensure all owners understand their rights and responsibilities:

•  Each member’s ownership percentage

•  Voting rights

•  Duties and rights of management and members

•  Profit distribution process

•  Provisions for buying out members or transferring ownership

It can be helpful to consult a lawyer during the process, as the operating agreement is a legally binding contract. If your company later applies for additional small business loans, potential lenders may want to know these details.

Even if you’re a single-member LLC, an operating agreement is useful to prove that the business is separate from your personal affairs. This could be important if you ever apply for an LLC business loan.

5) Obtain an EIN and Required Licenses

A federal employer identification number (EIN) is required for any LLC that has employees. It’s not a must for single-member LLCs.

It’s easy and free to get an EIN from the IRS. You just need your business entity type; the Social Security number of the LLC’s responsible party; and signed authorization for a third-party designee, if you have one.

Illinois doesn’t require any general business license at the state level, but certain industries do require specialized licenses or permits in order to operate. Here are some examples; you can view the full roster online at Illinois.gov.

•  Pilots

•  Assisted living and shared housing companies

•  Asbestos abatement services

•  Emergency medical services

•  Waste management services

•  Kennel or pet shop

•  Bar or restaurant serving liquor

•  Wholesale aquatic life dealer

•  Wholesale fur buyer

•  Mussel dealer

•  Breeding wild game/birds

•  Animal imports

•  Taxidermy

•  Plumbers and outfitters

Getting and renewing the proper licenses is essential to get your business off the ground. If you later need a business line of credit to keep your LLC growing, lenders may want to see that your company’s licenses are in order to ensure it can generate revenue to repay the loan.

6) Review Illinois LLC Tax Obligations

Once you figure out how to set up an LLC in Illinois and begin operating your business, you must file taxes with the state revenue department. You can use your EIN to register your business with the Illinois Department of Revenue.

Taxation is different when you have an LLC vs. a sole proprietorship. There are different forms to fill out based on how you want your LLC to be treated by the IRS; the business structure for an LLC may be a partnership, C corporation, or S corporation.

In addition to paying state taxes, you must also file an annual report along with a $75 fee. This report verifies your LLC information and allows you to update ownership details and contact information.

Recommended: Guide To Forming an LLC in Michigan

The Takeaway

Setting up an LLC in Illinois involves several steps, and once it’s established, you’ll need to stay on top of your paperwork and deadlines in order to remain compliant each year. Starting with a strong foundation, including assigning a registered agent and maintaining an operating agreement, is a smart way to ensure long-term success for your LLC.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What are the filing requirements to start an LLC in Illinois?

In order to file for an LLC in Illinois, you need an available business name, a registered agent and registered office, and articles of organization. While an operating agreement is not required, creating one can help prevent future conflicts among LLC members.

How long does it take to form an LLC in Illinois?

Once you submit your LLC articles of organization, you should receive a response within 10 business days. You can, however, expedite the process by paying $250 for 24-hour service, rather than the standard $150 fee.

Do I need to register for an Illinois business tax ID after forming an LLC?

First, you must register with the IRS to obtain an Employer Identification Number (EIN). After that, you must register your business with the Illinois Department of Revenue (IDOR). You can do so electronically, by mail, or in person. With your registration, you will get an IDOR account ID number for tax purposes.

What is the process for reserving an LLC name in Illinois?

Illinois offers a name reservation form that safeguards your preferred LLC name for up to 90 days. The cost is $25 per name (up to three), payable upon submission.

Are there any specific legal requirements for LLC operating agreements in Illinois?

No, Illinois does not require LLCs to have operating agreements, so there are no legal requirements to include. But you may wish to consult a lawyer when creating an operating agreement to make sure all members or partners are fairly represented in the document.

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Many small business owners in Michigan choose to operate as a limited liability company, or LLC, rather than a sole proprietorship. LLC status helps shield their personal finances from business risk. As of late 2024, the state had more than 840,000 limited liability companies in good standing.

Taking the steps below can help business owners stay on top of the documents, requirements, and fees they’ll face when creating an LLC in Michigan.

1) Choose a Name for Your Michigan LLC

Your LLC’s name must be unique among businesses in the state. If you’ve already got some possible names in mind, you can check online to see if they’re taken: Michigan’s Department of Licensing and Regulatory Affairs (LARA) maintains a database of existing business entities.

Once you’ve chosen a name, you can reserve it for 180 days (much longer than other states’ 30-, 90-, or 120-day holding periods). The reservation fee is $25.

There are a few rules for your LLC’s name:

•  It must be distinguishable from other business entities’ names.

•  It may not contain a word or phrase indicating purposes other than the ones stated in the articles of organization.

•  It may not include the words corporation or incorporated or their abbreviations.

Recommended: Top Small Business Grants in Michigan

2) Designate a Registered Agent

In order to file your LLC formation documents, you must select a resident agent, known in other states as a registered agent. In Michigan, your LLC’s resident agent is responsible for receiving documents, notices, or other demands on behalf of the company.

