Illinois regulates the people who help sell businesses more directly than many states. If you are weighing a majority recap, it helps to know the two layers that apply to advisors, and the flat state income tax that applies to you.
Two rules for the advisors you hire
First, the Illinois Business Brokers Act requires business brokers to register with the Secretary of State (815 ILCS 307/10-10 (opens a new tab)). Second, for deals that involve securities, such as a stock sale or rolled equity, Illinois adopted an M&A broker rule in 2016 (14 Ill. Adm. Code 130.830 (opens a new tab)). Ask any advisor you speak with how they comply with both, and get the answer in writing.
Illinois income tax is a flat 4.95%
Illinois taxes individual net income at 4.95 percent, the rate in effect since July 1, 2017 (Illinois Department of Revenue (opens a new tab)). Federal tax applies too. How your cash at close, any earnout and the later sale of your rolled stake are taxed, and in which year, depends on the structure. Your CPA decides.
Questions Illinois owners ask
Will I lose control? In a majority recap, yes: the buyer gains control. You keep negotiated rights, not control. Your role, your seat and your protections are written into the deal, or they do not exist.
Can I keep running the company? Your role after closing is negotiated: stay as CEO, move to the board, or step back.
When do I see the rest of my value? At the second sale, if it pays. The stake you keep is paid after debt and preferred equity, which our article on the second sale walks through with a hypothetical.
Is the headline price all cash? Rarely. See earnouts and holdbacks.
The federal rule underneath
Federal law lets an M&A advisor work without registering as a broker-dealer only in deals where the buyer ends up controlling the company (presumed at 25% or more of a voting class) and is active in managing it, and the company is under $25 million in EBITDA or $250 million in revenue (15 U.S.C. 78o(b)(13) (opens a new tab)). States add their own rules on top.
Caution
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.
Sources for this guide
Own a service company in Illinois? Tell us about it and we will explain how a recap would work for you, or say plainly if it would not. We work on control transactions: a full sale, or a majority recap in which a buyer acquires a controlling interest and takes an active role in running the business. We introduce qualified buyers, including private equity groups, family offices and strategic acquirers. We do not arrange minority investments or growth-capital raises; if one may fit, we can refer you to a registered broker-dealer.