How to Start a Nonprofit in Illinois: Step-by-Step Guide for Success

Starting a nonprofit organization in Illinois isn’t all that difficult, but there are steps you’ll need to go through in order to become a legal nonprofit and enjoy all the tax advantages nonprofit status delivers. In Illinois, you will need to deal with the IRS on federal level, the state of Illinois and in addition you’re going to need to check with city and county authorities for any additional licenses or permits that may required to operate based on your nonprofits business plan.

Below we have outlined each and every step in as much detail as possible so that you can start your nonprofit with the least amount of headaches. Each step is in order they need to be executed and each one builds on the previous, so make sure you check off each step before moving to the next one. And although it may take a bit of work, it is doable and starting a nonprofit organization in any state is a great way to help those in need, no matter what you cause may be.

13 Steps to Starting a Legal Nonprofit in Illinois

Here's our comprehensive guide to help you through the process of setting up your legal entity. It’s best if you can print out this article so you can check off each step as you finish with it. We’ve included all the necessary information and included links to all relevant and necessary documents you’ll need. Don’t forget, there are also services that can do all of these steps for you. Although they are not always cheap, these services do this type of work all the time and are familiar with the process. So if you have the funds, it may be faster and easier to have a professional do everything for you.

Step 1. Define Your Mission and Vision

The first step is to get crystal clear on what your new charity's mission is going to be and the vision you have for it’s growth into the future. And although a written out vision statement is helpful, it is not a legally required document. However a well written mission statement is required both by the IRS when you submit your Form 1023, and you'll need to file Articles of Incorporation with the Illinois Secretary of State.

According to Illinois law, your Articles of Incorporation must include a statement of purpose (another name for a mission statement) that describes the nonprofit's objectives. This purpose must be aligned with one of the IRS approved exempt purposes, such as charitable, religious, educational, or scientific purposes, as this ensures your eligibility for tax-exempt status. So take the time to write this document out clearly as it also maps out your charity’s whole reason for existence and will guide all future decisions and strategies.

Step 2. Choose a Name for Your Organization

If you haven’t already though of a great name for your nonprofit, it’s time to do so now. Make sure your name is unique and complies with Illinois naming rules. It must not be in use by another corporation or LLC within the state of Illinois. You can check the name availability through the Illinois Secretary of State's website.

Your name is also your branding, so try to make it short, easy to remember and in some way align with your nonprofit’s mission. Names like Doctors Without Boarders or Save the Children immediately let people know what their mission has to do with. If you have a longer name, you can also consider using an acronym, although it will be much more difficult to clearly state your mission.

It’s best to come up with a number of name options. Include friends, family, board members and staff and volunteers if you have them. You never know where a great idea will come from, and it’s best to get feedback on your name from a few people to know whether it matches your mission and vision in a positive and memorable way. Once you have a few choices check through the Illinois Secretary of State's website to see if it’s available, and use a domain registrar to see if the .org is available. And although you don’t need to legally use a .Org domain, it’s best to do so as most people are familiar with the designation and often want to see a .org rather than a .com for a nonprofit.

Recruit Incorporators and Initial Directors

Your incorporators and initial directors are the ones for getting your organization started on a legal level. And although these can be the same people, they don’t need to be. Meaning, Illinois state law requires a minimum of one Incorporator or more that will execute the Articles of Incorporation, individuals who sign the Articles of Incorporation to officially form the nonprofit. This document is what establishes the organization as a legal entity in the eyes of the state.

Yet your incorporator, usually the founder as long as they are over the age of 18, does not necessarily need to be involved with your organization in any way after your articles are submitted to the state other than appointing the Board of Directors. While the incorporators are not necessarily the people who will serve as the nonprofit's directors or officers, they are responsible for submitting the required paperwork to the state (in Illinois, this would be the Illinois Secretary of State).

The governing of your new charity is handled by your Board of Directors which need to be appointed by your Incorporator. They can be the same people although IRS law requires you to have a minimum of three board member in order to seek legal charity status. Your directors are the individuals who will serve on your nonprofit's board of directors and make decisions about its operations as well as other matters. It’s always a wise decision to include board members who can bring expertise, networks or other benefits to your endeavour like having an account or lawyer on your board that can help with tasks on a pro-bono level, or bring new supporters to your cause like community leaders and business people.

Here’s a quick example of what the process looks like in the state of Illinois:

• Step 1: Incorporators sign and file the Articles of Incorporation with the Illinois Secretary of State.

• Step 2: Once the nonprofit is formed, the incorporators appoint the initial board of directors.

