To help small businesses, Illinois should make LLC fees fair

If you want to start a small business in Illinois, there are different forms your new business can take. For example, you can have a sole proprietorship, a partnership, a corporation or a limited liability company, or LLC. The LLC is a relatively recent innovation that has advantages over the corporate form, and it can...

If you want to start a small business in Illinois, there are different forms your new business can take. For example, you can have a sole proprietorship, a partnership, a corporation or a limited liability company, or LLC.

The LLC is a relatively recent innovation that has advantages over the corporate form, and it can be especially beneficial for some small businesses. For example, an LLC gives business owners the limited liability of corporate shareholders while allowing them to avoid much of the paperwork and other administrative hassles associated with a corporation. It also allows the owners to avoid double taxation, where the business is taxed on its income and the owners are taxed again on their personal income from the business.

Unfortunately, Illinois inexplicably discriminates against LLCs and, in doing so, puts an unnecessary barrier in the way of would-be entrepreneurs who want to take advantage of this option. For example, the $500 fee to start an LLC is more than triple the fee for starting a corporation, $150. Reserving a name for an LLC costs $300, but reserving a name for a corporation costs just $50. And while it costs $100 to dissolve an LLC, it costs just $5 to dissolve a corporation. Corporations also pay much lower annual fees than LLCs.

In addition, Illinois’ fee for starting an LLC is the country’s second-highest, just below the fee charged by Massachusetts ($520), and way above the fee charged by third-place Texas ($308). Many other states charge much less, such as Illinois’ neighbor Kentucky, which charges only $40.

The law does not need to discriminate in this way. Many other states charge LLCs and corporations the same or similar fees, and some even charge LLCs less. There is no reason to think one form costs the state more than the other. There is also no reason for fees to be so high – as other states’ low fees reflect, adding a company to an official registry costs very little.

Right now, a bill that would bring LLC fees in line with those for corporations, House Bill 65, is pending in the Illinois General Assembly. Legislators should take this opportunity to rid the law of its irrational discrimination and reduce the costs of starting a business in Illinois. It may not seem like much compared to all the other taxes and regulations small businesses face, but the state’s economy, aspiring entrepreneurs and Illinois – with its business-unfriendly reputation – need all the relief they can get.