Business News Daily receives compensation from some of the companies listed on this page. Advertising Disclosure


How to Run a Business in Illinois

Adam Uzialko
Adam Uzialko
Freelance Editor
Business News Daily Staff
Updated Dec 21, 2021

Are you considering launching a business in Illinois? Here's what you should know.

  • The state’s credit rating and $3 billion deficit can make doing business a challenge in Illinois.
  • Illinois contains the third largest metropolitan area, offering access to capital and skilled labor.

There are more than 1.2 million small businesses operating in the state of Illinois. These businesses employ 2.5 million people, which is 45.1% of the state’s workforce and nearly 20% of the entire population. Small businesses account for 99.6% of the state’s private enterprise, making them a vital part of Illinois’s economy.

Illinois’ government has had some fiscal trouble, which has not gone unnoticed by the business community. There are some other challenges facing the state as well. The Illinois economy grew at a slow rate of 2.1% in 2018, significantly lower than the national growth rate of 3.4%. Moreover, the state’s population has declined by roughly 150,000 people since the 2015 Census.

However, there are bright spots for Illinois as well: Per-capita personal income has returned to pre-recession levels of $53,712, which is 6% higher than the national average; the unemployment rate is 4.3%, which is low enough to be healthy but higher than the national average, making for a less competitive labor market; and access to capital remains strong.

Despite the very real challenges facing Illinois, small business owners continue to experience growth and remain optimistic for the future. To find out more about the realities of running a small business in the Prairie State, Business News Daily connected with some entrepreneurs who live and work in Illinois.

Fiscal turmoil in the state capital

Nationwide, Illinois is well known as a state with financial troubles. The state is facing a deficit of more than $3 billion and has been forced to shed much-needed services and programs. For two years, lawmakers were unable to adequately address the issue; as a result, the state’s credit rating was eviscerated. The uncertainty in Springfield has left a bad taste in many entrepreneurs’ mouths.

“The state of Illinois faces a gargantuan pension liability of more than $200 billion,” said Jim Collins, co-founder and president of Datamation. “This lack of fiscal management breeds concern among small business, and it is likely that the state will need to cut key functions and services.”

Fortunately, things might be looking up in the state’s capital. It has a new governor, J.B. Pritzker, and gridlock appears to be lifting. While that offers little immediate relief, optimism that the state will somehow rectify its fiscal issues is in the air. The state has moved recently to legalize gambling and cannabis, two industries that it hopes will help shore up the hole in the budget by contributing revenue, creating jobs, and attracting people.

“We’re still in a good place economically,” said Spencer Hadelman, CEO of Advantage Marketing. “As gambling and cannabis evolve, there will be even more opportunities, just as we’ve seen in states like California and Colorado. The bringing in of new jobs will only help the state’s economy.”

High business taxes

Illinois is known for high business taxes, with a top corporate income tax rate of 9.5%. That makes it the 14th most expensive state in corporate income taxes. In addition, its state sales tax stands at 6.25%, which is on the high end of average. However, with the addition of local sales taxes in some areas, especially near Chicago, the overall sales tax burden could be high. In Illinois, Tax Freedom Day comes on April 24, meaning it takes Illinois taxpayers longer than 44 other states to earn enough money to pay off their full tax bill.

“The taxation situation in our state is extremely disappointing,” said Justin Carrol, president of Perfect Home Services. “Statistics show that people are fleeing from Illinois, and I believe taxation is a large contributor to that. We’re one of the highest-taxed states in the country and our state is still broke. I pray that someone will come in and get this state turned around soon.” 

Still, Illinois’ personal taxes are significantly lower than those of many other states, standing at a flat rate of 4.95%. For pass-through entities, such as LLCs, taxes are calculated as personal income rather than by the state’s corporate tax rate. However, the state is currently considering a measure that would create a graduated-rate personal income tax. That measure would have to be approved by voters, as it requires a change to the state’s constitution.