• Step 3: The nonprofit files for 501(c)(3) status with the IRS and complies with other state and local requirements.

In summary, incorporators are essential for legally establishing a nonprofit, but they are separate from the directors who will manage the nonprofit going forward. The state (Illinois) and the IRS require the Articles of Incorporation to be filed, and this must be done by the incorporators.

Step 4. Appoint a Registered Agent

Your registered agent is an individual or entity with a physical address in Illinois that agrees to receive legal documents on behalf of your nonprofit. It can be anyone, and again this person or entity does not need to be involved with your nonprofit in any way. They agree to act as your nonprofit's official point of contact with the state and legal authorities. Your Registered Agent must be available during normal business hours (9:00 AM to 5:00 PM, Monday through Friday) to accept legal documents. This ensures that your nonprofit doesn’t miss important legal notices.

You (or your nonprofit's founders) cannot be your own registered agent unless you live in Illinois and have a physical address in the state (not a P.O. Box). If you live out-of-state, you must designate someone in Illinois to act as your registered agent. If you appoint a professional Registered Agent service, there is usually a fee for their services. The cost varies but can range from $50 to $300 annually depending on the service provider.

How to Appoint a Registered Agent in Illinois

Select your Registered Agent: This can either be an individual or a professional Registered Agent service provider.

Include the Registered Agent's Information in your Articles of Incorporation when you file them with the Illinois Secretary of State.

Provide their name and physical address: The address must be in Illinois and cannot be a P.O. Box.

File with the state: After selecting your agent, you’ll submit this information as part of the incorporation process.

Step 5. Prepare and File Your Articles of Incorporation

This document isn’t all that complicated and can even be done online. There’s an excellent reference put out by the State of Illinois and is available here: Guide for Organizing Not-for-Profit Corporations. The information you’ll need to include consists of your organization's name, purpose, registered agent, and initial directors. Your purpose should be a short and clear synopsis of your mission statement.

Once you have drafted your articles, they’ll need to be submitted to the Illinois Secretary of State by your Incorporator along with the state’s mandatory filing fee. The fees are $50 by mail or $77.75 if you choose to submit your paperwork online. There is also an expedited processing available for an additional fee.

Step 6. Obtain an Employer Identification Number (EIN)

Getting an Employer Identification Number (EIN) for your nonprofit organization is actually a very easy and straightforward step that only takes a few minutes and can be done online at the IRS.gov website. Your EIN is required by the IRS for tax purposes and is used to identify your nonprofit for federal and state reporting. You can think of it as a social security number for your charity. It does not mean you need to have employees. Even if you never hire an employee, you will still need to have this number for reporting.

The easiest and fastest way to apply for an EIN is to use the IRS online application. The application process is free and you will receive your EIN immediately upon completion. Here’s the process:

Visit the IRS EIN application page and apply for an EIN. The online application is available Monday through Friday, from 7 AM to 10 PM (Eastern Time). Make sure you complete the application in one session, as you cannot save your progress and if there is any interruptions you’ll need to start the process over.

During the application, you’ll need to provide basic information about your nonprofit, including its legal name, address, the type of nonprofit, and the name of the responsible party (typically the director or founder of the nonprofit). Once you hit the submit button, you will instantly get your EIN. Make sure you write this down and always know this number as it is required for applying to the IRS for tax exempt status!

If you’re unable to apply online for some reason, you can apply for an EIN via fax or mail, but this can take anywhere from 4 days to 6 weeks. You’ll need to download Form SS-4 from the IRS website and fill it out. If you decide to submit through fax, the number is (855) 641-6935 and it takes around four days to receive your EIN. If you decide to use mail, the process can take anywhere between 4 to 6 weeks. You still need to download the same form and send it by mail using this address:

Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999

Remember, this is an important number and you will need it for filing tax returns, applying for tax-exempt status (such as 501(c)(3)), and other legal and financial documents. Once you have your EIN, you can use it to open a bank account for your nonprofit, apply for tax-exempt status and hire employees if you have the resources and need and meet IRS payroll requirements.

Step 7. Draft Bylaws and Hold the First Board Meeting

Your bylaws are internal rules that guide how your nonprofit will be run. They are a very important legal document and will outline the governance and operational procedures for your organization. The bylaws do not need to be submitted to the IRS or the state, but they are essential for your nonprofit’s operations and are often required by banks or other entities.

