A new addition to the Illinois Not-For-Profit Act (“NFP Act”) requires certain nonprofit corporations to disclose sensitive demographic information about their leaders, beginning January 1, 2025. Under the amended Act (signed by Gov. Pritzker on July 1, 2024), affected organizations are legally required to publicly report aggregate demographics on the race, ethnicity, gender, disability status, veteran status, sexual orientation, and gender identity of their directors and officers.
This new law apparently aims to bring diversity awareness to the nonprofit sector. It includes an “opt-out” for privacy, albeit with significant defects. Diversity, equity, and inclusion (“DEI”) efforts have been ongoing in many sectors. The Illinois NFP Act’s amendment sparks attention though due to its atypical legislative positioning, unclear reporting requirements, and notably absent regulatory authority or penalties for noncompliance. This article identifies the new law’s coverage, describes specific requirements for covered nonprofits, and addresses notable defects and related concerns including significant privacy issues.
The Disclosure Law’s Coverage
The new law’s novel reporting requirements within the Act (805 ILCS 105/101.01, et seq. – located in Section 114.15 thereof) complicates assessment of its applicability. Reporting under the NFP Act has traditionally only involved filing basic annual reports to the Illinois Secretary of State, containing minimal information. Rather oddly, the new disclosure law amends the NFP Act but ties the compliance requirements to state charitable solicitation registration and reporting, which is regulated by the Illinois Attorney General’s Charitable Trust Bureau. This combination of legislative applicability and regulation is atypical and may require clarification from the Illinois agencies in the future.
As drafted, affected entities include only organizations described by all of the following attributes, with common exemptions and exceptions noted too.
1. Illinois not-for-profit corporation. Charitable trusts, unincorporated associations, limited liability companies, partnerships, and “foreign” nonprofit corporations are not subject to the provisions of the NFP Act and thus would not be within the ambit of the new law. Interestingly, the new law expressly applies only to “corporations,” which per definitional sections of the IL NFP Act are defined to exclude corporations formed under other state laws – i.e., “foreign.” (See 805 ILCS 105/101.80(f) and 101.80(h). Perhaps the new law’s lack of specificity reflects a legislative oversight, or perhaps it was intentional in light of related state jurisdictional considerations.)
2. Entities required to file annual form AG990-IL with the Illinois Attorney General due to the organization’s charitable solicitation activities or its holding of charitable assets within Illinois. Nonprofits must register with the Illinois Attorney General and complete annual AG990-IL reporting if they meet the criteria outlined within the Illinois Charitable Solicitation Act, which applies to nonprofits engaged in fundraising, and the Illinois Charitable Trust Act, which applies to nonprofits holding at least $4,000 charitable assets in Illinois. Non-charitable entities, such as social clubs, trade associations, and certain social welfare organizations which do not hold charitable assets and do not solicit charitable donations are not affected by the new disclosure law. Organizations exempt from registration and reporting with the Illinois Attorney General’s Charitable Trust Bureau, are also not affected (i.e., certain religious and educational nonprofits). For more information about such registration requirements, please see our blog on Fundraising Across State Lines: What Nonprofits Need to Know About Multi-State Charitable Solicitation Registrations.
3. Nonprofits making grants of $1,000,000 or more to other charitable organizations in a given tax year. Nonprofit corporations with grant making activities to “charitable organizations” amount to less than $1,000,000 are not subject to the new law. This threshold is evaluated on an annual basis, determined by an organization’s tax year. Some organizations may need to only report information for certain years.
The Disclosure Law’s Requirements
Only organizations fitting within all three qualifications in the prior section are required to make the specified disclosures. Following the filing of Form AG990-IL, the new Illinois law requires the following aggregate director and officer demographic information to be disclosed on their publicly available website: “race, ethnicity, gender, disability status, veteran status, sexual orientation, and gender identity.” Such disclosures must be publicly accessible for at least three years, posted within thirty days of an organization’s AG990-IL filing. The information is not required to be reported directly to any government agency.
Important Privacy Consideration: Individual directors and offers may decline to disclose any or all personal demographic information. Instead, they may simply “opt out,” without penalty. Consequently, a nonprofit organization thus could include a statement on its website as follows: “The directors and officers of the organization each have individually declined to provide personal and sensitive information about their race, ethnicity, gender, disability status, veteran status, sexual orientation, and gender identity, in keeping with their rights to privacy under the law.”
Defects Notwithstanding Diversity Goals
According to its advocates, this legislation seeks to “to highlight and elevate leadership, diversity, equity and inclusion in Illinois.” However, it suffers from several defects that may limit its effectiveness. Notwithstanding such defects, which are quite significant (perhaps even of constitutional proportions) the new law highlights some goals that could nevertheless be important for nonprofit leaders.
