If you’re some sort of professional working in Illinois, it makes a lot of sense if you partner with other similar professionals to form a business. Better yet, you should opt to form a professional corporation rather than a general partnership. There are several advantages to a professional corporation, including having limited liability protection, tax deductions that other types of businesses don’t enjoy, and many other benefits.
Are You a Professional?
While we all like to think that when we do a job for money, that automatically makes us a pro. But there’s a difference when it comes to being a licensed professional. You have to prove your expertise to the state of Illinois.
The Illinois Department of Financial and Professional Regulation (IDFPR) issues licenses for several types of professions, aside from the usual suspects like lawyers and doctors. These include acupuncturists, nutritionists, barbers, and interior designers. Check out the full list of Illinois professions licensed and regulated by the IDFPR. If you’re a licensed professional, then you may be able to form a professional corporation in Illinois with other licensed professionals in your industry.
So, how do you go about it? There are steps you need to take, to make sure you do it right.
Come Up with a Good Name
It’s best that you come up with something catchy, so people will remember it (but in a good way). It’s also recommended that the name of your professional corporation indicates exactly what kind of services you’re offering. That way, your business name is more likely to come up in Google results when potential customers look for the kind of services you’re offering.
You also can’t use a term that falsely indicates what kind of services you’re using. If you’re not forming a law office, then you can’t use the term law office as part of your name.
Your name may even tell people what your priorities are regarding the quality of your services. Remember that you will be associated with the business name for a while (and maybe even for a long while), so you ought to be proud of saying that business name.
You do need to make sure the name you’ve chosen isn’t already taken. To check, you can consult the Illinois Corporations/LLCs database. Try to avoid having a name that’s too similar to other names that are already in use, to avoid confusion.
When you’ve chosen a name, it will have to include either the phrase professional service corporation or just the initials PSC. You can’t use other terms that may falsely indicate that it’s another type of business, like LLC or limited liability corporation.
Finally, register your company URL, so you end up with your companyname.com website. Even if you don’t have plans of using the site for the moment, you still don’t want other people using that URL.
Assign Your Register Agent
Illinois, like just about all the states in the country, requires that you have a registered agent working for you. You won’t be able to form your corporation without one, and if you stop using a registered agent while running your company then you may end with the dissolution of your corporation as a result. Having a registered agent is not just a requirement, but simply common sense.
The job of the registered agent is to receive official documents on your behalf. These documents can be tax forms, requests for reports from the Illinois Secretary of State, or even a summons because someone’s suing your corporation. The registered agent must then notify you about these documents and forward you the copies of these documents.
You can, in theory, assign anyone you trust to be your registered agent. You can even be the registered agent. The requirements only specify that the registered agent must be an 18-year-old resident of Illinois, with a physical address (instead of just a P.O. Box) within the state. They then must be physically present in that location during business hours to officially receive the official documents on behalf of your corporation.
Instead of assigning yourself and using your home or office as your registered agent location, you should simply opt for a professional registered agent service. That way, you won’t have your home address publicly listed, and you won’t have to stay at that location during business hours.
The registered agent service can do the job for you, with their own address and staff manning that location. They will always have people to receive the documents, and then they can scan the documents and place them in the online document storage you can access. They will also notify you when they receive documents.
With these experts to help you, you’d be free to move about and grow your corporation unimpeded. You can also keep your home address private. Whenever you receive any official documents, you do so discreetly, as it can be embarrassing to receive a summons in the presence of clients.
Besides, the yearly fees for registered agent services are extremely reasonable, and you rarely will have to pay more than $200 per year. Some incorporation services even offer registered agent services for free for the first year.
Complete Your Articles of Incorporation
This is like the birth certificate for your professional corporation. You can download the form (Form BCA 2.10 (PSCA) Articles of Incorporation Professional Service Corporation) online from the Illinois Secretary of State website.
Then, you need to fill out the form with the required information, and you’d do best to comply with all the direction faithfully. You can have all your partners and shareholders sign the document as the incorporators. There must be at least one incorporator, who will sign the document.
You can submit the Articles of Incorporation online, via the Illinois Secretary of State website. If you wish to mail the form instead, make sure you fill-up the form using black ink. Then mail it to this address: Secretary of State, Department of Business Services, 501 S. Second St., Rm. 350, Springfield, IL 62756.
There will be a $150 filing fee, along with a minimum initial franchise tax fee of $25, and then you’ll need to wait about 10 business days for the form to be processed. You can pay an extra $100 and get expedited service, cutting the processing time to just 24 hours.
Maintain Your Corporate Record
Illinois requires all professional corporations to document all the important corporate decisions made by the officers of the corporation. You have to maintain a permanent record of all these decisions.
Your own place of business can be used to store the original paper documents, or you can hold them in a secure location. But you should also make sure to scan all documents (or have your online incorporation service do it for you) and have them stored in a secure online storage website.
Set Up Your Corporate Board of Directors
The incorporators, as the shareholders, will also need to pick the directors for the professional corporation. The incorporator (or incorporators) has to record the initial director selections in a signed document and then file that document along with the other official corporate records. The incorporators can also serve as the directors.
These initial directors will then have to make decisions for the professional corporation, starting with the creation of the bylaws. They will serve until new directors are elected in the next shareholder meeting, as stated in the bylaws. All the directors must share the same profession, as this is a professional corporation.
Creating the Corporate Bylaws
The set of corporate bylaws is like the Constitution or the operating manual for the professional corporation. All Illinois corporations are required to create these bylaws, though the bylaws don’t have to be filed with the state of Illinois.
Even if they’re not legally required, you’ll need them so that everyone has an agreed set of rules to work with. Even your bank may not give you a loan or let you open a business bank account without showing your bylaws first.
