What State Is Best to Start an LLC: Iowa Or Illinois?

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When considering which state is best to start an LLC, Iowa and Illinois both have their own advantages and considerations.


  • Ease of Formation: Iowa has a reputation for being business-friendly with a streamlined and efficient LLC formation process. The paperwork and filing requirements are relatively simple, making it easier to start an LLC in Iowa.
  • Lower Costs: Iowa typically has lower costs associated with forming and maintaining an LLC compared to some other states. The initial filing fees and annual fees are more affordable, which can be beneficial for small businesses.
  • Business Incentives: Iowa offers various business incentives and tax credits to stimulate economic growth, such as tax exemptions, grants, and low-interest loans. These incentives can contribute to the success of your LLC.
  • Arbitration Clause: Iowa law allows for an arbitration clause to be included in the LLC operating agreement, which can speed up dispute resolution and potentially save time and money.


  • Access to Markets: Illinois is centrally located in the United States and has excellent transportation infrastructure, providing easy access to major markets. This could be advantageous for businesses that rely on shipping or have a broader customer base.
  • Larger Customer Base: Illinois has a significantly larger population compared to Iowa, meaning there is a potentially larger customer base within the state itself. This can offer more opportunities for business growth.
  • Diverse Economy: Illinois has a diverse economy with various industries, including finance, technology, manufacturing, agriculture, and healthcare. This diversity can lead to potential collaborations, partnerships, and growth prospects for your LLC.

Ultimately, the best state to start an LLC depends on the specific needs and goals of your business. Consider factors such as your target market, industry, cost considerations, and available resources before making a decision.

What is the reputation of Iowa for business-friendly policies?

Iowa is generally considered to have a business-friendly environment and policies. The state has consistently ranked well in various business-friendly indices and reports. For example, the Tax Foundation's State Business Tax Climate Index ranks Iowa as the 14th best state for business taxation in 2021. The state also has a relatively favorable regulatory environment and low energy costs, which can benefit various industries.

Iowa encourages business growth through various incentives and programs, such as tax credits for job creation, research and development, and investment in specific industries. Additionally, the state government has implemented initiatives to support workforce development and training programs to ensure a skilled labor pool for businesses.

Iowa's central location and robust transportation infrastructure, including highways, railroads, and airports, make logistics and distribution convenient for businesses. The state is also known for its strong agricultural and manufacturing sectors, which contribute to its business-friendly reputation.

However, it is important to note that business-friendly policies can be subjective, and some aspects might vary depending on specific industries or perspectives. It is advisable for businesses interested in Iowa to thoroughly research and consult with experts to understand the specific policies and environment relevant to their field.

What is the tax structure for LLCs in Iowa?

LLCs, or Limited Liability Companies, are treated as pass-through entities for tax purposes in Iowa. This means that the LLC itself does not pay taxes, but the tax liability and reporting responsibilities are passed through to the individual members of the LLC.

By default, an LLC with a single member (known as a single-member LLC) is treated as a disregarded entity for tax purposes. This means that the LLC's income and expenses are reported on the owner's personal tax return using Schedule C. The owner is also responsible for paying self-employment taxes on the income.

For LLCs with multiple members (known as multi-member LLCs), the default tax treatment is as a partnership. The LLC does not pay taxes, but instead files a partnership tax return (Form 1065) to report the income and expenses of the business. Each member of the LLC then receives a Schedule K-1, which shows their share of the partnership's income, deductions, and credits. The members report these amounts on their personal tax returns.

However, LLCs in Iowa also have the option to elect to be taxed as a corporation (either a C corporation or an S corporation). This election can have different tax implications, so it is advisable for LLC owners to consult with a tax professional to determine the best tax structure for their specific situation and goals.

What is the availability of business resources and networks in Iowa?

Iowa has a strong network of business resources and networks to support entrepreneurs and businesses. Here are some key resources and networks available in Iowa:

  1. Small Business Development Centers (SBDC): Iowa hosts several SBDC offices throughout the state, offering free business consulting, access to capital, market research, and assistance with business planning and management.
  2. Iowa Economic Development Authority (IEDA): IEDA provides various programs and resources to support businesses, including financial assistance, workforce training, site selection services, and export assistance.
  3. Iowa Small Business Loan Guarantee Program: This program helps businesses access affordable loans by providing guarantees to participating lenders, reducing the risk associated with lending.
  4. Procurement Technical Assistance Centers (PTAC): PTACs offer guidance to businesses looking to secure government contracts, including assistance with registrations, certifications, and navigating the bidding process.
  5. Iowa Innovation Corporation (IICorp): IICorp aims to foster innovation and entrepreneurship in the state by providing resources and programs to startups and established businesses, including mentoring, funding, and networking opportunities.
  6. TechAssist Iowa: This organization offers technology-focused assistance to businesses, including research and development support, access to technological expertise, and connections to funding sources.
  7. Chambers of Commerce: Iowa has numerous local and regional chambers of commerce, which provide networking events, business referrals, educational programs, and advocacy on behalf of businesses.
  8. Entrepreneurial support organizations (ESOs): Iowa hosts various ESOs, such as the Iowa Center for Economic Success, SCORE, and Women's Business Centers, which offer mentorship, counseling, and training to entrepreneurs.
  9. Iowa State University Pappajohn Center for Entrepreneurship: The center provides support, education, and resources to entrepreneurs and startups, including mentorship programs, funding opportunities, and connections to Iowa State University's expertise.
  10. University research partnerships: Iowa's universities, including the University of Iowa, Iowa State University, and the University of Northern Iowa, engage in research collaborations with businesses, providing access to expertise, funding, and technological advancements.

These resources and networks contribute to a conducive business environment in Iowa, supporting startups, small businesses, and established corporations alike.

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