To start an S corp in Illinois, you form a corporation (or an LLC) with the Illinois Secretary of State, get an Employer Identification Number from the IRS, and then file IRS Form 2553 to elect S corporation tax treatment. The S corp label is a federal tax election, not a separate entity type, so Illinois still treats your business as a corporation or LLC for state purposes while the IRS taxes it as a pass-through.
Confirm You Qualify Before You File
The IRS imposes strict eligibility rules under the Internal Revenue Code, and missing any single one invalidates the election. Your business must be a domestic entity, have no more than 100 shareholders (family members sharing a common ancestor, their lineal descendants, and spouses count as one), and limit its shareholders to individuals, certain trusts, and estates. Partnerships, other corporations, and nonresident aliens cannot hold shares. The company can issue only one class of stock, though voting and non-voting common shares are allowed.1Office of the Law Revision Counsel. 26 U.S. Code 1361 – S Corporation Defined
The one-class rule catches many owners off guard. You can split common stock into voting and non-voting shares, but you cannot create a second class with different rights to distributions or liquidation proceeds. Straight debt — a written, unconditional promise to pay a fixed sum at a set interest rate — does not count as a second class.
If you want to run the business as an LLC, you’ll need an extra step: the LLC must first elect to be taxed as a corporation using IRS Form 8832 before filing Form 2553. Most owners forming specifically for S corp treatment incorporate directly to skip that detour.
Step 1: Form Your Illinois Entity
Pick a Name and a Registered Agent
Your name has to be distinguishable from any other active business on file with the Secretary of State. Search the state’s online database before you commit. Every Illinois corporation and LLC also needs a registered agent — an Illinois resident or a business entity authorized in the state — with a physical street address, not a P.O. box, where legal papers can be served.2Justia. Illinois Compiled Statutes Chapter 805 – Business Organizations, Article 5
File Articles of Incorporation
To form a corporation, file Form BCA 2.10 (Articles of Incorporation) with the Secretary of State. The form asks for the corporate purpose (most filers use a general lawful-activity clause), the number and classes of authorized shares with any preferences or limitations, the names and addresses of the incorporators, and the names and addresses of the initial directors who will serve until the first shareholder meeting.
The filing fee is $150.3Illinois Secretary of State. Domestic and Foreign Corporations Publications and Forms Illinois used to tack on a franchise tax at incorporation, but the state fully repealed its corporate franchise tax effective January 1, 2025, with the governing statutory provisions repealed on January 1, 2026.4Illinois General Assembly. HB5490 103rd General Assembly The total due at filing is now $150.
If you’re going the LLC route, file Form LLC-5.5 (Articles of Organization) instead, which focuses on whether members or designated managers will run the company.
Both forms can be submitted through the Secretary of State’s Corporation and LLC Online Filings portal, which usually processes in one to two business days. Paper filings go to the Springfield office with two copies and payment by certified check or money order. The state returns a file-stamped copy to the business address on record once the filing is approved.
Step 2: Get an EIN
Your corporation needs an Employer Identification Number before you can file Form 2553. Apply online at irs.gov and you’ll get the EIN immediately. If the number hasn’t arrived by the time you’re ready to file Form 2553, you can write “Applied For” in the EIN field along with the date you applied.5Internal Revenue Service. Instructions for Form 2553
Step 3: File Form 2553 With the IRS
Form 2553 is the actual S corp election, and it goes directly to the IRS. The state portal has nothing to do with it. For Illinois-based businesses, mail the form to the IRS Service Center in Kansas City, MO 64999, or fax it to 855-887-7734.6Internal Revenue Service. Where to File Your Taxes for Form 2553 There’s no filing fee. The IRS typically responds within 60 days by mailing a CP261 notice confirming your status.7Internal Revenue Service. Instructions for Form 2553 (12/2020) – Acceptance or Nonacceptance of Election Keep that notice with your permanent records; banks and lenders ask for it.
The Deadline
Timing is strict. To have the election take effect for the current tax year, you must file Form 2553 no later than two months and 15 days after the start of that tax year.8Internal Revenue Service. Publication 509 (2026), Tax Calendars For a calendar-year corporation, that’s March 15. You can also file any time during the preceding tax year.9Office of the Law Revision Counsel. 26 U.S. Code 1362 – Election; Revocation; Termination File late and the election bumps to the following tax year, unless you qualify for the relief described below.
