How To Start and Maintain a Nonprofit in Illinois
Launching a nonprofit involves so much more than simply filling out a 501c3 application. This process varies from state to state, which can make filtering through the available resources on the internet a bit challenging. To simplify matters, we have gathered all of the information you will need to both start and maintain a successful nonprofit organization in the state of Illinois. We cannot wait to see what you do with your aspiration for a better world!
- Before Starting a 501c3 in Illinois
- Illinois Nonprofit Formation
- Illinois Nonprofit Compliance
- Final Thoughts
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Before Starting a 501c3 in Illinois
The process of launching your nonprofit begins far before filing for tax-exempt status. First, you will need to form a corporation in Illinois that complies with all state requirements. There are some procedures that are unique to Illinois that we will touch on briefly now and then expand upon throughout this article. To start:
Your nonprofit will need three or more directors and at least one incorporator. The incorporator must be an individual over 18 years old or a corporation.
Before fundraising, your organization may need to register with the state. This will depend on your corporation’s size and its potential activities.
Emily is ready to get started forming her Illinois nonprofit!
If you are interested in launching a nonprofit in another state, here are some links to more information:
Do Some Background Reading
Even if you have the enthusiasm and passion to back your mission, it is essential to arm yourself with all of the information you can before diving into creating your nonprofit. Take some time to read about and understand all of the requirements, guidelines, rules, and regulations of nonprofit formation. It is better to move slower if it means not being caught by surprise. After reading through our primer, here are some additional sources you can visit for insights on the process:
Internal Revenue Service. Here, you can find all of the forms required for obtaining 501c3 status as well as the guidelines and best practices for formation and compliance.
Illinois Secretary of State. This is where you will find the name database to check your desired name against existing names. It is also where you fill out and file your articles of incorporation.
Illinois Department of Revenue. The Illinois Department of Revenue offers information on obtaining exemption from Illinois sales tax for qualified nonprofit corporations.
Illinois Attorney General. This is where you find out whether your nonprofit will need to register with the state for fundraising activities.
Choose a Name
The first order of business for establishing your nonprofit is to choose an appropriate name. It is important to find something that stands out and represents your mission. This name is your brand, so choose carefully. You also need to make sure that your name has not been used by any other organization formed in the state of Illinois and that it is easily distinguishable from any existing name.
There are two ways that you can check whether your name is original: visit the corporate name database on the Illinois Secretary of State’s website, or write to the Secretary of State’s office in Springfield, Ill. If your name is available, you may reserve it for up to 90 days by submitting an Application for Reservation of Name for $25.
Next, it is time to decide who will make up your initial board of directors. In the state of Illinois, you will need to have at least three directors and one incorporator. The directors make up the governing body of your nonprofit, guiding the larger purpose and direction of your nonprofit mission. Your incorporator is an individual over 18 or another corporation that will sign your articles of incorporation.
Illinois Nonprofit Formation
Once you have a mission and a strong team to support it, it is time to go about the business of forming your corporation. There are several steps to this process, and we will share the details in this next section.
The initial meeting of your board of directors is typically called the organizational meeting of the board — and for good reason. This meeting is where you will set up the foundations of your nonprofit organization. This includes such actions as:
Appointing your officers
Approving your bylaws (more on this later)
Establishing your accounting period and tax year
Approving your initial financial transactions
Make sure that your secretary records the minutes for this meeting. Hold the minutes document along with all of the other important documents, such as the bylaws and consent forms, in a corporate binder to keep throughout your nonprofit’s lifecycle.
Pro Tip: While you want to keep physical copies of all of your founding documents, it is also essential to make, organize, and store digital copies on a secure server. This will give you immediate access to them at any time and place and keep them safe.
In the state of Illinois, you must have an agent of process for your corporation. This is either a corporation or individual who agrees to accept legal notices on behalf of your organization. This appointee must have a physical street address in Illinois and be accessible during business hours. In most cases, the initial registered agent is a director or officer of the nonprofit.
Oliver is pondering who is initial registered agent should be.
