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Editorial 8 MIN READ

Illinois in 2025: the franchise tax is gone and the annual report is still $75

What forming and maintaining an Illinois entity actually costs now that PA 101-0009 has fully phased through

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 5 sections
  1. The mechanics of forming
  2. The annual report, in detail
  3. Tax treatment, inside the state
  4. Who Illinois makes sense for in 2025
  5. Sources

n Illinois LLC costs $150 to form and $75 a year to keep. An Illinois corporation costs $150 to form, owes the same $75 annual report, and as of January 1, 2024 owes no franchise tax at all. The Illinois annual report is now the entire maintenance bill, and for the first time in modern memory the state is roughly in line with Delaware on pure running cost.

That is the headline for 2025. The interesting part is what sits under it: a decade-long franchise tax phaseout that finally reached zero, a pass-through entity election that lets owners route around the $10,000 SALT cap, and a corporate rate stack that still reaches 9.5% at the top for traditional C-corps doing business in the state.

The mechanics of forming

An Illinois LLC is formed by filing Articles of Organization (Form LLC-5.5) with the Secretary of State. The filing fee is $150, paid to the Department of Business Services. The statute authorizing the form is the Illinois Limited Liability Company Act, 805 ILCS 180, which Illinois has carried since 1993 and rewrote substantially in 2017 to adopt large portions of the Revised Uniform Limited Liability Company Act. Formation is online through the Secretary of State's Cyberdrive portal, by mail, or in person at the Springfield or Chicago offices. Online filings are the default; mail filings add weeks and no longer save money.

A domestic for-profit corporation is formed under the Business Corporation Act of 1983, 805 ILCS 5, with Articles of Incorporation (Form BCA 2.10). The filing fee is also $150, plus a franchise tax payment on initial paid-in capital. With the franchise tax zeroed out for reports filed on or after January 1, 2024, the initial franchise component on incorporation is $0 on the minimum base, and founders now pay only the $150 filing fee at the counter for standard issued-share amounts. Larger authorized-share structures can still trigger expedite and handling differences, but the franchise line on the form is zero.

Registered-agent rules track the familiar pattern. 805 ILCS 180/1-35 requires every LLC to maintain a registered agent with an Illinois street address (no P.O. boxes). The agent can be an individual resident or a registered commercial agent. Commercial agent pricing in Illinois ranges from roughly $50 at the commodity end to several hundred for full-service providers; the pricing discipline is the same as in Delaware, where the cheap tier is a mailbox and the expensive tier is a company that will actually catch service and remind you about the annual report.

The annual report, in detail

LLCs file an annual report each year under 805 ILCS 180/50-1, due before the first day of the anniversary month of formation. A company organized on March 14 files its annual report by March 1 each year after. The filing fee is $75. There is a $300 penalty for failing to file, and persistent failure leads to administrative dissolution. The report is short: name, address, registered agent, manager or member information, and a signature.

Corporations file their annual report under 805 ILCS 5/14.05, also for $75, due before the first day of the anniversary month. What changed is what the corporate annual report used to bundle with it. Until recently, Illinois corporations computed a franchise tax on paid-in capital as part of the annual report process, at rates that historically stacked beyond the $75 filing line. Public Act 101-0009, enacted in 2019 as part of that session's revenue package, phased the franchise tax out over five years by ratcheting up an exemption threshold each year. The final step of that phaseout made the first $100,000 of paid-in capital franchise-tax-free for reports due on or after January 1, 2024, which, combined with the prior years' exemptions, effectively eliminates the tax for virtually all filers. For 2025 annual reports, the franchise line on the BCA 14.05 form is zero for the overwhelming majority of corporations, and the bill is just the $75 report fee.

That is a real change. For decades, the practical comparison with Delaware was that Delaware charged $300 a year and Illinois charged $75 plus a franchise tax that could be small or genuinely painful depending on paid-in capital. The phaseout closes that gap in Illinois's favor for entities that would otherwise be on the authorized-shares end of Delaware's bill.

