An Illinois nonprofit corporation
has traditionally been defined as a corporation which distributes no part of its income to its members, directors or officers. Nonprofit corporations are very similar to their for-profit counterparts, but with two important basic differences. First, nonprofit corporations are formed for purposes other than for the generation of profit. For example, traditional nonprofit corporate purposes are religious, charitable, scientific, and educational. Nontraditional nonprofit corporate purposes also include trade associations, political action committees and various forms of membership organizations.
Secondly, unlike business corporations, nonprofit corporations do not have persons who own equity interests in the corporation. In fact, nonprofit corporations are generally prohibited from distributing any assets to its members, the nonprofit equivalent to shareholders in a business corporation.
Every nonprofit corporation has governance documents which define and outline the rules and regulations within which the corporation operates. The document which creates the corporation is the Articles of Incorporation. This document is filed with the Secretary of State. Upon filing, the corporation is in existence as an independent legal entity. The Articles must answer three key questions as follows:
If the corporation will be a public benefit, religious or mutual benefit corporation;
If the corporation will have members; and
A dissolution provision which identifies the distribution of assets upon the dissolution of the corporation.
Each corporation is also required to have bylaws (the "Bylaws"). The Bylaws outline the regulation and management of the corporation. The Bylaws generally set forth the basic governance structure of the corporation.
Additionally, any nonprofit corporation that intends to solicit funds from the public must register or qualify for an exemption under the Solicitation of Charitable Funds Act before any funds are solicited and comply with its reporting requirements.
Applying For 501(c)(3) Tax Exempt Status
For many nonprofit corporations, the issue of tax-exempt status will be the most important area. Organizing as a nonprofit with the Secretary of State does not automatically grant the organization an exemption from federal income tax. To qualify as tax-exempt from federal income taxes, an organization must meet the various requirements set forth in the Internal Revenue Code, and apply for recognition of exemption with the IRS.
Organizations applying for tax-exempt status with the IRS must use specific application forms. Charitable organizations applying for 501(c)(3) status will complete and file IRS Package 1023, Application for Recognition of Exemption. IRS Publication 557, Tax Exempt Status for your Organization, lists the required application for each kind of tax-exempt organizations.