Except for a few steps for applying for a tax-exempt status, forming a nonprofit corporation is very much like forming a regular company.
Nonprofit corporations lack a profit motive, and this is why they qualify for tax-exempt status under the internal revenue code (IRC) 501(a).
Now, you must wonder how to form a nonprofit corporation and what are the exact steps. In this post, we have listed 8 simple steps that will help you through your journey to form a nonprofit corporation.
Let’s get started.
1. Choose a Business Name
The name you choose should comply with the norms of your state’s guidelines. You can check your state’s filing office website for particular norms, but here are some common guidelines that you should know:
- The name of a nonprofit cannot be the same as that of another corporation, registered within that state.
- A nonprofit’s name must end with a corporate designator, including Incorporated, Corporation, Corp., Limited, and Ltd. (This rule is for only about half of the states).
- The nonprofit’s name must not contain certain words prohibited by the particular state. These words can be bank, federal, cooperative, United States, national, reserve, etc.
Many states allow people to check the name availability online on the state’s filing office website. If your state does not have that option, you can always call your state’s corporation division and see if the name you want is available.
We recommend you to reserve your nonprofit’s name for a short period of time until you file your articles of incorporation. However, this perk comes at a small fee that varies across the states.
2. File Articles of Incorporation
After reserving your nonprofit’s name you must file the articles of incorporation at your state’s corporate filing office. Article of incorporation is also known as certificate of incorporation, charter document, or articles of organization.
Articles of incorporation require you to fill out some basic information about your nonprofit like the nonprofit’s name and the office address, addresses and names of l directors, the purpose of your nonprofit, etc.
The filing fee for articles of incorporation usually ranges between $30 to $125 depending on the state of incorporation.
Although applying for articles of incorporation is not difficult, you will have to include specific things including:
- A statement of purpose that complies with IRS’ (Internal Revenue Services) requirements
- Statements that your nonprofit corporation will never engage in prohibited political or legislative activities or in activities unrelated to the exempt purposes
- A provision for dissolution of assets that dedicates your assets to another 501(c)(3) nonprofit organization upon dissolution
Note: These are not common for all the states. Hence, it is prudent to confirm which of these apply to your state.
3. Apply for Your IRS Tax Exemption and EIN
The next step is to apply for an EIN (Employer Identification Number). If you are doing this for the first time, the process may seem a bit overwhelming to you.
Leverage the services of a company like GovDocFiling to get the process expedited and receive your EIN in a quick and hassle-free manner. They will take care of all the legal paperwork and will get things done quickly and efficiently.
You also need to file for a federal 501(c)(3) tax exemption form with a copy of your filed documents for articles of incorporation to the Internal Revenue Services. To apply for the tax exemption application, you must complete the application for recognition of exemption (IRS Package 1023).
4. Apply for a State-Level Tax Exemption
Not all US states require nonprofits to separately apply for a state tax exemption.
Some states automatically grant tax exemption to the nonprofits that have obtained 501(c)(3) federal status. In other states, like California, you will have to file a state tax exemption application separately.
In those states where the tax exemption isn’t required to be filed separately, nonprofits are required to send a copy of their IRS determination letter to their state’s tax agency.
Contact your state’s tax agency to find the steps required to form a nonprofit corporation.
5. Draft Bylaws for Your Nonprofit Corporation
Bylaws are internal governing rules for a nonprofit corporation that contain the process for holding board meetings, electing officers and directors, and voting on issues. Generally, a nonprofit’s directors adopt the bylaws at their first board meeting.
You need to prepare bylaws in compliance with the law of the particular state in which you are forming a nonprofit corporation. The law contains specific rules and procedures for the corporation. You don’t have to file your bylaws with the state, they are just for internal purposes.
6. Appoint Directors for Your Corporation
Directors of a nonprofit are responsible for providing direction to the company and overseeing the corporation’s activities, finances, and legal compliances.
Several US states allow nonprofit corporations to have just one director, whereas others require three or more.
It’s best to have 3-25 board directors to form a nonprofit corporation. Make sure that the directors understand their legal responsibility to act reasonably and in the best interest of the nonprofit.
7. Conduct a Board Meeting
The first board meeting is for the directors to take care of several formalities like approving and adopting the bylaws, appointing officers, and setting an accounting period and tax year.
At the end of every board meeting, someone should create “minutes of meeting” and file it in the nonprofit’s corporate record binder. Corporate records also contain other documents like bylaws and articles of incorporation.
8. Obtain Licenses and Permits for Your Nonprofit
The licenses and permits required for nonprofits differ by state. Some states require statewide business licenses for nonprofits whereas others do not.
You might need specialized licenses or permits from the local government in order to form a nonprofit corporation.
For example, if your nonprofit sells anything to people, you’ll have to get a sales tax permit. For details regarding your specific state, you can always check your county or town’s licensing divisions to find the exact requirements.
Wrapping It Up
The process of forming a nonprofit corporation is completed once you’ve completed all the steps mentioned above.
Choose a unique and memorable business name. File the articles of incorporation and get an EIN and tax exemption. Draft your bylaws, appoint directors, and obtain all the necessary licences and permits to form a nonprofit corporation. All the best!