Chicago, IL asked in Business Formation and Business Law for Illinois

Q: Do we need to refile articles of incorporation or any other business docs when applying for NFP status for a for-profit

business. Business has been around for 37 years. We want to apply for 501c3 status to diversify our income and open up our services to more contracts and help more people. Currently, mostly are federal grants and we haven't earned profit in years.

2 Lawyer Answers
T. J. Jesky
T. J. Jesky
  • Chicago, IL
  • Licensed in Illinois

A: This may be easier than you think. If you want to convert a profit corporation to a non-profit organization all you need to do is complete Illinois Form EOA 205 (provided by the Illinois Secretary of State- a one page form) and send two copies of the completed form to the Secretary of State with $100.00. The Secretary of State will assign a new entity number to your non-profit corporation.

A: You will almost certainly need to re-draft your Articles of Incorporation if you want to convert from a for-profit corporation to a not-for-profit corporation.

First, under Illinois law your new not-for-profit is required to have, as its purpose, one of the allowable purposes listed in the Illinois not-for-profit corporations law. The list of permissible purposes under Illinois law is found at 805 ILCS 105/103.05. The Illinois not-for-profit corporations law requires that you name one or more of those purposes in the articles of incorporation. Because your current for-profit corporation was probably not created for one of those purposes, your current articles of incorporation probably do not meet the requirements.

Second, because you said that you intend to seek IRS Section 501(c)(3) status, you will want to be sure that your articles of incorporation contain three things that the IRS will look for before granting you Section 501(c)(3) recognition. [As an aside, people often use "not-for-profit" and "501(c)(3)" to mean the same thing, but they are not. They are two different things. A 501(c)(3) is a nonprofit (or, under Illinois law, a "not-for-profit"), but not all nonprofits are 501(c)(3)s.] First, your new articles should describe a purpose that shows the IRS that you are going to be doing charitable work. Second, your new articles need to have a clause prohibiting the organization's funds from "inuring to the benefit" of, or being distributed to its members, trustees, officers, or other private persons (a "private inurement" clause). Third, your new articles need to have a clause that describes what happens to the assets of the not-for-profit if and when the organization wraps up (a "dissolution" clause).

A lawyer who works closely with nonprofits can help you to be sure that your new articles of incorporation will satisfy both the Illinois Secretary of State and the IRS.

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