Your decision about how to structure your business is one of the first and most important decisions you make as a business owner. Though sole proprietorships expose their owners to increased risk of liability, an Illinois sole proprietorship has a number of advantages that may fit your situation better than other business structures.
In Illinois, a sole proprietorship does not have to register with the Secretary of State’s office. Other types of businesses must register and comply with filing deadlines throughout the life of their business. This lack of registration also means the sole proprietor does not have to wait for formation paperwork to be mailed and processed before beginning his business. However, Illinois does require all businesses, including sole proprietorships, to register with the Department of Revenue and receive a tax identification number before making purchases, sales or hiring employees.
Read More: What Is the Most Important Benefit of Sole Proprietorships?
It’s usually less expensive to start a sole proprietorship in Illinois than it is to start another type of business. If you have a sole proprietorship, you do not have to pay to have your startup documents drafted, and you won’t have to pay state filing fees. You may also have fewer administrative costs while running your business, because you don't have to file any regular reports with the state.
Sole proprietorships are legally inseparable from the owner as an individual. This opens you to an increased risk of liability: your personal assets can be taken to satisfy business debts, but this also means you do not have to follow any business formalities to separate the business’ assets and liabilities from your own, though it may be wise to do so for federal and Illinois tax purposes. Additionally, you do not have to follow by-laws as a corporation or limited liability company might, and you aren't required to have formal board meetings, since your business is not managed by a board.
An Illinois sole proprietorship does not have to file an annual report for tax purposes and does not have to file a separate state or federal income tax return just for the business. You may be required to file a special form for taxes you collect during your business, such as sales taxes. Income from the business is reported along with the owner’s personal income tax forms, and the owner pays taxes on his business's income -- because his business income is his personal income.
Heather Frances has been writing professionally since 2005. Her work has been published in law reviews, local newspapers and online. Frances holds a Bachelor of Arts in social studies education from the University of Wyoming and a Juris Doctor from Baylor University Law School.