Proximity to large markets

Running a business is always much easier where there are a lot of people, especially when those people live near one another. Being near a major city offers a boost to businesses because cities attract a great deal of economic activity, meaning money and people flow in and out regularly. Illinois, of course, is home to Chicago, a city of nearly 3 million people and the third largest metropolitan area in the U.S. The surrounding suburbs bring the total population up to about 10 million people, providing easy access to business owners.

“I have operated businesses in Illinois, Indiana and Florida,” said Bill Davy, owner of Fred Astaire Dance Studios. “Illinois, specifically Chicagoland, has the largest and most diverse population of the three.”

Large markets like Chicago offer big advantages to businesses, both in terms of the customer base and a labor pool from which to hire top talent. Illinois is unique not only because it is home to a major metropolitan area, but it is also geographically close and well connected to virtually every major urban center across the country.

The minimum wage in Illinois is $8.25 per hour, but in 2020 that will raise to $9.25, with the goal of hitting $15 per hour by 2025. Chicago alone has increased its minimum wage to $12, and Cook County is now $11. The federal minimum wage is $7.25. In an attempt to ease the burden on employers, Illinois passed a law to create a tax credit for businesses with 50 or fewer employees, allowing those companies to claim a 25% credit in 2020.

“If you’re going to do business anywhere in the Midwest, Illinois is a great bet, because it’s a national transportation hub for flying, rail or even shipping,” said Mazyar Hedayat, owner of the law firm M. Hedayat & Associates.

Whether you need to travel frequently, bring clients in for a visit or order supplies, Illinois is centrally situated and well connected to the nation’s infrastructure. Entrepreneurs frequently cited that location factor as a major benefit of doing business in Illinois.

“Being centrally located by a national transportation hub makes Illinois an ideal place for quickly shipping products anywhere in the 48 states,” said Jacob Aune, artisan and co-founder of Altare Design. “I can obtain just about any supplies needed to manufacture wood products locally, then tap into markets across the country.”

Skilled labor in a relatively flexible market

Illinois enjoys the benefits of a diverse and skilled labor market, largely due to Chicago’s dense population, high-caliber universities and other opportunities for workers to develop their skills. According to the Bureau of Labor Statistics, there are more than 6.5 million in the state’s workforce, giving employers a large pool to choose from.

“We have access to hiring tremendously skilled talent in key areas,” said Ross Kimbarovsky, co-founder of crowdsourced design company Crowdspring. “These people have cut their teeth at significant and successful companies in the area. That’s one huge advantage.”

The state’s unemployment rate currently stands at 4.3%, which is relatively low but remains higher than the national average. While the low unemployment rate means it is still an employee’s labor market, Illinois businesses don’t face the same stringent competition as those in states where that unemployment rate is often a full point lower. At the same time, Illinois’ per-capita personal income is also 6% higher than the national average, meaning employees will expect more attractive compensation packages than those in states where personal income is lower. 

Frequently asked questions

Starting a business anywhere can be a difficult process. Navigating regulations and obtaining the right licenses can seem confusing and overwhelming. Luckily, Business News Daily is here to help. If you’re looking to start a business in Illinois, check out these frequently asked questions, or take a look at some of other resources to help you launch your company.

How do you start your own business in Illinois?

To start a business in Illinois, you must first select which type of business entity under which you would like to incorporate. These include sole proprietorships, general partnerships, limited partnerships and C corporations. Once you determine your entity type, you must register your business with the Illinois Department of Revenue as well as the federal Internal Revenue Service (IRS).

In addition to registering your new entity, if you have employed any workers for 20 calendar weeks or more, you are required to contribute unemployment insurance to the Illinois Department of Employment Security. You are also required to obtain workers’ compensation insurance to cover accidental injuries, deaths or occupational diseases.

What type of Illinois business entity should you choose?

The type of entity you should select when incorporating a business in Illinois depends on your industry, business size and type of operation. Sole proprietorships include LLCs, which are considered pass-through entities under tax law and hold the owner personally liable for the company and all its debts. Corporations, such as C and S corporations, are separate legal entities that shield owners from legal liability for the business. In corporations, shareholders own stock in the company, elect a board of directors and include officers such as presidents to run the company.

How many business licenses do you need in Illinois?

