Forming a Not for Profit Organization in Washington State
Choose between a Mutual Benefit organization and a Public Benefit organization.A mutual benefit is formed and operated solely for the benefit of "members", which could be anything from a social club to a condominium association. The key point here is that there are members who are deriving benefit from the organization.
A public benefit organization falls under the traditional religious, scientific, charitable and educational groups. The objective of these organizations are to provide benefits to the public at large.
If a Public Benefit Organization, is the organization is a social welfare organization or a public charity?A secondary consideration for the public benefit organizations are whether the application for exemption from taxes will be as a social welfare organization or a public charity. A social welfare organization is usually focused on achieving organizational goals through advocacy or attempting to influence public policy.
This decision is critical because both Washington State and the IRS have special rules for public charities that will need to be complied with in order to maintain the desired status.
Social welfare organizations give up their ability to accept foundation grants and tax deductible donations from individuals in order to advocate in public policy issues.
Will the Board be Self Perpetuating?A self perpetuating board is where the board elects new directors. The election process for board members should be defined in the articles of incorporation or bylaws.
Choice of EntityThere really are two types of not for profit entities in Washington State. The Washington Nonprofit Corporation Act (RCW 24.03) is the primary statutory framework for not for profits in Washington State. The language allows for virtually all permissible purposes that are associated with not for profits in Washington. Prohibited under the Act are labor unions, cooperative organizations and banking or insurance organizations.
The Nonprofit Miscellaneous and Mutual Corporation Act (RCW 24.06) can be used to form organizations which were prohibited under RCW 24.03, including labor unions, cooperative organizations, banks and insurance organizations, social clubs, fraternal societies and service organizations.
Choose a business name for the Corporation and check for availability.There are many factors that go into the naming of a new business, but most are beyond the scope of this guide. Today, one of the key factors in deciding on a business is to determine if the domain name is available for a website. Another key factor is to identify if the name is trademarked by another company.
A trademark is any word, name, symbol, or device adopted or used by a person to identify the goods made or sold by that person and to distinguish them from goods made or sold by others. Registration of a trademark provides the registered user with exclusive use of that trademark and protects against infringements upon the user's rights. A trademark may be registered with:
1) the U.S. Trademark and Patent Office, for the broadest protection;
2) the Washington Secretary of State's Office, for a trademark used exclusively within the state or region; or
3) both the federal office and the state office.
Complete the Articles of IncorporationThere are a number of required provisions that must be in the articles of incorporation. The Secretary of State's website has basic forms for forming the organization. The State provides a standard Articles of Incorporation that must be completed when applying to form the organization. While all of the information is important, Article 4 is where you describe the purpose for which the not for profit is being formed. This must be a permissible purpose and must include language that will satisfy the IRS when the organization files for exempt status. This form can be completed and submitted online at www.secstate.wa.gov.
Complete the Master Business License with the Department of Licensing.The Department of Licensing has a very convenient tool for identifying the various licenses and registrations that need to be completed when organizing a new business. The Online Business Licensing Guide can be found at http://www.dol.wa.gov/business/licensing.html.
Responding to the questions asked by the guide will result in a customized list of registrations that need to be completed, based upon your specific location and business.
Most important in this process is obtaining the Master Business License. The Master Business Application can be completed online at http://www.dol.wa.gov/business/file.html. This process will allow you to not only register the business but obtain trademark protection for any brands you have chosen to use in your business.
File an Initial Annual Report with the Secretary of State.It is highly recommended to complete the first annual report at the same time you file your certificate of formation with the Secretary of State. You are required to file an Initial Annual Report within 120 days of filing the certificate of formation. Filing it at the same time you are completing the online process to form the not for profit ensures that you do not forget to file it later. Given all of the balls that are typically in the air when a new business is in the startup phase, it is simply one less thing to worry about.
Obtaining Exempt Organization StatusObtaining EO Status is beyond the scope of this guide. Please see Obtaining Exempt Organization Status by the same author for an in depth discussion of what is required to submit, obtain and maintain EO status by the organization.
Open a bank account for your business.A very important step in starting a new business is opening the business banking account. Do homework and find a bank that you feel comfortable with and one that will be able to grow with you as your business grows.
To open the business bank account, you will need the Articles of Formation which were filed with the Secretary of State, the Business License, any Articles of Operations and a copy of the Employer's Identification Number. You will need to provide copies of each of these to the bank for their files.
You are now fully formed and ready for business. Good Luck.