In many ways, starting a nonprofit corporation is like starting any corporation—you register your business with the state, draft bylaws, and file reports. However, there are a few additional steps if you plan to accept donations or apply for tax-exempt status.
These 9 steps will help you get on the right track to making your nonprofit vision a reality.
- Complete the articles of incorporation
To start a nonprofit corporation, you have to file formation documents, commonly called “articles of incorporation.” Requirements differ from state to state, but at minimum, you’ll need to provide your nonprofit’s name, registered agent and incorporator signature.
Name: In addition to any state-specific requirements, your name can’t be the same as (or deceptively similar to) the name of another entity registered to do business in the state. You can usually check availability on the state’s business registration website.
Registered agent: A registered agent accepts official notices on behalf of your nonprofit. If your nonprofit is made up of volunteer board members with regular jobs, it can be beneficial to hire a registered agent instead of appointing a member, as board members may change regularly.
Incorporator: An incorporator is a person who signs your formation document and submits it to the state governing agency. You’ll need at least one incorporator. Typically, this is a person within the nonprofit, but some nonprofits authorize attorneys or professional services to submit their filing.
Your state may also require you to list directors, business purposes, and more. If you plan to file for federal tax-exempt status, your articles will need to pass the IRS’s “organizational test,” as described in Publication 557. In particular, your nonprofit’s purpose must be limited to one of the purposes the IRS expressly permits.
- File the articles of incorporation.
You will need to file your articles of incorporation with the governing agency in the state. Generally, you will file with the secretary of state or a business registration division or department. However, a few states have different governing agencies—for instance, New Jersey filings are handled by the Department of the Treasury.
Your articles of incorporation will also need to be accompanied by a filing fee. In most states, fees range from $20-$100, but again, there are a few outliers. Kentucky, for example, only charges $8 to file nonprofit articles of incorporation, while Maryland requires several fees with a minimum total of $170. In most states, you can file either online or by mail.
- Draft bylaws.
Bylaws are the rules that govern your nonprofit. For instance, bylaws dictate how officials are elected within your nonprofit and how assets will be distributed should your nonprofit dissolve. When drafting bylaws, it’s a good idea to seek the legal assistance of an attorney well-versed in the nonprofit laws of the state.
If you apply for federal tax exemptions, you’ll attach your bylaws to your IRS application. In this case, you’ll need to ensure your bylaws don’t conflict with IRS requirements—for instance, your bylaws should support the business purpose listed in your articles and limit the powers of directors to those permitted for exempt nonprofits.
- Hold an official meeting.
At your first official meeting, your team will adopt the bylaws for your nonprofit. You will also elect any directors and other officers (such as president, secretary, treasurer, etc.) needed to run your nonprofit. You’ll also make any corporate resolutions needed to complete the process of starting a nonprofit. Like any corporation, you’ll need to follow standard corporate formalities for meetings, like recording meeting minutes and adding them to your corporate book. - Apply for a Federal Employer Identification Number.
The IRS uses ID numbers known as FEINs or EINs to easily identify businesses on tax-related filings. Whether you plan to file regular taxes or apply for federal tax exemptions, you’ll need to obtain an EIN first. EIN applications can be completed on the IRS website and do not require any filing fees. - Apply for federal tax exemption.
Many nonprofits opt to apply for federal tax-exempt status under Section 501(c) of the Internal Revenue Code. There are a few different application forms and procedures, depending on your organization’s purpose. The most commonly-sought tax-exempt status is 501(c)(3), which includes charitable, educational, and religious organizations. All applications require supporting documents (such as articles, bylaws, and financial reports) and a filing fee. Often, applying for federal tax-exempt status will enable your nonprofit to be eligible for other state tax exemptions as well. However, in some states, you’ll have to file additional paperwork to apply for state tax exemptions—you can typically find this information on the state’s Department of Revenue or Department of Taxation website. - Take care of annual compliance requirements.
- The paperwork doesn’t end when the nonprofit holds its ribbon-cutting. Each year, the nonprofit will need to take care of compliance requirements. In addition to any annual tax filings required, most states require annual or biennial reports where nonprofits update any changes in management or contact information. Charity registrations often need to be renewed annually as well.
- Familiarize yourself with initial state requirements.
- States vary widely in initial requirements. Arizona, Georgia, Nebraska, and Pennsylvania all require that new corporations publish notice of their incorporation in local newspapers. Nevada also requires publications for foreign corporations. Also, certain states, like Alaska, require an initial report to be filed as opposed to just an annual or biennial report. Depending on where you’re operating, you may also need state or local business licenses or other permits.
- Register as a charity.
- If your nonprofit involves fundraising or accepting donations, you may need to register as a charity. If required, registration typically must be done before your nonprofit organization accepts any donations. A few states (such as Delaware) don’t require charity registration, but it’s a common requirement in most states. Charity registration is usually managed by either the secretary of state or another state office that deals with charities and charity registration.
- Take care of annual compliance requirements.
- The paperwork doesn’t end when the nonprofit holds its ribbon-cutting. Each year, the nonprofit will need to take care of compliance requirements. In addition to any annual tax filings required, most states require annual or biennial reports where nonprofits update any changes in management or contact information. Charity registrations often need to be renewed annually as well.
- The great news? We can help make this process quick and easy! Please call us at your earliest convenience to get started and free yourself from the stress and anxiety.
- We’re here to support you every step of the way! We hope everything goes well with your business!
We look forward to helping you soon. Contact us!
Thanks,
Globaldesk Bookkeeping & Taxes team