Starting your Illinois Non-profit
Forming a non-profit organization is similar to starting a for-profit corporation, except your goal isn't to make a profit. Depending on whether you form a 501(c)(3) or other type of organization, you may need to file Articles of Incorporation with the Secretary of State. Your Articles should include and name the following:
- A board of directors, consisting of three to seven people.
- A registered agent.
- Bylaws setting out the rules by which your non-profit will operate.
- A federal employer identification number, or EIN.
Creating a Mission Statement
Although it's not a state requirement, it's a good idea to create a mission statement that focuses the efforts of your nonprofit organization. Define the problem you want to address, then explain how you intend to do it. Try to be as specific as possible.
501(c)(3) and Other Types of Non-profits
501(c)(3) refers to a specific section of the Internal Revenue Code. Non-profit organizations that qualify for federal tax exemption under this section are also called 501(c)(3) organizations. In order to qualify, you must be organized for a purpose that the IRS considers exempt. Here are a few examples of exempt purposes:
- Charities
- Animal welfare
- Education
- Science
- Public safety
Not all state nonprofits will also qualify for federal 501(c)(3) designation.
Considerations for Starting a Non-profit
Advantages:
- Incorporating as a nonprofit protects your directors, members and others from liability in case of a lawsuit or other financial dispute. A nonprofit corporation is its own legal entity, so only its own assets are at risk.
- If your nonprofit qualifies for federal tax exempt status, it is also exempt from Illinois income taxes.
- Donations to 501(c)(3) exempt organizations may be tax deductible for the donor.
Disadvantages:
- The board, not the founders or any other individual, controls a nonprofit. If you are not comfortable giving up control, you may not want to create this type of organization.
- It takes a lot of effort to set up a non-profit correctly, and even more effort to make sure it follows all the necessary regulations to maintain its not for profit status.
How to Retain Your Non-profit Status
Maintaining your status as a nonprofit organization involves several state and federal rules. Violating the rules can put your nonprofit status in jeopardy.
- File your annual report with the Secretary of State each year during the 60 days before the first day of your formation anniversary month.
- Maintain corporate files, including your Articles, bylaws and minutes of all corporate meetings.
- Record all income and donations appropriately.
- If any income is earned from activities unrelated to your nonprofit mission, make sure you pay income taxes on these monies. Keep these activities to a minimum.
- Do not distribute income or make loans to directors or members.
- Do not issue shares of stock to anyone.
- File a Return of Organization Exempt from Income Tax form with the IRS annually, if required based on your annual gross receipts.
What It Costs to Form an Illinois Non-profit
Illinois charges a small fee for filing your Articles of Incorporation. If you would like to expedite your filing, an additional fee applies. However, your articles will be reviewed within 24 hours. If you file online, expedited service is automatically included.
If you are filing for 501(3)(c) status with the IRS, the filing fee is based on your annual revenues. Non-profits with revenues of $10,000 or less pay $400. All others pay $850.
Illinois & National Non-profit Resources
A Guide For Organizing Not-for-Profit Corporations (PDF): This booklet covers basic information about forming and maintaining a non-profit corporation in Illinois.
USA.gov for Nonprofits: This page lists a variety of services for nonprofits.
Robert R. McCormick Foundation: This Chicago-based organization makes grants to 501(c)3 organizations that serve chartiable purposes. It also offers a list of additional funding sources.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
