How Do You Start a Non-Profit?
Starting a non-profit is easier said than done. There are a number of formalities to follow and hoops to jump through in order to form your non-profit corporation, comply with all appropriate regulations, and obtain tax-exempt status. However, with the right legal guidance, you can get your non-profit off the ground and start pursuing your mission with minimal hassle or headache. Below, our Chicagoland non-profit formation attorneys explain the initial steps you’ll need to take to start your non-profit in the State of Illinois.
Choose a Name
To form a non-profit corporation, you’ll need to pick a name. The name must not be the same as any existing business entity registered in the State of Illinois. The Secretary of State’s website has a search function for checking on your chosen name.
Pick Initial Board of Directors
In Illinois, you need to appoint at least three directors to make up the governing body of your non-profit. These directors are the initial stakeholders in your non-profit’s purpose and success. Your organization must also have at least one incorporator, which can be an individual adult (aged 18 or older) or a corporation.
Appoint Your Registered Agent
A registered agent, also known as an agent for service of process, is the party responsible for receiving legal notices on behalf of your non-profit organization. If someone intends to sue your non-profit, for example, they would serve the papers on your agent. The agent must have an address on a physical street in the State of Illinois (as opposed to a post office box). Many small companies choose an attorney as the initial registered agent.
File Formation Documents
In Illinois, to form your non-profit officially you’ll need to prepare and file articles of incorporation. The articles of incorporation include the basic identifying information about your non-profit–the name of the corporation, the address, the directors, the corporation’s purpose (which must satisfy IRS requirements to obtain tax-exempt status), etc. There is a standard form for non-profit articles of incorporation available on the Illinois Secretary of State website, although the form must be physically filed to include IRS-required provisions for tax-exempt status.
The articles must include a description of your non-profit’s charitable purpose, a statement that the non-profit will not engage in activities unrelated to the exempt purposes, and a dissolution clause directing the corporation’s assets to another 501(c)(3) or the government upon dissolution.
Draft Bylaws
You’ll need to draft bylaws that are in compliance with Illinois laws. The bylaws contain the rules and procedures for your organization regarding meetings, electing officers and directors, and other corporate formalities. The bylaws offer an initial manual for the governance of your organization. They do not need to be filed with the Secretary of State but are required as part of the application for tax-exempt status filed with the IRS.
Hold First Meeting of the Board
When you have chosen your board and drafted your bylaws, it’s time to hold an initial meeting of the board of directors. At the initial organizational meeting, the directors can approve the bylaws, appoint officers, approve initial corporate transactions (e.g., opening a bank account), set a plan for tax compliance and accounting, and handle other important matters such as the adoption of a conflict of interest policy.
Obtain an Employer Identification Number (EIN)
The Employer Identification Number is a nine-digit number used by the IRS to identify your non-profit organization. You need an EIN even if your organization will not hire any employees. You’ll use your EIN for matters including opening a bank account, applying for tax-exempt status, and filing your non-profit returns.
Apply for Tax Exempt Status
To start the process of running your non-profit, you’ll need to apply for and obtain tax-exempt status. For federal tax exemptions, you’ll fill out IRS Form 1023, the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The form is long and detailed, and we advise the use of an attorney to ensure you fill everything out correctly and completely. Small non-profits may be able to utilize a streamlined form.
Once you obtain 501(c)(3) status from the IRS, you’ll automatically be exempt from income tax in the State of Illinois. No additional forms need to be filed with the state. Depending upon the nature of your non-profit, however, you may also be eligible for an exemption from sales tax in Illinois. An application must be filed with the Illinois Department of Revenue to obtain a sales tax exemption.
Business License and Other Registration Requirements
Depending upon the nature of your organization, its size, and your intended business activities, you might need to satisfy certain other regulatory formalities. You may need to obtain a business license, register with the state attorney general, and comply with other registration and reporting requirements. Talk to a non-profit formation attorney for advice about which formalities you’ll need to follow to get your non-profit up and running.
Contact a Seasoned Illinois Non-Profit Attorney for Help Pursuing Your Mission
If you intend to start a non-profit corporation in Illinois or if your non-profit entity faces legal issues in Illinois, get thorough and considered legal assistance by contacting the Chicago non-profit attorneys at MacDonald, Lee & Senechalle in Hoffman Estates at 847-310-0025 and in Des Plaines at 847-298-5030.
