How to start a non-profit in illinois

Starting a nonprofit organization (aka not-for-profit or 501(c)3 corporation) can be a bit overwhelming. There are many great resources online, but the information is scattered and complicated and sends you to a lot of different websites to figure it out, instead of just telling you exactly what to do. So here, I aim to make the process of becoming a non-profit extremely simple, though this is still littered with links to official governmental resources.

What is a non-profit?

A nonprofit can refer to many different things, such as a school, a church, a neighborhood association, or one of many other things. For the purposes of this article, I am focusing upon simple charitable organizations. Simply, a charitable organization uses its funds for the good of the public and not for the good of the individuals in the organization. An organization both requires nonprofit status with the state and the IRS in order to have all their ducks in a row. The IRS status is called 501(c)3.

Incorporate, file everything, and get non-profit status

Disclaimer: I am not a tax professional, a lawyer, an accountant, or any other sort of certified professional on this topic. This is a compilation of research I have done in the process of incorporating two small non-profits. I am not liable for your paperwork or the nonprofit status of your organization. You may want to consult with a lawyer.

Warnings:

  • Do NOT solicit (ask for donations) until AFTER you have filed your solicitor’s license. Minimum fee $200. Yourself as founder, and any of your board members may contribute to organizational funds prior to filing the solicitor’s license.
  • Do NOT write your vision & mission on your articles of incorporation. Amendment costs $25
  • Spend a few days thinking & sleeping on the name of your organization before filing. Amendment costs $25.
  • You must track all your transactions. A checkbook with a bank may be sufficient. A spreadsheet, which includes details, or some kind of accounting software is ideal.
  • If you wish to lobby (affect legislation, run political campaigns, or other politically involved things), then you should do more research and/or speak with an attorney. IRS 501(c)3 does NOT cover political activities. I believe 501(c)4 organizations are political.

Build your organization

Board of Directors & Officers

Choose your board and officers. A nonprofit corporation requires a minimum board size of three (3) in Illinois

  1. Choose a President, who will lead the organization and do the heavy lifting. This may be the founder.
  2. Choose a Treasurer, who files government/legal paperwork and keeps track of finances.
  3. Choose a Secretary, who will take notes in meetings (called Meeting Minutes) and will keep records for the organization, as well as handle some of the communication tasks, like sending out meeting announcements.
  4. Choose any other Board Members (aka Directors)

Notes:

  • The Officers will usually be chosen from the Board Members, especially for small volunteer-driven organizations, but it is not a requirement.
  • The president, or another officer, can hold more than one Officer position, but it is best to have these be different individuals.
  • As a founder, you may want to be on the board. If you plan to take a wage, it may be best to stay off the board, but at that point you should definitely speak with an accountant and/or lawyer.
  • In the long-term, you will want people who challenge you and tell you when you’re headed in the wrong direction. In the beginning, choose people you trust, whom you feel safe with, who will provide good guidance, but ultimately will support you as you build the foundation of your organization.
  • A good size for a board of a well-established organization is 7 individuals. Each of these is called a “Director” There will be three officers – president, secretary, and treasurer, usually all of whom will be Directors of The Board.

Vision, Mission, Name

  • The Name must come before filing any paperwork. You'll want to sleep on this and think about it for at least a few days before filing your Articles of Incorporation.
  • The vision and mission are primarily for marketing purposes and to guide your organization. You will consider your vision and mission as you develop programs, to make sure you are staying on track.
  • A statement of your organization's purpose will be required for your bylaws. This likely will be different, yet derived from any mission you publish on your website, Facebook, etc, as marketing your mission to the public is different from telling the government exactly what you plan to do with the tax-exempt monies

Bylaws

These are required when you file your Solicitor's License (which should be done as soon as possible after incorporating with the state).
The Bylaws are the document which define how your organization operates. The simplest bylaws express: there is no membership, there is a President, a Treasurer, a Secretary, and a Board of directors, some voting details specified, lists your corporate name, and a detailed mission statement, as well as your annual reporting period / fiscal year.

  • Your board will need to approve these bylaws by a vote at a Board Meeting.
  • You can view Macon Zero’s Bylaws, as an example at https://docs.google.com/document/d/1_nvIuX3bzB8Mp9oOtPt4flOM4g5GPZbu_IM_6eueBKA/ These bylaws DO include membership, which is not necessary. If you choose not to have a membership, then specify that in the bylaws. You may use these bylaws as they are or with modifications, as long as any references to Macon Zero are removed.
  • DISCLAIMER These are NOT written by a professional. Time and care has been put into them, but only you are liable for the paperwork you file.

Incorporate with the state

This allows the state to recognize your group as a non-profit corporation. The filing fee is $50, and the paperwork only takes a short time to fill out.