The number and type of licenses and permits you require depend on your business’s operations. In Illinois, there is no state requirement for a basic business license, but most businesses must register with the Department of Revenue. In addition, your business might be subject to licensing rules specific to the state and municipality in which it is located. To learn more about which business licenses and permits you require, visit the Illinois Department of Commerce & Economic Opportunity’s website.

How much does a business license cost in Illinois?

The cost of a business license or permit varies by the type of licensure your business requires and where it is geographically located within the state. Typically, business licenses in Illinois cost between $20 and $100.

Does your business name need to be reserved?

Yes. To reserve your business’s name in Illinois, you must check to see if your desired name is available with the secretary of state. If the name you’d like is available, you can submit an application. Typically, these applications will be processed within one to three business weeks. If accepted, the business name will be reserved for a period of 90 days. Once that period is up, the business name must be renewed.

What if another business has the same name?

If another business already has your desired name, it is unavailable for reservation. You will have to incorporate your business under a different name. However, if you’d like to do business under a variation of your desired name, you can file for a “doing business as” or “fictitious name” registration. A DBA allows you to operate under a name that is different from the name you incorporated under.

What is Illinois corporate dissolution?

Corporate dissolution in Illinois is the process by which a corporation officially ends its existence within the state. If you are registered to do business in Illinois, dissolving your corporation ends its liabilities to creditors. Under the state’s Business Corporation Act, corporate dissolution requires unanimous and written consent of all shareholders who are entitled to a vote under the company’s organization. It requires the drafting and filing of articles of dissolution. Following the vote to dissolve the corporation, you will still have to collect all of the business’s assets, dispose of corporate properties that will not be distributed amongst shareholders, discharge corporate liabilities and distribute any remaining properties accordingly.

How often do you have to file sales tax returns in Illinois?

In Illinois, sales tax returns are due on the 20th of the month following each reporting period. Sales tax returns are filed using the state’s Form ST-1.

When is a company required to file as a foreign corporation in Illinois?

If your company is registered in another state, you must register it as a foreign entity in Illinois before you can begin conducting any business there. To begin the process, you must file an Application for Authority with Illinois’ secretary of state.

Resources for small businesses in Illinois

If you’re a small business owner in Illinois looking for resources to help you move forward, here are a few organizations you might want to learn more about.

Illinois small business development centers

Illinois is home to 17 small business development centers. Each is dedicated to supporting the development and retention of small business, and helps entrepreneurs with tasks like crafting business plans and navigating the state’s tax code. You can find your region’s small business development center via the link below:

Illinois SBDC network

Illinois SCORE

SCORE offers volunteer business professionals and expert “mentors” to help give counseling and guidance to entrepreneurs looking to start or expand their businesses. The group’s services are free and volunteer-driven. Here is a comprehensive list of SCORE locations in Illinois:

Illinois Department of Commerce & Economic Opportunity

The primary focus of the Illinois DCEO is to promote the retention and creation of jobs and to perpetuate economic growth. To this end, the department has access to resources and information that can benefit entrepreneurs. To find out more, visit the department’s website at the link below:

Illinois DCEO

Illinois University Incubator Network

This website watches and reports on incubators and accelerators throughout the state. It is a treasure trove of information for startups looking to apply to such programs, which can give you exposure, capital and the knowledge to take your entrepreneurial endeavor to a higher level. Follow the link below to learn more:

Illinois Incubators

Gies College of Business – University of Illinois

Hosting one of the state’s small business development centers as well as the iVenture Accelerator, the Gies College of Business at the University of Illinois is cited by several small business owners as a prime resource. Find out more about how to connect with the university at the school’s website:

College of Business – University of Illinois

Some source interviews were conducted for a previous version of this article.

Image Credit:

Creative-Family / Getty Images

Adam Uzialko
Adam Uzialko
Business News Daily Staff
Adam Uzialko is a writer and editor at and Business News Daily. He has 7 years of professional experience with a focus on small businesses and startups. He has covered topics including digital marketing, SEO, business communications, and public policy. He has also written about emerging technologies and their intersection with business, including artificial intelligence, the Internet of Things, and blockchain.