What to Include in the Bylaws:

1. Name of the Nonprofit: Confirm the official name of the organization as it is filed with the state.
2. Purpose: Clearly define the mission and objectives of your nonprofit. This should align with your Mission Statement and Articles of Incorporation and should specify that the organization is being established for a charitable purpose and is not a for-profit.
3. Board of Directors:
   • The number of directors required to serve on the board. Remeber, there must be at least 3 members for the IRS.
   • Their roles and responsibilities (e.g., President, Secretary, Treasurer).
   • How board members are elected or appointed.
   • The term lengths for each position (e.g., 1-year or 3-year terms).
   • The process for removing or replacing board members.
4. Meetings:
   • How often board meetings will occur (e.g., quarterly, annually).
   • How meetings will be scheduled (e.g., notice required, method of communication).
   • How voting will occur during meetings (e.g., simple majority, unanimous vote).
5. Officers: Outline the duties of the officers, including the president, vice president, secretary, and treasurer.
6. Membership: If applicable, define how members of the organization are admitted, their rights and responsibilities, and how membership may be terminated. This would be important for organizations like social clubs.
7. Amendment Process: Define how the bylaws can be amended or updated, including the number of votes needed to make changes.
8. Conflict of Interest Policy: The IRS will ask for your Conflict of Interest Policy as part of the Form 1023 (Application for Recognition of Exemption) or Form 1024, so it is a required document. This policy makes sure that board members act in the nonprofit’s best interests and avoid personal gain at the expense of the nonprofit.

After you have drafted the bylaws, you need to hold an official board of directors meeting to formally adopt the bylaws, appoint officers, and complete other important foundational tasks. This means that the directors review the bylaws and, through a vote, agree to follow them. Once approved, they become the operational guide for your nonprofit.

The next important action is to appoint officers to your nonprofit's leadership positions. This usually includes at least three positions including a President or Executive Director, a Secretary and a Treasurer. You can include many more levels of leadership depending on the size and scope of your charity. Your secretary needs to keep official records of all board meetings and are the official records of the meeting and can be reviewed later if necessary.

Once all of that has been decided, you can get to some operational matters such as approving the nonprofit’s mission statement and purpose, deciding on bank accounts and approving signatories to deal with them and determining who will handle all of your tax filings and the applications for tax-exempt status (e.g., IRS Form 1023 for 501(c)(3) status).

This initial meeting is often a legal requirement in many states to show that your nonprofit is properly organized. This meeting should be held soon after incorporation, as you need the minutes from this meeting to show that the nonprofit is operating in good faith and following the required procedures.

Step 8. Register for State Tax Identification Numbers

Now that you have a legal entity in the state of Illinois and your EIN number, now it’s time to secure your state level tax identification numbers. You do this by filing Form REG-1 (Illinois Business Registration Application). This registration is important because it allows your nonprofit to comply with state tax requirements, such as collecting sales tax, paying employee wages, and other potential taxes. This can all be done online easily and for free and you just need to have the following information to get started:

• Nonprofit’s legal name as it appears on your Articles of Incorporation.
• Federal Employer Identification Number (EIN). If you haven’t applied for this yet, you can get it from the IRS (this is essential for tax purposes). You can apply online on the IRS website for free. IRS EIN application page.
• Business address: The physical address of your nonprofit in Illinois.
• Primary contact: The person who will be handling the tax matters for your nonprofit (usually a member of the board or an officer).
• Date your organization was formed.
• Ownership structure: Whether your nonprofit is a corporation, partnership, or another structure.

Once you’ve submitted the REG-1 form and your registration is processed, you will receive an Illinois Business Tax (IBT) number immediately if you’re doing this online. You may also receive separate account numbers for specific tax categories (e.g., sales tax, employee withholding).

Step 9. Apply for Federal Tax-Exempt Status

This is without a doubt the most time intensive part of the entire process. You’ll need to fill out and submit Form 1023 or Form 1023-EZ to apply for recognition as a 501(c)(3) tax-exempt organization. These are complicated forms and require a lot of information. Many nonprofit start ups opt to hire a service to complete these forms as they’re labor intensive. But of course you can complete the process your self if you’re looking to start your nonprofit on a tiny budget.

Jut be aware, the fees are $275 for Form 1023-EZ and $600 for Form 1023. Plus it can take months for your application to be approved. So it is very important your application is as perfect as possible before submitting or you can risk waiting additional months if it gets kicked back due to an error or oversight.

We have a more in-depth review of filling out and submitting either of these forms here.

Step 10. Apply for Illinois State Tax Exemptions

Once you have finally obtained your federal tax-exempt status in the step above, you can now apply for state sales tax exemption as well. This allows your nonprofit to be exempt from paying sales tax on purchases that are used in furthering your charitable purposes in the state of Illinois. To do this you will need to file Form STAX-1, which is the Application for Sales Tax Exemption and needs to be submitted to the Illinois Department of Revenue (IDOR).