Federal Employer Identification Number
Before you can operate as a corporation, you will need to obtain a federal Employer Identification Number, or EIN. This nine-digit number is an identifier for your organization, differentiating you from all other existing corporations. You can file for this number online at the IRS website by filling out an application. No filing fee is required for this form.
Articles of Incorporation
Before you can legally establish your organization, you will need to create articles of incorporation and file them with the Illinois Secretary of State’s office. This formation document needs to have the following information:
Your nonprofit corporation’s name
The purpose of your nonprofit in accordance with IRS requirements
The name and address of your nonprofit’s initial registered agent
The name and address of each director and incorporator
A statement of whether your corporation would be considered a cooperative housing corporation, a common interest homeowners association, or a condo association
You can find this fillable form (Form NFP 102.10) on the Illinois Secretary of State’s official website. This form cannot be filed online.
This form is not complete; you will have to add three separate clauses to conform to IRS standards for 501c3 tax exemption. These include:
Your nonprofit statement of purpose that is written to meet IRS language requirements
Your nonprofit dissolution clause, which dedicates your corporate assets to either the government or another 501c3 upon corporate dissolution
A statement that your organization will not participate in any activities that are not related to its purpose nor engage in any political or legislative activities
There is a blank space in Article 4 where you can add your purpose statement. In Article 5 under the heading "Other Provisions," you may add your dissolution clause and prohibited activities statement.
Once you have drafted your articles, you can file them with the Secretary of State’s office for a $50 filing fee.
While it is not necessary to file your nonprofit bylaws with the state, this operating blueprint is essential to the health of your organization. You are also required by law to have them on file within your own offices, and you will need to submit the bylaws to the IRS as part of your Form 1023 to obtain tax-exempt status.
The bylaws cover important foundational procedures, such as electing your directors and officers and running your board meetings. It should also include a conflict-of-interest policy. The conflict-of-interest policy outlines how your corporation plans to minimize conflicts and address them if any arise.
Federal Tax Exemption
Once you have formed your corporation and have a clear picture of how you plan to operate, it is time to apply for tax-exempt status with the federal government. To obtain 501c3 status, you will have to file Form 1023 with the IRS.
Form 1023 is an involved and complex document that requires a lot of information. This includes your organization history, organizational structure, financial history, activity, and operational process. When completed, this form is usually 50-100 pages long. The Form 1023 costs $600 to file.
Smaller Illinois nonprofits may qualify for Form 1023-EZ. If your nonprofit has less than $250,000 in assets and less than $50,000 in annual gross receipts, you can use this much shorter and streamlined version of the 1023. It costs $275 to file. Keep in mind, however, that usage of the 1023-EZ is a bit controversial. Nonprofit advocacy groups worry that it negatively impacts your chances of securing grants because it is considerably less difficult to commit fraud with this "easy" application.
State Tax Exemption
When you have filed for and received your tax-exempt status through the IRS, your corporation is then automatically exempt from Illinois income tax. You will not need to file separately for this exemption.
Certain nonprofit organizations could qualify for exemption from Illinois state sales tax. You can write a request letter to the Illinois Department of Revenue’s Sales Tax Exemption Section to find out if your corporation qualifies. You will want to send copies of your bylaws, articles of incorporation, IRS exemption letter, and any other relevant documents in addition to the request.
Your nonprofit organization might need to register with the Illinois Attorney General’s office before participating in any fundraising, depending on its size and activity scope. You can find the rules and regulations for fundraising on the Attorney General’s official website.
Pro Tip: When applying for tax-exempt status for your nonprofit corporation, consider getting professional help. The entire process requires a lot of paperwork and knowledge of often-changing tax laws. A lawyer or financial professional with experience in nonprofit tax law can make a world of difference in compiling and filing your documentation.
Illinois Nonprofit Compliance
Obtaining tax-exempt status for a corporation is a big deal. There are a lot of protections in place because your nonprofit is gaining a distinct financial advantage for charitable, religious, or social improvement reasons. For this reason, you will have to follow strict protocol to not only obtain your status but to keep it. Here are three continuing responsibilities your nonprofit will have to perform faithfully to keep its 501c3 status.
