A Note on Data: This analysis uses the most recent publicly available data from the Illinois Secretary of State, current through July 15, 2024. Figures for full-year 2024 represent projections based on annualizing data through that date. While newer data would be valuable, the trends revealed here—particularly the dramatic increase in involuntary nonprofit dissolutions—reflect systemic challenges unlikely to have resolved in the interim. Updated analysis will follow when more recent data becomes available.
Illinois is experiencing a nonprofit boom. After pandemic-era declines, new nonprofit formation has rebounded to a five-year high of 6,142 startups projected for 2024. Communities are organizing, identifying needs, and launching organizations at record rates.
But beneath this encouraging growth lies a devastating crisis: nonprofit organizations are failing at an unprecedented pace. In 2024, an estimated 6,864 Illinois nonprofits will be involuntarily dissolved by the Secretary of State—a staggering 75.55% increase since 2020. Over the past five years, more than 25,500 organizations have been involuntarily dissolved for failure to meet basic compliance requirements.
We’re essentially running in place, creating and involuntarily dissolving nonprofits at nearly equal rates, while thousands of community initiatives collapse under the weight of challenges that may be entirely preventable.
The Startup Surge: Communities Are Organizing
The growth in new nonprofit formation tells a positive story. After dropping to a low of 5,334 startups in 2022, Illinois has seen consecutive years of strong growth—9.52% in 2023 and 5.14% in 2024. On average, 5,754 new nonprofits form each year, representing significant civic energy and community engagement.
Illinois Nonprofit Startup Activity 2020–2024. Source: Illinois Secretary of State. Analysis by Valerie F. Leonard, Nonprofit Utopia.
What’s more, organizations may be getting better at the incorporation process. The number of nonprofits amending their articles of incorporation has declined 18% over five years, from 999 in 2020 to a projected 819 in 2024.
This decline could actually be encouraging. Many amendments occur because the IRS identifies missing provisions required under 501(c)(3) tax code when reviewing applications for tax-exempt status. Fewer amendments might mean:
Better Preparation: Founders are more sophisticated about what’s required in articles of incorporation and getting it right the first time. Online resources, nonprofit support organizations, and standardized templates may be helping organizations craft compliant articles from the start.
Improved Education: The Illinois Secretary of State or nonprofit support organizations may be doing a better job educating founders upfront about IRS requirements, reducing the need for later corrections.
The 1023-EZ Effect: More organizations may be using the streamlined IRS Form 1023-EZ for tax-exempt applications. Unlike the full Form 1023, the 1023-EZ doesn’t require organizations to attach their articles of incorporation. This means the IRS never reviews the articles and never identifies deficiencies requiring amendments. While organizations still need compliant articles, they may discover problems later—or never face scrutiny on these documents at all.
Illinois Nonprofits Filing Amendments to Articles of Incorporation 2020–2024. Source: Illinois Secretary of State. Analysis by Valerie F. Leonard, Nonprofit Utopia.
If the amendment decline reflects better preparation, that’s progress. If it reflects a shift to 1023-EZ applications, it’s a neutral administrative change. Either way, the decline doesn’t necessarily signal a crisis.
The Real Crisis: Mass Involuntary Dissolutions
The involuntary dissolution numbers tell an unambiguously troubling story. Organizations aren’t choosing to close down properly—they’re being forced out by the state for non-compliance. The numbers have accelerated dramatically:
- 2020: 3,910 organizations involuntarily dissolved
- 2021: 4,158 (6.34% increase)
- 2022: 5,044 (21.31% increase)
- 2023: 5,557 (10.17% increase)
- 2024: 6,864 projected (23.52% increase)
Number of Illinois Nonprofit Organizations Involuntarily Dissolved 2020–2024. Source: Illinois Secretary of State. Analysis by Valerie F. Leonard, Nonprofit Utopia.
The most recent year shows the sharpest spike yet. The cumulative increase over five years is 75.55%.
The official reason for these involuntary dissolutions is straightforward: failure to file annual reports with the Illinois Secretary of State. Organizations that don’t file their required reports are eventually administratively dissolved—the state forces them out of existence without their consent.
This is fundamentally different from voluntary dissolution, where an organization’s board decides to close down and files proper paperwork. Involuntary dissolution means the organization either didn’t know it was out of compliance, couldn’t manage the compliance requirements, or had ceased functioning but never formally closed.
What’s driving this widespread compliance failure? Several possibilities emerge:
Organizational Death Without Burial: Many organizations may have ceased operations but never formally dissolved. Founders moved on, volunteers burned out, the need changed, or the organization accomplished its purpose. The involuntary dissolution simply makes official what already happened in practice.
Volunteer Capacity Crisis: Small, all-volunteer organizations may lack anyone tracking filing deadlines or maintaining institutional knowledge. When the founder or initial board members leave, no one remembers the annual reporting requirement.