Tax treatment, inside the state

The corporate rate stack is where Illinois still earns its reputation. Under 35 ILCS 5/201(b)(14), the corporate income tax rate is 7% on net income allocable to Illinois. Layered on top is the Personal Property Replacement Tax at 2.5% on C-corps under 35 ILCS 5/201(c), which replaced the pre-1979 personal property tax on corporate assets. The combined top rate for a traditional Illinois C-corp is 9.5%, one of the higher combined state rates in the Midwest and a material piece of any entity-choice conversation.

Pass-throughs get a different treatment. Partnerships, S-corps, and multi-member LLCs taxed as partnerships face the 1.5% Replacement Tax rather than the 2.5% C-corp rate, with owner-level individual tax flowing through at the Illinois personal rate of 4.95%. Since 2021, owners of these entities have had an additional option: the pass-through entity tax election under 35 ILCS 5/203.5, enacted by SB 2531 and signed into law in August 2021. The election lets the entity pay a 4.95% tax at the entity level on net income attributable to Illinois, with owners receiving a corresponding credit on their Illinois individual returns. The point of the election is the federal side. By moving the state tax onto the entity's books, owners convert what would have been a SALT-capped itemized deduction at the personal level into a fully deductible business expense, a workaround that the IRS blessed in Notice 2020-75 and that more than two dozen states have now codified. For a profitable Illinois LLC with $1 million of net income allocable to the state, the PTE election can save high-bracket owners well into five figures against the $10,000 cap.

Sales tax nexus followed the general post-Wayfair pattern. South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), cleared the path for states to require out-of-state sellers to collect use tax without a physical presence, and Illinois responded with remote-seller legislation keyed to $100,000 in sales or 200 separate transactions per year under 86 Ill. Adm. Code 150.803. Marketplace facilitator rules followed, bringing Amazon, Etsy, and similar platforms into the collection net. For a small Illinois LLC selling online, the practical upshot is that the Illinois Department of Revenue registration is triggered by activity, not by entity type.

Who Illinois makes sense for in 2025

The case for Illinois is different than it was five years ago. The franchise tax used to be a quiet tax on scale, and it punished well-capitalized operating corporations most of all. Its removal reframes the state as a reasonable home for operating businesses whose customers, workforce, and physical footprint are already there. If you are running a Chicago-based business with Chicago employees, Illinois customers, and an Illinois office lease, the entity-home question answers itself, and the 2025 cost sheet is now competitive: $150 to form, $75 a year to maintain, zero franchise tax.

Compare Delaware's $90 filing fee and $300 annual tax on an LLC. On pure maintenance, Delaware is now more expensive than Illinois, specifically because Illinois gave up the franchise tax and kept the low annual-report fee. For a founder who is going to operate in Illinois anyway, registering at home is almost always the right call; foreign-qualifying a Delaware entity into Illinois duplicates fees, adds a second registered agent, and saves nothing on state tax because Illinois taxes the income wherever it is sourced.

The classic Delaware case still applies at the venture-backed end. Institutional investors prefer Delaware C-corps for reasons that have nothing to do with franchise tax: the Court of Chancery, the statutory density of 8 Del. C., and the willingness of sophisticated counsel to write closing documents that assume Delaware law. A Chicago-based SaaS company planning a priced round in 2026 should probably still form in Delaware and foreign-qualify into Illinois, because the investor conversion cost later exceeds the duplicated fees now. But a bootstrap technology company, a consulting LLC, a rental-property holding entity, or a local services business has no real reason to start in Delaware in 2025. Form in Illinois, pay $150, and keep $75 a year on a calendar reminder tied to the anniversary month.

The Chicago tech context matters here because Illinois has spent several budget cycles trying to be a more credible alternative for operating companies. The franchise phaseout is one piece. The R&D credit at 6.5% on qualifying expenses and the EDGE credit program are others. The 9.5% combined C-corp top rate is the counterweight, and it is a real one. For entities with meaningful Illinois-sourced income, entity-choice analysis turns less on formation cost than on whether the business has a clean pass-through path to personal rates through a PTE election.

The annual report itself, for all of this, is a $75 filing that takes ten minutes. Set the calendar reminder the day you form. Illinois does not send a paper notice that looks like junk mail; it sends an email if you registered one, and otherwise it sends nothing until you are close to administrative dissolution. The cheapest form of compliance is knowing the anniversary month and filing one week early, every year, without fail.

Sources

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