How to start an Illinois nonprofit

Start by doing research. Is your nonprofit serving a mission in the community? And do you have the means to maintain it? Then make your case: write your mission statement, think about a name, and select your directors carefully. After that, all there’s left to do is file. 

Advantages and disadvantages of having an Illinois nonprofit organization

A nonprofit is an entity or association created to promote and maintain the well-being and greater good of a community, in which profits (or surplus) are directed towards the business and mission rather than divided among the owners and shareholders. Here are the pros and cons of having one in Illinois:
 

PROS

CONS

Registering 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.

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 nonprofit correctly, and even more effort to make sure it follows all the necessary regulations to maintain its not-for-profit status.

How to form a nonprofit in Illinois

1. Developing a business plan for your Illinois nonprofit

• Define the purpose and goals of the organization.
• Research the issues and determine what resources you have and need.
• Establish your priorities.
• Market your idea to possible volunteers and board members.
• Create a budget and timeline.

2. Writing a mission statement 

A mission statement clarifies your goals and explains how you plan to meet them. As a guideline, describe what, where, when, and how your nonprofit's purpose will be met, as well as who is going to help your nonprofit meet it. It may take a few tries to narrow your ambitions down into a workable plan.

Although you're creating a nonprofit because you want to give back to your community, you still have to meet certain requirements to protect yourself and to ensure that you achieve your organization's goals. When you create a mission statement, you can explain your organization's purpose. Consider what problem or issue your organization wants to address, then focus your statement on including the efforts and values that will guide your nonprofit to these goals.

3. Choosing a unique name 

Your nonprofit's name must be distinguishable from existing names registered with the Illinois Secretary of State. This means it shouldn't be the same as or too similar to another organization's name. The name should also not be misleading to the public – it must accurately reflect the nature and purpose of your organization.

4. Filing your Articles of Incorporation in the state of Illinois

This is the legal document that brings the business to life. It includes important information like the nature of the company and the location of the corporate headquarters. Once accepted, the corporation becomes its own legal entity.

5. Applying for grants and loans in Illinois 

Grants and loans from federal, state, and private sources are a major source of funding for Illinois nonprofits. A not-for-profit corporation is responsible for complying with grant requirements and keeping appropriate records. It's important for nonprofits to keep money received from grants separate and apart from the nonprofit's general fund. A good reputation in administering grant monies helps nonprofits obtain more funding from these sources. 

What to do after forming a nonprofit organization in Illinois

After forming your Illinois nonprofit organization, you must follow specific guidelines to retain your status:

• 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 board 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.

Illinois nonprofit resources

1. A Guide For Organizing Not-for-Profit Corporations (PDF): This booklet covers basic information about forming and maintaining a nonprofit corporation in Illinois.
2. Robert R. McCormick Foundation: This Chicago-based organization makes grants to 501(c)3 organizations that serve charitable purposes. It also offers a list of additional funding sources.

Still have questions? Learn more about how to register your own nonprofit with Rocket Lawyer and get started today!
 

Key takeaways Starting a nonprofit takes planning, like creating a mission statement, picking a name, and choosing responsible directors to lead the group. There are good things about having a nonprofit in Illinois, like tax breaks and protection from personal lawsuits, but it also comes with extra paperwork and public financial records. After forming an Illinois nonprofit, it’s important to stay organized, follow state laws, and stay focused on helping the community to keep your nonprofit status.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is a nonprofit organization?
• How to start a nonprofit organization
• How are nonprofits taxed?
• How to get 501(c)(3) tax-exempt status
• How to register a nonprofit by state