Illinois owners: majority sales and the Business Brokers Act

Illinois is one of the few states with a law aimed squarely at the people who help sell businesses. If you own a service company in Illinois and you are weighing a majority sale with a retained stake, start with who is allowed to help, then the tax and paperwork that follow.

The Business Brokers Act

Illinois requires every person engaged in the business of business brokering to register with the Office of the Secretary of State (815 ILCS 307/10-10). The Secretary of State's Securities Department administers the registration, with its own application forms and renewal rules (14 Ill. Adm. Code 140). Illinois also has a separate securities rule for M&A brokers (14 Ill. Adm. Code 130.830).

For an owner, the practical step is simple: ask anyone who offers to market your company how they comply with Illinois rules, and get the answer in writing.

Control is the dividing line

At the federal level, the exemption for M&A brokers covers transfers in which the buyer will control the company, presumed at 25% of a class of voting securities, and will be active in managing it (15 U.S.C. 78o(b)(13)). That is the kind of deal we advise on: a partner buys control, and you keep a stake and a negotiated role. We do not arrange minority investments or growth-capital raises; if one may fit, we can refer you to a registered broker-dealer.

Illinois income tax is flat

Illinois taxes individual net income at a flat 4.95%, the rate in effect since July 1, 2017 (Illinois Department of Revenue). How the gain on your sale is reported, and how much of it comes now versus later if part is rolled, depends on the structure. That is a conversation for your CPA before the letter of intent.

Records a partner will ask for

• A certificate of good standing for your corporation or LLC, available from the Secretary of State's business search (Illinois Secretary of State).
• Financial statements and tax returns for the last three years, with owner expenses marked.
• Customer contracts, service agreements and any municipal or trade licenses tied to your company or to you personally.
• Employee roster, pay plans and any agreements with key managers.

Next steps

Read rollover equity in plain English to understand the stake you would keep, and what an equity partner expects to understand the role.

Retained ownership and future upside are possibilities, not promised second paydays. Rolled or retained equity is usually illiquid, often a minority position behind acquisition debt, and can lose some or all of its value.