If you are inspired to create a non-profit, congratulations! There are many ways that private non-profit entities help and serve our communities. Non-profit organizations are also referred to as “not-for-profit” entities. A non-profit is an organization or a business entity that is organized for a purpose other than to make a profit. In this article, we will provide a brief overview of the types of business structures a non-profit may use. We will also briefly discuss the requirements for gaining tax-exempt status from both the federal government and the state government.
Most non-profits begin with an idea. A person or a group of people are inspired to raise money or provide services for an issue about which they care deeply. For example, the founder of one of our clients, Shine: A Light on Fertility, Inc., recognized that one in eight women experienced infertility issues. Based on her own personal experience, the founder of Shine realized that women who experience infertility do not have many resources for education and support. Through this personal experience, Shine was formed and now women in the Chicago area have valuable resource.
After an idea takes root, many people begin the work. It is only after events are held or services and goods provided, that the founders of a non-profit begin to think about the legal aspects of their work. However, we encourage you to seek legal counsel early in the life of your organization.
A non-profit may utilize the business structures offered by the state. For example, a non-profit may be organized as a corporation. Or, a non-profit may organize as a limited liability company. The different corporate structures each have their own benefits and drawbacks. Additionally, the different corporate structures have state filing fees affiliated with them. Once you decide on the structure, you will need to draft and file the appropriate paperwork to create your non-profit.
After the nonprofit business entity is created, you may then begin applying for tax-exempt status. To become a tax-exempt business with the United States IRS, you must submit an application. This application is often referred to as the “501(c)” application. Section 501(c) sets forth the different types of tax-exempt businesses permitted by the IRS.
After the 501(c) application is submitted, you will need to file documents with the state agency that monitors non-profit agencies. In Illinois, the Attorney General’s office monitors non-profit agencies. All nonprofits must submit an application to the Illinois Attorney General, and they must provide an annual report. You may also apply for tax-exempt status with the state department of revenue.
At Hays Firm, our attorneys have experience with helping organize, create, and establish non-profits. Feel free to contact our firm for a free thirty-minute consultation to discuss your ideas, your plans, and your goals.