  1. Download the Articles of Incorporation from https://www.cyberdriveillinois.com/publications/business_services/nfp.html
  2. Fill them out
    1. Corporate Name is the name of your organization
    2. Registered Agent is the person who receives & files paperwork for the organization. This should be the Treasurer. Registered Office is the address for that person.
    3. Board of Directors are the people who have final deciding power in the organization, via voting, which will be defined in your bylaws.
    4. Article 4. Purpose(s) for which the Corporation is organized:
    5. Article 5 Other provisions.
      1. On the application, write “See attached sheet”. On the sheet for Article 4 (or a separate sheet if you need more space), write the following:
        • The complete text for Article 5 will be: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Fourth hereof. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code.
          Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.
    6. Signatures – It is best to have 3 of your board members sign and date this, but I believe only one is required.
    7. Return To: this does not have to be, but usually will be the Registered Agent’s address or somewhere your Registered Agent receives mail.
  3. Mail TWO copies of the Articles and attached pages to the address listed on the Articles of Incorporation. Include a $50 check for payment. Record this on your financial records. Even if it is paid personally, not from organizational funds, a note of this is a good idea.

Get an EIN (Employer Identification Number, tax id)

Get an EIN (Employer Identification Number, aka Tax ID) after you get your Articles back from the Secretary of State

  1. Visit https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online then click the button to apply online, or use one of the other means.
  2. Choose “View Additional Types” for the organization type and then “Other Non-profit/Tax-Exempt Organizations" under most circumstances.
  3. You will likely choose “Started a new business” as your reason for applying.
  4. Complete the application. At the end, download and print a copy of the EIN confirmation letter. You may want to use a digital backup service as well.

Register with Illinois Department of Revenue (IDOR)

Go to https://www2.illinois.gov/rev/forms/reg/Pages/reg-1.aspx to register with IDOR. It's a fairly quick process and a pretty easy online form

Get a Bank Acccount

You can do this at any point. Before incorporating, you can open a bank account, for example as John Doe DBA Some Cool Organization, where DBA means "Doing Business As". After incorporating, you will likely need to provide organizing documents and the tax-id. Talk to your bank about what they require. You will want a bank account once you begin collecting and spending money.

It is good practice to otherwise track your finances as well - whether with a spreadsheet or a more advanced accounting software.

File your Solicitor's License

File a Solicitor’s License with the Illinois Attorney General. Visit http://www.illinoisattorneygeneral.gov/charities/register_report.html

  1. Fill out CO-1
    1. Registration will be under “Both Acts”
    2. Offices in IL (#5) will be the Registered Agent’s address, generally
    3. For #7, do explain your purposes, such as sharing your mission statement, and some details of what you will be doing with the funds.
    4. For #12, you will almost certainly do fundraising, but most small organizations do not hire professionals to do fundraising.
    5. For #13, Be honest. Describe in detail if there have been any charges. Call the Attorney General’s office to discuss if you have questions.
    6. For #14, likely your board of directors will have final discretion
    7. For # 16, Chief Executive generally is the President of the organization
    8. For #17, file this list with the Solicitor’s license AND have the treasurer / registered agent keep a copy of it. The president and/or secretary may want to keep a copy as well.
  2. Fill out CO-2
    1. If yourself, as founder, and/or board members have contributed to the organization, record this on ‘Other Revenues’ and attach a letter explaining, for example, that the funds were collected for the sake of paying filing fees and that the funds came from the incorporators/board members.
    2. If you’re coming upon this information AFTER having already solicited for funds, you should be honest, as the risk is a $200 fee. The risk for lying about funds for a non-profit are much more significant than the late filing fee. You can attach a letter, explaining what happened, and request a waiver of the fee. It’s up to the AT Gen office if they waive upon your request.
  3. Print these forms (and copies for your records, and keep digital copies as backups). Print another copy of your Articles of Incorporation and a copy of your Bylaws to include with the application.
  4. Mail the forms and attachments to the address listed on http://www.illinoisattorneygeneral.gov/charities/co-1instructions.pdf with a $15 check
  5. You may want to call after 2 or 3 weeks to make sure they have received your application.

Get IRS 501(c)3 status

File the IRS 501(c)3 application online. Go to https://www.irs.gov/forms-pubs/about-form-1023-ez and follow the instructions and file the online application. I believe the fee is $275.

  1. This process can be slow after you file. I’ve been warned it can take 6 months or longer for the application to be approved.

Get State Sales Tax Exemption

File for Illinois Sales Tax Excemption. Go to https://www2.illinois.gov/rev/businesses/nonprofits/Pages/default.aspx
This is not required, but is good to have if you will be purchasing... basically anything ever.

Keep up with annual filings

Check the links below. Each organization listed has annual filing requirements and links to them (except I have not researched or linked to IDOR's annual requirements).

Important Links

These web pages and documents were used in the research for this article and if you have any doubt, they should be referenced.

IL Secretary of State

IL Attorney General

IRS

  • EIN Application - The online application for getting a tax id, also known as Federal ID Number, Employer ID Number (EIN), or Federal Employer ID Number (FEIN)
  • Annual Online Report Form - An online form for annual filings with the IRS for small organizations
  • 501(c)3 online application - Form 1023 EZ, the online form for filing for non-profit status with the IRS.
  • Bylaws - Information and instructions for Bylaws for non-profits
  • IRS Reference Page - A reference page for the many IRS documents for Not-For-Profit corporations
  • Annual Reporting in depth - Links and forms for filing annual reports with the IRS
  • Stay Exempt - An interactive site to teach you how to keep your non-profit in good standing
  • Life Cycle of an NFP - A listing of the basic ongoing process for staying exempt, with some helpful links
  • Life Cycle of a Public Charity - A more in-depth article about staying exempt

Illinois Department of Revenue