What the Form Collects
Form 2553 asks for the tax year the company will use, the effective date for the election (usually the start of the tax year), and each shareholder’s full name, Social Security number, ownership percentage, and share-acquisition date. Every shareholder must sign to consent. One missing signature and the IRS rejects the election.5Internal Revenue Service. Instructions for Form 2553
If You Missed the Deadline
Revenue Procedure 2013-30 lets late filers request retroactive S corp status. You qualify if the entity intended to be an S corporation as of the desired effective date, the only reason it wasn’t one was the missed filing, you request relief within three years and 75 days of the intended effective date, and you had reasonable cause for the delay and acted to fix it when you discovered the problem.10Internal Revenue Service. Revenue Procedure 2013-30
To use the procedure, file a completed Form 2553 with “FILED PURSUANT TO REV. PROC. 2013-30” written at the top, and attach a signed statement explaining the reasonable cause. Everyone who held shares between the intended effective date and the filing date has to sign the form and confirm they reported their income as if the S election had been in place.
What You’ll Owe Illinois
Federal S corp status doesn’t exempt you from Illinois tax at the entity level. Every S corporation doing business in Illinois pays the Personal Property Replacement Tax at 1.5 percent of net Illinois income, and the corporation itself owes it rather than passing it through to owners.11Illinois.gov. Personal Property Replacement Tax – Local Governments
You report and pay the tax on Form IL-1120-ST (Illinois Small Business Corporation Replacement Tax Return), filed with the Illinois Department of Revenue. Calendar-year filers are due March 15 after the close of the tax year. The state grants an automatic seven-month extension to file, but any tax owed is still due by the original deadline.12Illinois Department of Revenue. IL-1120-ST Instructions
Shareholders also report their share of the corporation’s income on their personal Illinois returns. Illinois taxes individual income at a flat rate, and each owner owes state income tax on their distributive share whether or not the corporation actually distributed cash.
Paying Yourself: Reasonable Compensation
If you work in your S corporation, the company has to pay you a reasonable salary before you take any non-wage distributions. The IRS treats payments to a corporate officer as wages to the extent they represent reasonable compensation for services rendered.13Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues Wages carry Social Security and Medicare tax; distributions don’t, which is why the IRS watches this line closely.
There’s no fixed formula. The agency weighs factors like your training and experience, the time you put into the business, and what comparable businesses pay for similar work. If the IRS finds you underpaid your salary and overpaid distributions, it can reclassify distributions as wages and assess back employment taxes with penalties and interest.
Staying in Good Standing After Formation
Every Illinois corporation files an annual report with the Secretary of State before the first day of its anniversary month, which is the month the corporation was originally formed. The report refreshes your registered agent, principal office address, officers and directors, and the number of issued shares.14Illinois General Assembly. Illinois Compiled Statutes 805 ILCS 5/14.05 – Annual Report of Domestic or Foreign Corporation The fee is $75.3Illinois Secretary of State. Domestic and Foreign Corporations Publications and Forms LLCs taxed as S corporations file a similar annual report under a separate statute, also $75.15Illinois General Assembly. Illinois Compiled Statutes 805 ILCS 180/50-10 – Fees Miss the deadline and the state can administratively dissolve the entity, stripping your liability protections and your right to the name. Reinstatement means filing all overdue reports, paying all outstanding fees and penalties, and submitting a separate application.16FindLaw. Illinois Compiled Statutes 805 ILCS 5/12.45 – Reinstatement Following Administrative Dissolution
Illinois law also requires corporations to maintain permanent records of shareholder meetings and board actions, along with a current shareholder list and financial records kept at the principal office or with the registered agent. Consistent minutes and books help protect the corporate veil that separates you from the business’s debts.
One last item that state and federal filings don’t cover: local licensing. Most Illinois municipalities require businesses, including home-based ones, to hold a local operating license or permit, with requirements and fees that vary by city or county. Check with your municipal clerk’s office once your state and federal paperwork is in.