LEGAL GUIDE
Written by Avvo Staff | May 5, 2016

How to start a nonprofit organization

The basics for how to start a nonprofit organization are similar to starting any business: identify an opportunity, write a business plan, and appoint a board, among other things. But certain steps are unique to nonprofits.

Incorporate your nonprofit

Incorporation isn’t strictly necessary to be recognized as a nonprofit in all states, but it does lend credibility to your organization. This can be helpful in gaining trust with potential donors. It also limits liability for your officers and directors.

To file as a 501(c)(3) tax-exempt organization with the federal government you’ll also need to be incorporated in most cases.

Much of this process is similar to a for-profit company:

  • Pick an available name that meets your state’s requirements.

  • Pick an initial board of directors (state requirements vary).

  • File your Articles of Incorporation along with the filing fee.

Your Articles of Incorporation is the document that formally creates your organization. You’ll need to include some basic information:

  • Your organization’s name and address

  • Names and addresses of your initial board members

  • Name and address of your registered agent

  • Your non-profit’s purpose

  • What happens to its assets if it stops operating

The last 2 are important for gaining federal tax-exempt status. Your state may have additional requirements as well.

File for your 501(c)(3) tax-exempt status

The 501(c)(3) status is a federal tax exemption, named for the section of the Federal Code that regulates it. Most states also exempt you from state taxes once you have it. A few states require you file separately for state tax exemption.

Not all nonprofit organizations actually qualify for this status. Only certain purposes are eligible for exemption, including:

  • Charities
  • Education
  • Science
  • Animal welfare
  • Religious services

If you qualify, your application must include the following:

  • Your organization’s name, contact information, and incorporation date.

  • A certified copy of your articles of incorporation.

  • A copy of your bylaws.

  • Your employer identification number (EIN), even if you don’t have employees.

  • Information on your nonprofit’s activities, how they’re funded, and who benefits.

  • How directors, officers and employees are/will be paid.

You’ll also need to pay a filing fee, based on your annual gross receipts (or expected gross receipts). The current fee is $400 if they’re $10,000 or less, and $850 for all other nonprofit organizations.

Next steps and maintaining your nonprofit status

Your final step to operate legally is registering with your state’s agency regulating charitable organizations and charitable solicitations. In most cases this will be the Attorney General. You also need to register with any other states where you plan to ask for donations.

Now that you’re officially a nonprofit, tax-exempt organization you’ll need to make sure you stay that way.

States have specific requirements to follow, many of which are the same as for any business. For example, keeping corporate record books and accurate records of financial transactions. These records must be kept available for review.

You may also need to file annual (or biennial) reports with the Secretary of State and/or file tax statements with the Attorney General. Deadlines for these filings also vary by state. Special rules for nonprofits include the following:

  • You may not make loans or pay dividends to members or officers.

  • You may not issue stock to anyone.

  • You may not take part in political campaigns or try to influence legislation.

  • You may need to file a Return of Organization Exempt from Income Tax with the IRS annually. This requirement depends on your annual gross receipts.

If your nonprofit participates in commercial activities not related to your charitable purpose any income from these activities is taxable. Keep these activities to a minimum to avoid jeopardizing your nonprofit status.

Understanding how to form a nonprofit organization isn’t too hard, but maintaining it takes a little extra work than a regular business. A lawyer who familiar with nonprofit law can help make sure you get started the right way and stay compliant.

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