Eligible resident agents include any of the following:

•  A Michigan resident

•  A Michigan corporation

•  A foreign corporation that has a certificate of authority to do business in Michigan

•  A Michigan LLC or authorized foreign LLC

That means you can either act as your LLC’s own resident agent or hire a third party for the role. You also need to include the address of a registered office that’s associated with your resident agent.

3) File Articles of Organization

One difference between operating an LLC vs. a sole proprietorship in Michigan is that an LLC requires you to file articles of organization with the state. Michigan’s brief LLC form includes the following information:

•  Name

•  Purpose of the LLC

•  Duration (if it’s not perpetual)

•  Name of resident agent

•  Mailing address of registered office

•  Any additional provisions

•  Your signature

The fee is $50. For an additional $50, you can get 24-hour service; for $100, there’s same-day service if you submit the form before 1pm.

LARA recommends waiting to purchase any business marketing materials until your articles of organization are filed and approved. You may want to take out a small business loan at this stage to pay for those marketing materials and your other startup needs.

Be aware that an LLC designed to provide certain services (dentistry, for example) would take the form of a professional limited liability company (PLLC). PLLCs’ articles of organization use a different form.

4) Create an Operating Agreement

Getting an LLC in Michigan up and running doesn’t require an operating agreement, but it’s smart to draw one up during your formation process. This document provides details on how you (and any of your LLC partners or members) will run the company, and may be useful later when approaching lenders for a startup loan.

Some points you may choose to include are:

•  Ownership percentages

•  Voting rights and procedures

•  Responsibilities and duties of LLC members

•  Profit and loss distribution plans

•  Buyout rules

Having an operating agreement in place can also help protect LLC partners and members from potential liability stemming from the business’s activities. For example, the company — not individual members — is obligated to pay back an LLC business loan.

Also, the separation between members and the LLC comes into play if, say, you decide to loan money to your LLC. The loan would involve a binding contract for repayment. You may want the LLC’s operating agreement to contain rules or conditions governing such transactions.

5) Obtain Necessary Licenses and Permits

Many types of businesses are subject to additional licensing and permit requirements in Michigan. The state website divides them into the following categories:

•  Adult and child care

•  Health professionals

•  Occupational professionals

•  Commercial licenses

•  Cannabis licenses

•  Skilled trades

•  Fire safety

•  Unarmed combat professionals

•  Liquor control

The site also lists various types of permits your business may need, such as those for wastewater construction, building in high-erosion areas, campground construction, and many more.

It’s important to get the proper licenses and keep them current as your business grows. If you later need to secure a business line of credit, lenders are likely to insist that all licenses be in order so that the company can continue to generate income.

Recommended: Equipment Financing

6) Review Michigan Tax and Regulatory Requirements

In order to file, pay, and manage your business’s state taxes, create an online account with Michigan Treasury Online (MTO). Registration will be quicker if you already have a federal employer identification number from the IRS. MTO can then process this online registration application within 48 hours.

LLCs can choose one of several different tax filing statuses. It’s helpful to consult with an experienced accountant to select the filing status that will maximize your LLC’s tax benefits.

In addition to submitting your LLC’s annual tax return, you must file and pay quarterly tax estimates if you expect to owe at least $800.

The Takeaway

Once you’ve chosen a name and a resident agent, creating an LLC in Michigan calls for just a few forms and fees. Your LLC application can be handled within 24 hours if you pay for expedited processing. Having an operating agreement in place, plus the needed permits, should help your business run smoothly.

Recommended: How To Form an LLC in Illinois

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What steps are required to form an LLC in Michigan?

In order to form an LLC in Michigan, you must choose a name that’s distinguishable from existing businesses, select a resident agent and registered office, and submit the appropriate articles of organization to the state’s Department of Licensing and Regulatory Affairs. Once your LLC has been approved, you can register with the Michigan Department of Treasury in order to file and pay your business taxes. That process is likely to be faster if you already have an EIN from the IRS.

How much does it cost to form an LLC in Michigan?

The cost for LLCs to submit articles of organization in Michigan is $50. If you need expedited processing for your new business, you can pay an extra $50 for 24-hour service or $100 for same-day service. You just need to submit your articles of organization and service request by 1 pm to qualify.

How do I choose a registered agent for my LLC in Michigan?

After brainstorming some ideas, check to see if they’re taken already. You can do this using LARA’s online business entity search. Your LLC name can’t reference industries or services your company doesn’t provide and you can’t use words like corporation or incorporated.

Do I need to file an operating agreement when forming an LLC in Michigan?

When you’re forming an LLC in Michigan, you’re not legally required to submit an operating agreement to LARA. Your agreement, should you create one, is considered an internal document and a binding contract within your LLC.

What are the annual reporting requirements for an LLC in Michigan?

You must file an annual report — known in Michigan as an annual statement — within 90 days of the due date; there’s also a yearly $25 fee. In the statement, you can update any information from your LLC’s original articles of organization, such as changes in ownership, the resident agent, or the registered office.

Photo credit: iStock/Grafissimo

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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