Financial Constraints: Organizations without tax-exempt status or with limited fundraising success can’t afford basic professional support. They can’t pay for an accountant, a lawyer, or even accounting software that might flag deadline requirements.
The Compounding Effect of Failure: Organizations that never successfully navigate the IRS process may struggle for years without tax-exempt status, unable to access grants or offer tax-deductible donations. Eventually, underfunded and understaffed, they simply stop functioning—and stop filing reports.
Inadequate Dissolution Infrastructure: Organizations that want to close formally may not know how, or may view the formal dissolution process as complicated or expensive. Letting the state administratively dissolve them becomes the path of least resistance.
The Hidden Cost of Involuntary Dissolution
The nearly 1:1 ratio between startups and involuntary dissolutions represents an enormous waste of civic capital. Every organization involuntarily dissolved represents:
- Hundreds or thousands of volunteer hours
- Community members who invested time and energy in a mission
- Filing fees, legal costs, and setup expenses
- Lost opportunities to serve community needs
- Potential cynicism about nonprofit organizing
Perhaps most concerning: we don’t know which organizations should have survived. How many involuntary dissolutions represent organizations that could have thrived with better support? How many had valuable missions but lacked the administrative capacity to maintain compliance? How many founders believed their organization was in good standing, unaware they were years behind on filing requirements until the state dissolved them?
Unlike voluntary closures where boards make deliberate decisions about organizational sustainability, involuntary dissolutions happen by default—organizations simply stop functioning or lose track of requirements until the state steps in.
What Would Actually Help?
The involuntary dissolution crisis demands targeted interventions:
Aggressive Annual Report Reminders: The state should implement multiple touchpoints before involuntary dissolution—emails, physical mail, phone calls. Organizations should receive clear warning that dissolution is imminent, with simple instructions for coming back into compliance. A “cure period” where delinquent organizations can file back reports and pay penalties might save organizations that simply lost track.
Simplified Dissolution for Defunct Organizations: If an organization is truly dead, make it easy for anyone associated with it to file articles of voluntary dissolution. A simple online form might prevent thousands of organizations from sitting in limbo until involuntary dissolution.
Compliance Support for New Nonprofits: Organizations are most vulnerable in their first few years. Provide new nonprofits with comprehensive compliance calendars, automated deadline reminders, and access to quick-response support when they have questions. Preventing involuntary dissolution before it happens is far better than trying to reinstate organizations after the fact.
Capacity Grants for Administrative Infrastructure: Funders typically want to support programs, not overhead. But organizations need basic infrastructure—accounting software, reminder systems, even a paid part-time administrator—to maintain compliance. Small compliance grants might prevent involuntary dissolution and ensure organizations can focus on mission rather than scrambling to avoid being shut down by the state.
Better Data on Why Organizations Are Involuntarily Dissolved: Illinois should survey involuntarily dissolved organizations to understand what happened. Did they cease operations years ago? Did they want to continue but couldn’t manage compliance? Were they unaware they were out of compliance until the state dissolved them? This data could guide more effective interventions and help distinguish between organizations that truly ended versus those that could have been saved with better support.
Evaluation of 1023-EZ Impact: If more organizations are using Form 1023-EZ, the IRS never reviews their articles of incorporation. Organizations might have technically non-compliant articles that only surface if the IRS later audits them. Understanding how many Illinois nonprofits use 1023-EZ versus the full 1023 would help assess whether this is creating a delayed compliance problem.
A Sector Under Strain
The Illinois nonprofit data reveals a sector with strong community support and civic engagement but serious sustainability challenges. People want to organize, launch initiatives, and address community needs. The startup numbers prove that.
But thousands of organizations aren’t just failing—they’re being involuntarily dissolved by the state for non-compliance. These aren’t strategic closures or mission-accomplished wind-downs. These are organizations that lost track of requirements, couldn’t manage basic compliance, or simply stopped functioning without properly closing.
The encouraging news is that involuntary dissolutions are preventable. Organizations aren’t being shut down by the state because their missions were flawed or communities don’t need them. They’re being shut down because they failed to file annual reports—an administrative requirement that better support systems could help them meet.
Illinois has the opportunity to transform this crisis. It requires investment in the unglamorous work of administrative support, compliance assistance, and organizational infrastructure. But the alternative—continuing to see more than 5,000 nonprofits involuntarily dissolved annually—is unsustainable for the communities these organizations serve.
The question isn’t whether Illinois communities have the energy and commitment to organize. The data proves they do. The question is whether we’ll build the support systems that prevent thousands of organizations from being involuntarily dissolved each year—shut down by the state not because they failed their missions, but because they failed to file paperwork.
Data source: Illinois Secretary of State, current through July 15, 2024. Full-year 2024 figures are projections based on annualizing data through that date. Analysis performed by Valerie F. Leonard via Nonprofit Utopia. For questions about obtaining more recent data, contact the Illinois Secretary of State’s office or submit a FOIA request.