Many of the law’s terms are ambiguous.
The new law uses several undefined terms, such as “grants” and “charitable organizations.” Problematically, such terms are not defined elsewhere in the NFP Act. Accordingly, in determining applicability of the Act, nonprofit leaders must wrestle with difficult questions. For example, does the terminology include grants to international NGOs? Are program-related investments included in “grants”? Should the organizations to which funds are transferred, like LLCs owned and controlled by charitable organizations or other multi-corporate configurations be considered “charitable organizations”? What constitutes the requisite publication on a website? These and other similar questions may frustrate nonprofit leaders seeking to comply with the new law.
The law’s enforcement provisions are ambiguous or nonexistent.
As noted above, the Illinois NFP Act addresses the formation and governance of not-for-profit corporations. The Illinois Secretary of State administers the vast majority of the provisions of the NFP Act, and its role is primarily a ministerial function – ensuring consistency and compliance with the NFP Act’s requirements of form and maintaining publicly available records. But the new law’s starting point is an organization’s filing of form AG-990 IL, which is a form not appearing otherwise in the NFP Act, and not within the oversight of the Secretary of State. In contrast, the Illinois Attorney General’s office receives and oversees administration of form AG-990 IL.
Note too that the new law fails to specify what agency has responsibility for enforcing the requirements of the law. Remember, no report is filed per the new law, either with the Illinois Attorney General or the Illinois Secretary of State. Rather, the disclosures must occur on a nonprofit’s “publicly available website.” There is no specification concerning the agency responsible for ensuring that myriad nonprofits’ websites post the required demographics. As discussed above, individual directors may opt out of personal disclosures. Additionally, the statute is silent concerning the consequences of a nonprofit’s failure to comply.
The new law runs counters to trending state statutory frameworks protecting personal information.
In the last two years, nearly twenty states have enacted comprehensive data privacy frameworks, ushering in a new era of consumer protection and data security. These laws aim to give individuals greater control and emphasize the growing recognition of the importance of privacy in the digital age. The personal disclosures required under the new law – disclosures of race, ethnicity, gender, disability status, veteran status, sexual orientation, and gender identity – constitute inherently “sensitive information” under the new state privacy frameworks and garner maximum protective measures to safeguard from public disclosure. While the new law would require disclosures by nonprofits only in the aggregate, it would also likely risk disclosure of sensitive personal information on an individual personal level, given the composition of many nonprofits (e.g., small boards). This type of public disclosure of sensitive personal information runs flatly against the spirit and requirements of recent privacy laws.
Take for example, an Illinois family foundation incorporated as a not for profit entity. The family foundation is governed by three directors, who also serve as the foundation’s officers. The foundation makes grants in excess of $1 million and annually files form AG-990 IL (based on its charitable assets located in Illinois). Under the new law, the foundation would be required to disclose, in the aggregate, the board’s sexual orientation along with other demographic information. Assuming that all the directors have the same sexual orientation, the organization would have effectively disclosed publicly the sexual orientation of each individual director, since their names are widely available by reviewing the organization’s annual reports – available through the Secretary of State. Such disclosure of highly personal and sensitive information runs afoul of current legal trends favoring privacy and the protection of personal information. Under many new state laws such disclosures in other contexts would likely result in steep fines and, in some states, private rights of action of directors and officers against the nonprofit.
Nonprofits may voluntarily provide demographic information in keeping with their important corporate purposes, apart from any legal requirement to do so.
Nonprofit boards frequently encourage diversity such as in terms of skills, areas of expertise, geography, gender, age, networking capability, or other areas. Indeed, a nonprofit may wish to publicly share some disclosures about its leaders, with their consent, depending on its operational context and relevant factors such as donor appeal, related public relations, and optics. The disclosure law’s requirements thus may be superfluous, since leadership diversity is already frequently favored and widely considered a best practice in nonprofit governance. However, the new law’s sweeping scope – in terms of so many listed required disclosure categories – may be unattractive to some nonprofit leaders for the reasons expressed in this article.
It follows that diversity disclosure goals may optimally be addressed informally - not necessarily based on the Illinois law’s listed categories, and not rigidly in terms of specific mandates. Notably, some other states have imposed DEI mandates, but that is not what Illinois law requires. It is possible too that a nonprofit could challenge this new law in terms of privacy issues, constitutional infirmities based on freedom of association and speech (notable but well beyond the scope of this article), or other legal concerns. However, given the new law’s relatively minimal teeth, particularly with the opt-out allowance, lack of penalty and narrow scope, perhaps it will serve more as a push toward diversity disclosure, not any draconian legal constraint.