Basically, the bylaws set on paper the specific procedures and rules by which the professional corporation will operate and make decisions.
Typically, the bylaws will cover the following topics:
How your shareholders will conduct votes
The total number of directors for the corporation
How directors are elected
How frequently the board of directors will hold meetings
The roles for various types of officers, like the CEO and the chief financial officer
Procedures for settling disagreements between shareholders and directors
Your best bet, if you can afford it, is to hire an experienced Illinois corporate lawyer to help you draft the ideal bylaws for your professional corporation. But you can always do it yourselves, and it’s easy enough to find free bylaws templates online.
Conduct Your First Board Meeting
Once the directors have all been chosen, the next job of the incorporator is to plan for the first meeting of the entire board of directors. After all, some of the chosen directors may not have been present when they were picked as one of the directors.
During this first meeting, the directors will then review the set of bylaws. Once everything’s been discussed about the bylaws, the board can then approve the bylaws.
After that, they still have several key decisions to make. These include:
Picking the bank in which to open the business bank account
Designating the officers in charge of the everyday corporate affairs
Approving the issuing of stock certificates for shareholders
Determine more details regarding the type of professional corporation they want to run
Someone must be designated as the secretary to record the minutes of the meeting. That’s to say, all the decisions made by the board of directors must officially be recorded. The directors should be given brief minutes, and then this record should be filed among the official corporate records.
Set Up the Tax System
If you’re operating an Illinois professional corporation, you’ll need your EIN, otherwise known as the federal tax ID number. It’s easy enough to get, as you can get it for free from the IRS website. It’s also a service that’s offered by many incorporation services. You’ll need that EIN not just to file your corporate taxes, but also to be able to open your business bank accounts and hire employees.
As we’ve mentioned earlier in this article, the directors have to decide the type of professional corporation they want to have. Will it be an S-corporation or a C-Corporation? The choice will have a crucial effect on the taxes you pay.
If you want to just a “regular” professional corporation, then you mean you want a C-corporation. It’s a very popular choice, but it does come with the burden of what’s usually called double taxation.
The first taxation happens when your corporation earns profits. You pay a certain percentage of that as your corporate tax.
Usually, that means you can now divide the profits between the shareholders of the company. But if you’re a shareholder, you’ll then have to declare that income in your personal tax returns. It will be taxed again, even though it’s already been taxed at the corporate level.
You avoid this issue if your company is an S-corporation. With S-corporation dividends, there are no taxes. But your company has to meet certain requirements, including the following:
The professional corporation has fewer than 100 shareholders.
None of the shareholders are foreign.
It only issues 1 class of stock.
It’s not owned by another business organization.
There may be state taxes you have to pay, depending on the tax setup of your professional corporation. Don’t forget that you may also have franchise tax to pay as well. You pay the first time when you form a professional corporation, and then every year afterward.
You should do research on the website of the Illinois Department of Revenue, Income Tax Division, or contact them if you have questions.
You can then use the MyTax Illinois website to manage your tax account, and even pay and file your taxes online.
Even your county or city may impose taxes as well—that’s politics for you. To know more about this matter, you should contact the revenue department in your area.
Obtain Your Business Licenses and Permits
If you haven’t yet obtained your professional license required for the job you do, then you need to get it. As we’ve already mentioned, Illinois has a database of the professions the state licenses. If your job is listed here, then you need to act and get those needed licenses.
But your county or city government may also require other permits and licenses for certain jobs. So, you should consult your local government to see if you’ll need extra licenses for your profession.
If your professional corporation has employees, you have 2 options here. One, you can try to get state approval for self-insurance. The other option is to get some workers’ compensation insurance.
To know more about this, you should consult the Handbook on Workers’ Compensation and Occupational Diseases from the Illinois Workers’ Compensation Commission. You’ll likely need some sort of general liability insurance, and maybe some other types of insurance specific to your industry.
Open Your Business Bank Account
At the first board of directors meeting, you’d have already which bank you’ll open your account in. You’ll need this business bank account so that you can separate your personal assets from your corporate assets. The corporation will get its spending money from this account, and not from someone’s bank account.
Final Words: Getting Some Help
As you may have realized early on, forming your professional corporation can be somewhat complicated. But and your fellow professionals don’t have to figure out and do certain things all by yourselves. Here are some people or organizations that can help:
An Experienced Illinois Business Lawyer
There are plenty of laws and regulations that you’ll have to account for, and they can be a legal minefield full of booby traps. Your best bet is to have a lawyer guide through all the way, to help make sure you’re complying with all pertinent laws and regulations. What you want to avoid is going through an oops moment that can prove costly for your business.
If you don’t personally know any lawyers in Illinois with extensive business law experience, you can try the AVVO database. This database has Illinois lawyers listed by city location, and there are even reviews for their legal services.
Illinois Small Business Development Centers
The ISBDC has locations across the state, and you should also check out its website. They can provide business advice, and even help with your market plan, financial analysis, and other business plans.
Illinois District Office of the U.S. Small Business Administration
This is a website full of Illinois business news, info, and other business resources you might need. The SBA has lots of stuff that can help.
Online Incorporation Services
These services don’t cost a lot, with package prices that may not cost more than several hundred dollars. Even their most basic packages can be truly convenient, and those may not cost a hundred dollars.
These services do a lot of things, starting with the formation of your professional corporation. They’ll deal with the Secretary of State on your behalf, and help you with all the necessary paperwork. They even have templates you can use for your documents and records.
Many of the best online incorporation services also provide registered agent services, often as a free service as part of the package for at least the first year. They will provide online document storage and help make sure that you comply with all requirements.
You don’t have to do this alone. Sure, you may be a professional in your profession. But when it comes to forming your professional corporation, you’d do well to trust the professionals in this particular field.