The quickest and easiest way to accomplish this is to use their online portal called MyTax Illinois where you can complete and submit the application electronically. You won’t need to download anything and the process is free. If you chose to mail in your application, then you will need to download Form STAX-1 here and mail it to the address listed on the form.

To complete either of these you will need the following information:

• Federal Employer Identification Number (EIN), which you should have received when your nonprofit obtained federal tax-exempt status.
• Federal Tax-Exempt Determination Letter (IRS 501(c)(3) letter).
• Name and contact information for your nonprofit’s legal representative or officer.
• Detailed description of your nonprofit’s activities to demonstrate how your nonprofit’s operations are primarily for charitable, educational, or religious purposes.
• Proof of your nonprofit's operations (e.g., copies of your bylaws, Articles of Incorporation, or other foundational documents).

You should also be aware Illinois offers other tax advantages to nonprofits. You can also apply for a Real Property Tax Exemption so you don’t need to pay property tax if the property is used exclusively for charitable purposes. The state also offers exemption from Illinois income tax. Two more tax advantages to take advantage of!

Step 11. Register with the Illinois Attorney General's Office

This is an important step and is what makes it legal for your charity to solicit funding from the public legally. If your nonprofit intends to solicit charitable contributions in Illinois (meaning you will ask for donations or fundraise), registration with the Illinois Attorney General's Office is a legal requirement and failure to comply can result in penalties, fines, and even legal action, including the revocation of your nonprofit status in Illinois. This step is meant to create transparency and protect donors from unscrupulous entities.

To legally solicit donation you must file Form CO-1 titled Charitable Organization Registration Statement. This form is part of the Charitable Trust and Solicitations Unit within the Illinois Attorney General's office, which regulates charitable solicitations. The registration is a way for the state to track which organizations are fundraising and ensure that they are adhering to all legal requirements set forth by the state of Illinois. You must be approved before you begin any fundraising activities!

Here’s a breakdown of what this form includes:

• Basic Information About Your Organization: This includes your nonprofit’s name, address, and contact information.
• Purpose and Activities: A description of your nonprofit’s mission and how you use the funds raised (for example, for charitable programs, community outreach, or educational initiatives).
• Governance: Information about your nonprofit’s board of directors and key officers.
• Fundraising Methods: How you plan to raise funds, such as online donations, events, or campaigns.
• IRS Determination: You must provide proof of your nonprofit’s 501(c)(3) status with the IRS. This verifies that you are a legitimate charitable organization.
• Financial Information: You will need to provide a financial statement or report outlining your organization’s budget and revenue sources.

You can submit the CO-1 form online through the Illinois Attorney General’s website. There may be a filing fee involved, depending on the size and type of your organization.

12. Obtain Necessary Local Licenses and Permits

Since this deals with local governmental agencies and is not state wide, it’s difficult to go into detail on what permits you may need in order to operate your nonproft. Perhaps you want to start an animal rescue and will need local permits to build kennels or provide veterinary services. Check with city and county authorities for any additional licenses or permits required to operate depending on where you’re located.

Step 13. Comply with Ongoing Reporting and Compliance Obligations

Staying compliant is always an ongoing task for any nonprofit organization. This is why keeping detailed records of meetings, finances, and activities is so important in order to demonstrate transparency and accountability. And both the state of Illinois as well as the IRS require yearly reporting in order to maintain your 501(c) tax status.

On the state level, you’re required to file annual reports using Form NFP 114.05 with the Illinois Secretary of State each year. This form is also customarily added to a charity’s website in order to demonstrate to supporters their transparency and how funding is used. But understand that even if you choose not to share this information freely, you are required by law to supply this information to anyone who requests it from you in a timely manner. Failure to do so can result in immediate forfeiture of you charity status.

This is the same for reporting to the IRS. Every year you’ll need to fill out and submit either IRS Form 990, 990-EZ, or 990-N, depending on your organization's financial activities. Again, most charities simply add this information to their websites to demonstrate transparency and build trust. And again, by law, you are required to give a copy to anyone that asks for it or risk being shut down!

Wrapping Up

As you can see, starting a legal nonprofit in the state of Illinois does take a few steps, but it’s doable with a little work and a small amount of funding. Your biggest hurdle is the IRS Form 1023, but even that can be done by someone that is driven to complete the process. Just be sure to use our comprehensive guide so you know each and every step to complete, and you’ll be up and running in no time.