Illinois
Updates
What You’ll Learn
If you are a nonprofit in Illinois, or you are a nonprofit considering fundraising or other activities in Illinois, you must be familiar with Illinois’s basic rules for nonprofits.
How can you become familiar with these laws? Where should you start?
Start here! This state profile includes the basic requirements nonprofits must consider and reading through this (and taking action when needed) will help you prepare your organization for success in Illinois.
Getting to Know the State Nonprofit Corporation Law
Background
*Important primarily for nonprofits incorporated in Illinois
In a village of La Mancha, the name of which I have no desire to call to mind, there lived not long since one of those gentlemen that keep a lance in the lance-rack, an old buckler, a lean hack, and a greyhound for coursing…The age of this gentleman of ours was bordering on fifty; he was of a hardy habit, spare, gaunt-featured, a very early riser and a great sportsman. They will have it his surname was Quixada or Quesada (for here there is some difference of opinion among the authors who write on the subject), although from reasonable conjectures it seems plain that he was called Quexana…the above-named gentleman whenever he was at leisure (which was mostly all the year round) gave himself up to reading books of chivalry with such ardour and avidity that he almost entirely neglected the pursuit of his field-sports, and even the management of his property; and to such a pitch did his eagerness and infatuation go that he sold many an acre of tillageland to buy books of chivalry to read, and brought home as many of them as he could get.
- Don Quixote, Miguel de Cervantes
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Corporate Governance
Conflict Transactions: 805 Ill. Comp. Stat. § 105/108.60. Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.
Director Standards of Conduct: None. Need a refresher on the role of directors? See Bylaws Module 6: Directors.
Members: Eligibility and Statutory Powers: 805 Ill. Comp. Stat. § 105/107.03; 805 Ill. Comp. Stat. § 105/107.40. Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.
Indemnification: 805 Ill. Comp. Stat. § 105/108.75; Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: Illinois’ nonprofit corporation law mentions the option for nonprofit corporations to incorporate for religious purposes. However, the law lacks both: (a) specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs and (b) an option to incorporate expressly as a nonprofit religious corporation. See 805 Ill. Comp. Stat. 105/101.01 et. seq.; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Illinois law is silent as to whether a director, in the fulfillment of the director’s fiduciary duties, may rely on the opinion of individuals who can reasonably be assumed to have expertise on a certain matter, and the law does not expressly permit a director to rely on guidance from religious figures within his or her faith tradition.
Understanding Religious Liberty in this State
Case Study
*Important for all nonprofits doing business in Illinois, whether incorporated in Illinois or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws listed below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Illinois has enacted a RFRA that protects the religious free exercise of all individuals and entities by requiring government burdens on religious exercise to satisfy strict scrutiny. These protections originate in a statute rather than the state constitution. 775 Ill. Comp. Stat. §§ 35/1 et. seq. Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
Constitutional Protections for Free Exercise: The Illinois Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. Ill. Const., Preamble, art. I, §§ 3, 20; art. III, § 8
State Blaine Amendment: The Illinois Constitution contains a Blaine Amendment that could prevent the participation of faith-based schools in generally available public benefit programs on the same terms as similarly situated secular schools. This is not as broad as a general Blaine Amendment, which prohibits all aid to faith-based institutions, but is still detrimental to the work of faith-based institutions. Current U.S. Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. Ill. Const. art. X, § 3. Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Illinois has a statewide public accommodation law, of which nonprofits performing public programming should be aware. Some religious and educational organizations may be excluded from the act.
Religious Freedom and Public Accommodation Laws: Illinois’ nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide accommodations or exemptions but only for only a narrow spectrum of religious organizations, such as organizations classified as churches. 775 Ill. Comp. Stat. 5/5-101. Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Illinois law has no explicit constitutional or statutory protections for religious exercise during a time of emergency.
Key Employment Laws and Regulations
In addition to the federal anti-discrimination employment law, Title VII of the Civil Rights Act of 1964, Illinois prohibits employers from discriminating on the basis of ancestry, age, marital status, order of protection status, pregnancy, unfavorable military discharge, or work authorization status. An employer is any person who has one or more employees for twenty or more weeks each year. Religious corporations are permitted to employ individuals of a particular religion to perform work connected with the organization’s religious mission and activities. An attorney can help you understand what requirements apply to your organization.
