From Vision to Structure:
Organizing Your Illinois Non-Profit Group
Authored by David Conrad
The following information is unique to
non-profit organizations in Illinois. While the information may
apply to other states, some aspects of organization are unique
to each particular state.
These steps describe the process for
starting an organization from scratch. Sometimes, organizations
have existed for a while before they formally and legally
organize. Some of these steps will not apply to existing
organizations.
In all cases, consult with specific
regulatory agencies and/or legal counsel. The information here
is for your convenience only and does not represent legal advice.
The chronological order of the steps may be different for your
individual circumstances and state laws.
Several resources will be helpful:
Step 1: Define the Purposes of Your
Organization
This is the mission or vision of your
group. You will need a concise statement for some of the forms
you will be filling out later. Plus, knowing your purpose will
help you focus your group's efforts. Consider creating a
traditional
mission/vision statement. Consider using a formal
strategic planning process.
Step 2: Name Search
Organizations must establish a unique
name. It must be
distinguishable to your organization, and not infringe on
the rights of other organizations. Perform a
corporate name search to determine whether or not your name
is available. Once you've selected your name, submit
Form NFP-104.10 to reserve that name.
Step 3: Select Board Members
Before you incorporate, you will need to
establish your board of directors. Boards have various
responsibilities and needs. Consider these qualities when
looking for board members:
- Availability to attend monthly board
meetings
- Law, banking, or accounting experience
- Teachers / educators
- Persons representing the population
your group is serving
- Persons having interest in the mission
of the organization
- Contractors / land developers /
businesspersons
- Variety of skill sets and talents
- Can set aside potential conflicts of
interest
- Can think, listen, and analyze
effectively
- Inter-personal skills
- Influence / ability to "open doors" in
the community
- Willing to contribute personal
resources to the group, both time and financial
- Can recruit other board members and
volunteers
In the beginning, you might consider
asking family and friends to get involved. The Illinois
Attorney General has published
Volunteer Board Members of Illinois Not-For-Profit Organizations,
a guide to help your board members understand their roles and
responsibilities.
Step 4: Create Constitution and By-Laws
If you do not already have a constitution
and by-laws, now is the time to create them!
Don't get hung-up on the terms
constitution and by-laws. A constitution defines the
basic principles of your organization, but does not prescribe
the specific procedures. However, most organizations have one
document called by-laws that covers both purposes.
TIP: If you think that your group
may obtain 501-3-c status, the IRS will require certain
language to be include in your by-laws. Place them in your
by-laws now, even if you are not immediately seeking federal
non-profit status. Refer to the section titled "article of
organization" in
Publication
557: Tax Exempt Status for Your Organization.
TIP: You will need to define your
"voting membership" classification. For example,
if you are a music booster group, you might limit membership to parents of currently
enrolled students. Here are two ways to word it:
- Membership includes all parents/guardians of currently enrolled
music/band/choir students.
- Membership is limited to the
parents/guardians of currently enrolled students
in music courses/activities who pay the membership fee
established annually by the board of directors. The board
shall waive the membership fee for those persons demonstrating
financial need. (To qualify as a non-profit, you may not
discriminate against persons who cannot afford membership.)
TIP: You will need to establish the
legal mailing address of your organization. Consider renting a
post office box. For less than $50 per year, your groups can
enjoy a permanent mailing address, regardless of officer changes
or office relocation.
The best source of information is the most
recent edition of Robert's Rules of Order.
Step 5: Incorporate
To file your articles of incorporation in
Illinois,
complete
Form NFP-102.10. For your registered agent, choose someone
who will receive correspondence from the Secretary of State.
Some groups choose an attorney who, for an annual fee, acts as
the registered agent. Files these papers, along with the
necessary fees, within 90 days of incorporating.
After your first year of incorporation,
organizations must file an yearly
annual report with the Secretary of State. You will provide
the updated names and addresses of directors and officers, as
well as a brief statement about the work of your group.
Forming a corporation provides some shield
to individuals against the debts and obligations of the group.
Step 6: Federal Identification Number
You may need a FEIN number.
The FEIN is the business version of a personal social security
number. Fill out
Form SS-4
and read Form
SS-4 Instructions.
Step 7: Register with Your
County/Municipal Clerk
After you have incorporated, register your
articles of incorporation with the Recorder of Deeds or
similar office(s) in the area
where your organization will operate. Also, you may need to
register with other government entities, such as a city or
village.
Step 8: Register with Attorney General
The Illinois Attorney General regulates
certain charitable organizations. Their website explains many
of the rules and filing requirements.
Step 9: Sales Tax Exemption
Publication 104: Common Sales Tax Exemptions
To apply, write a letter requesting a
sales tax exemption number. Include the following information
and items:
- Articles of incorporation
- Constitution and bylaws
- Brief narrative explaining the
purposes, functions, and activities of the organization
- Brochures or supporting materials that
support the narrative
- Additional supporting information
Local Government Services Bureau MC 3-520
Illinois Department of Revenue
1010 West Jefferson Street
Springfield, IL 62702
Step 10: 501(c)(3) Application
Federal exemption status is explained in
Publication
557: Tax Exempt Status for Your Organization. Download the
Application
Package for Recognition of Exemption. Some groups use the
services of an accountant or tax attorney, but the forms can be
completed by lay persons.
The complete forms package includes:
- Application for Recognition of Exemption (Form 1023)
- User Fee for Exempt Organization Determination Letter
Request (Form 8718)
- Application for Employer Identification Number (Form SS-4)
- Tax-Exempt Status for Your Organization (Publication 557)
Obtaining recognized exemption does carry
certain on-going requirements:
- Public inspection of certain documents
- Annual financial reports
- Written disclosure of donations
- Reports of cash donations over $10,000
- By-law changes must be placed on-file
with the IRS
- You may be required to annually file
form 990 or 990-EZ. Follow this
link for a tutorial on
demystifying form 990.
There are five different purposes for which the IRS allows
organizations to file for tax-exempt status as nonprofit
corporations under section 501(c)(3) of the tax code.
- Charitable Purpose
- Religious Group
- Scientific Organization
- Educational Organization
- Literary Purpose
When you apply, the IRS will
respond in one of three ways:
- Your exemption will be
granted
- The IRS will request more
information before issuing a decision
- You will receive a Notice
of Proposed Adverse Action
In Illinois, once you qualify as a federally tax-exempt
group, you are automatically exempt for Illinois income tax.
Check with your state to see what the additional state filing
requirements may be.
Step 11: Sound Fiscal Practices
Always follow prudent accounting practices.
- Open a corporate checking account (require two signatures)
and reconcile this account every month
- Purchase financial dishonesty insurance (surety bond) that
covers all people with access to the funds
- Pay all bills by check and give receipts for all funds
received
- Have a regular audit of all accounts
Step 12: On-Going Reporting
You must continue to file annual reports
with various agencies. The Secretary of State requires various
reports and disclosures.
The Illinois Attorney General also requires
various
annual reports, depending on scope of
your organization. |