Peter is feeling at peace knowing he is staying compliant!
File your nonprofit annual report with the state to stay in good standing. The report should include updated information on your directors, officers, and operations.
File Form 990 with the IRS annually by May 15th. If you are unable to file by the due date, you can ask for an extension and complete that no later than November 15th. Form 990 is essentially what a tax return is to for-profit corporations except that you do not typically pay taxes. It consists of your income and expense reports, activities and accomplishments, big donors, and operation details.
You can submit this information through one of five 990 forms: Form 990, Form 990-EZ, Form 990-PF, Form 990-N, or Form 990-T. Which one the IRS requires your nonprofit to file is based on a variety of factors, including its size, revenue, and activity, so consult the IRS’ website to find out which one is right for you.
Pro Tip: As is the case with Form 1023, Form 990 is a highly specialized and complicated document for which we recommend a nonprofit tax expert. Failure to file your Form 990 in a timely and accurate manner can result in penalties, such as losing your nonprofit’s tax-exempt status.
Many organizations give their board time to review the form as part of its fiduciary responsibilities. Though these members are not tax professionals, it is important that they understand this financial information. Typically, a nonprofit will give its board one to five business days to review it and respond with any questions.
The state of Illinois does not require separate tax exemption reporting. Filing Form 990 to the IRS will suffice.
Charitable Solicitations Renewal
Finally, your nonprofit should renew its registration with the State Division of Charities annually. You do this by completing Form AG990-IL and filing it with the Illinois Attorney General’s Office. You must renew your registration within six months of the end of your organization’s fiscal year. The filing fee is $15 with a $100 late filing penalty, if applicable.
While these three forms of reporting are all that are currently required in the state of Illinois, keep in mind that the regulatory world is always changing. And in the nonprofit sector especially, there is a lot of scrutiny from government agencies, donors, and the general public. Keep on top of current regulations by having a financial professional on staff.
Launching a nonprofit corporation can seem a bit intimidating at first, but the benefits far outweigh the costs if you go in with your eyes open. All you need to remember is to approach incorporation one step at a time. Surround yourself with directors who are multi-talented and have vision and strategy skills.
Also remember that the benefit of tax exemption comes with a great burden of responsibility. Be meticulous in your record keeping, and have a strong plan for potential conflicts of interest. Scrutiny on nonprofits is extremely high, and sloppy operations leave your nonprofit open to audits and penalties.
Finally, the rules and regulations for state incorporation and exemption vary in sometimes very minor ways. The guidelines for a Texas 501c3 are different from those for a Florida 501c3, and both of these processes may differ from Michigan 501c3 and Ohio 501c3 incorporation. To be sure that you are doing everything correctly, have a nonprofit tax professional manage your filing and reporting.
If you follow these steps and tips to start your nonprofit in Illinois, your organization will be set up for long-term success in supporting your charitable mission!
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💡How much does it cost to start a nonprofit organization in Illinois?
This will depend on the size and scope of your nonprofit. The general filings will cost the same across the board, adding up to anywhere from $500 to $800. However, if you hire a professional to help with the process, these fees can add up. Not to mention, each nonprofit has varying operational costs, such as paying employee salaries. Find out more.
🔑 How do I start a nonprofit in Illinois?
First, you want to establish a corporation. There are several steps to take to do so legally in Illinois, including obtaining an Employer Identification Number, recruiting a board, and filing your articles of incorporation. Once you have a registered corporation, you can file Form 1023 with the IRS to obtain federal tax-exempt status. Find out more.
📝 Can you run a nonprofit by yourself?
Many people are the sole founder of a nonprofit, but you will have to recruit some help to get off the ground. In Illinois, you are required to have at least three directors and one incorporator. We also recommend getting legal or financial help from a qualified professional when it comes to filing the necessary forms for 501c3 tax exemption. Find out more.