- Write a purpose statement
- Pick a business name
- Choose your board of directors
- Decide what state to incorporate in
After the planning stage, starting a nonprofit organization that can accept tax-deductable can be broken down into two main sections: registering your corporation at the state level, and applying for 501c3 status at the federal level.
Here, in part 2 of the checklist, we’ll discuss the rest of the process—beginning with the exciting step of legally forming your organization.
5. Incorporate Your Nonprofit Corporation
Now that you’ve decided whether to incorporate in your own state or a different one, you can file your paperwork to form a corporation.
A nonprofit corporation is similar in structure to a for-profit corporation, and it is registered with the state government pursuant to that state’s laws. In most states, nonprofit corporations have lower filing fees than for-profit corporations, as well as other benefits.
A nonprofit organization formed for charitable purposes must be organized as a nonprofit corporation (or certain other entity types)—and that basic nonprofit corporation must first be organized at the state level. According to the IRS:
To be organized exclusively for a charitable purpose, the organization must be a corporation (or unincorporated association), community chest, fund, or foundation. A charitable trust is a fund or foundation and will qualify. However, an individual will not qualify.
(As previously mentioned, this post assumes you would like to form a nonprofit corporation and apply for 501c3 status; for other nonprofit organizational structures, please search for other resources more specific to your needs.)
To incorporate a business, you’ll need to fill out Articles of Incorporation and file them with the Corporations Division of your Secretary of State’s office.
Each state has different minimum requirements for the Articles of Incorporation. In addition, the minimum information required by the state is not likely not to meet the IRS’s requirements for tax-exempt status; certain clauses specifically required in order to later apply for 501c3 status must be included.
At minimum, the state’s nonprofit requirements typically consist of the following:
- Name of the nonprofit
- Registered agent
- Registered address
- Purpose statement, including both a specific purpose and certain IRS information
- List of directors
- List of officers
As always, it’s best to check with your lawyer or legal adviser to determine whether your intended business purpose will be accepted by the IRS for 501c3 tax-exempt status; a nonprofit business purpose must fall under one of the following business purposes in order to receive tax-exempt status:
In addition, there are certain purposes that are expressly prohibited by the IRS if seeking tax-exemption.
**Note on nonprofit corporations: If you’ve just filed your Articles of Incorporation and received a state filing number, at this stage you are organized as a nonprofit corporation with the state. YOU ARE NOT YET AUTHORIZED BY THE IRS TO ACCEPT TAX-DEDUCTABLE DONATIONS. (See section 7.)
6. Write your Nonprofit Bylaws
A for-profit corporation’s bylaws govern the affairs of the corporation, creating a set of guidelines for the officers and directors to operate and conduct the affairs of the entire organization. A nonprofit organization also requires a set of bylaws.
The required bylaws of a nonprofit deal primarily with state laws and regulations—but nonprofit bylaws are more than just a rulebook. They can and should be customized to your specific area, purpose, and organization, creating a set of guidelines to ensure that your nonprofit continues to operate according to the essential principles on which your entire organization rests.
While many for-profit corporations can get by with corporate bylaws downloaded from a template website, into which they inserted information like directors and stock information, the most valuable and effective nonprofit bylaws are tailored to the organization itself. It should be specific to your industry and should address all contingencies of the corporation; the point of the bylaws is to give your organization a set of parameters defining your mission, never leaving it in a position where it is unsure of what to do.
For assistance drafting your nonprofit bylaws, you may wish to take a look at some of the following resources:
- “Nonprofit Bylaws,” Simple Nonprofit
- “Nonprofit Bylaws: What to Include and What to Leave Out,” Charity Lawyer Blog
- “Nonprofit Bylaws: The Dos and Don’ts,” 501c3.org
- “Nonprofit Bylaws—Common Issues,” Nonprofit Law Blog
7. Apply for Tax-Exempt Status with the IRS
When you register your corporation, you create a legal entity able to enter into contracts and legal proceedings. It is when you are accepted for tax-exempt status by the federal government, the IRS, that you are legally able to operate as a 501c3, receiving tax-deductable donations and enjoying certain tax exemptions provided by 501c3 law.
According to the IRS’s publication, “Tax-Exempt Status for Your Organization”:
Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so.
While you will still enjoy certain benefits provided to a nonprofit by the state, you are not exempt from taxes until the IRS has accepted your 501c3 application.
The IRS will look over your application, your purpose statement, and any related documentation to support your claim that your business purpose conforms with that of a 501c3. (You cannot, for instance, devote significant resources toward influencing legislation; you’d need to form a different type of organizational structure for that.)
It’s important to begin this process well before any planned fundraising or donation activity; while the filing time varies based on your level of preparedness and the amount of revisions to your application the IRS deems necessary, you can expect your 501c3 application process to take around nine months.
8. Determine your Business License and Permit Requirements
A “business license” is not any one specific document; rather, the term is used to refer to any license and permit your nonprofit organization may need, whether at the state, county, or city level.
Each level of government—your state, county, and city—may have certain requirements of your business based on its structure as well as its purpose, and it is your responsibility to make yourself aware of and comply with any and all of these requirements.
Since there’s no one central government place to determine your exact requirements, the process of uncovering your requirements takes a bit of digging. Contact your your Secretary of State, your County Clerk, and your City Hall to see what licenses or permits your nonprofit might need for your specific purpose.
Or, if you’d rather have someone else take care of the research for you, you can hire a corporate attorney or legal advisory. For a less costly option, have a third-party service (like us!) run your information through their database so that you can be confident in the results without the legal fees.