Employment Discrimination Laws and Regulations: 775 Ill. Comp. Stat. 5/ Illinois Human Rights Act
Religious Freedom for Faith-Based Employers: 775 Ill. Comp. Stat. 5/2-101(B)(2). Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here
Religious Freedom for Employees: See 775 Ill. Comp. Stat. 5/2-102(E-5), 745 Ill. Comp. Stat. 70/65
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Illinois but incorporated elsewhere
Depending on the type and volume of activities an organization has in this state, the organization may also need to register as an out-of-state business (sometimes called a “foreign business”) with the secretary of state or another state agency. These foreign business registration requirements are separate from the charitable registration. Not every out-of-state organization needs to register. An attorney can assist the organization in determining whether its connections with this state are significant enough to trigger the foreign business registration requirement. Examples of activities which might trigger this requirement include having employees physically located in the state, conducting programs in the state, and having an office in the state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for all nonprofits doing business in Illinois, whether incorporated in Illinois or elsewhere
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
In this state, organizations are generally required to register prior to soliciting donations. However, the registration requirement has a religious exemption. Religious organizations must apply for this exemption; the religious organization exemption is not automatic.
If You're Fundraising In Multiple States, Make Sure You Understand the URS
In this state, organizations that are required to register have the option of registering through the Unified Registration Statement (URS), which is a standardized charitable registration accepted in many states. If your organization will be registering in multiple states, the URS may save you time in your initial registrations.
Evaluate Whether You'll Need a Registered Agent
Note that this jurisdiction’s charitable registration process requires organizations incorporated in other states to appoint an in-state registered agent. This can be done through a commercial service or by appointing a person or entity who is a supporter of your organization’s mission.
Follow the Rules About Communicating with the Public
This state does not require organizations to post specific language when conducting charitable solicitations unless the organization is working with a professional fundraiser, but posting the language is often a best practice to build trust with donors and state regulators. Below is sample language to use with charitable solicitations in this state:
*ORG* is based in *STATE*. The solicitation is made in support of *ORG*’s religious purpose to *PURPOSE*. Questions about *ORG* can be directed to *NAME* at *PHONE*. Upon request, *ORG* can provide: (1) the amount of this contribution which is deductible as a charitable contribution under federal income tax law; and (2) a written financial statement. *ORG*’s registration does not imply endorsement.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Illinois, whether incorporated in Illinois or elsewhere
In this state, organizations which have received federal income tax exemption under IRC Sec. 501(c)(3) are automatically exempt from state income tax. Some organizations may choose to send a copy of their IRS determination letter to the state department of revenue to indicate the organization's position that it qualifies for the exemption. Note, however, that although an organization may be exempt, if it has unrelated business taxable income (“UBTI”) that is subject to federal taxation, that UBTI may be subject to state income tax. It is also important to consider whether applying for sales and use tax and property tax exemption would be appropriate for your organization. An accountant or attorney can provide specific answers to these questions.
Note that Illinois also has a corporate franchise tax, however, the tax only applies to business conrporations (rather than nonprofits). 805 Ill. Comp. Stat. § 5/15.35, 805 Ill. Comp. Stat. 5/1.80)(“‘corporation’ defined as corporation incorporated under the Business Corporation Act).
Corporate Income Tax Statute
Illinois imposes a corporate income tax but automatically exempts organizations with federal 501(c)(3) exempt status. 35 Ill. Comp. Stat. § 5/201
Corporate Franchise Tax Statute
What You Need to Know About Sales Tax
Sales and Use Tax: Illinois imposes a sales and use tax on religious organizations’ sales and provides no meaningful exemption. Illinois imposes a sales and use tax but a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ purchases is generally available upon application. 35 Ill. Comp. Stat. § 120/2-10
State Tax Treatment of Unrelated Business Income: 35 Ill. Comp. Stat. § 5/101, et. seq.
State-Specific Special Requirements
Miscellaneous
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Legal Disclaimer
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington