Nonprofit CorporationWe’re Just Not Annoying®
HOW TO START A NONPROFIT CORPORATION
The process to starting a nonprofit corporation is no different than starting a for-profit corporation. All corporations—for-profit and nonprofit—are formed by filing a single document called the nonprofit Articles of Incorporation (some states refer to nonprofits as nonstock corporations). These Articles of Incorporation are filed with your state’s Secretary of State (some states have specific agencies for these filings, such as a corporation commission or corporation division). Doing things such as obtaining 501(c)(3) tax-exempt status for your nonprofit can get complicated, but actually forming a nonprofit is simple.
(If you’d rather listen than read, our Chief Legal Strategy Officer, Drake Forester, recently presented a How to Start a Nonprofit webinar on Score.org. Listen to his nonprofit webinar for free on Score.org.)
NAME YOUR NONPROFIT
All nonprofits need a legally unique name (this means the same name can’t already be registered with the state). Every state has an online database through which you can search to find an available, legally distinct name. The available name will belong to your nonprofit corporation as soon as the state has processed your Articles of Incorporation. You do not need to reserve a name prior to filing, unless you are forming a nonprofit corporation in Alabama.
SELECT A REGISTERED AGENT
Every state requires nonprofit corporations to designate a registered agent. Registered agents accept official mail and notices of lawsuits (service of process) on behalf of a business entities like nonprofits. Registered agents are required to be individuals or businesses that reside in the state where the nonprofit was formed and/or operating. The registered agent must also be available during regular business hours and have a physical address where they can receive service of process and other official mail (this address is called the registered office).
COMPLETE THE ARTICLES OF INCORPORATION
When you have a name for your nonprofit and a designated registered agent, you’re ready to complete the Articles of Incorporation. Each state has its own requirements concerning the information you will need to include in your Articles of Incorporation, but in most states you will need to provide the following:
- Nonprofit name
- Physical and mailing addresses
- Purpose of the nonprofit (if you will be seeking 501(c)(3) tax-exempt status, the IRS requires specific nonprofit language in the purpose clause)
- The incorporator’s name and signature (a corporation’s incorporator is the person authorized by the corporation to complete the Articles of Incorporation)
- The initial directors’ names and addresses
FILE THE ARTICLES OF INCORPORATION
Most states allow you to complete the Articles of Incorporation online. In other states, you must complete articles on paper and submit them by mail or fax. When you submit the Articles of Incorporation, the nonprofit corporation becomes active when the state files the formation documents.
All states send confirmation (sometimes a flashy certificate, sometimes a drab receipt—depends on the state) that your nonprofit was created.
Online filings usually have the quickest filing times. Paper filings take longer due to mailing and processing times, unless you physically walk them into the secretary of state. Each state has different filing times. Some states take a few days, and some take months if you don’t pay expedite fees. (If you’re curious how long your state takes to start a nonprofit, click on the name of your state below.)
After you’ve submitted your nonprofit Articles of Incorporation and received confirmation from the state, you’ve successfully started a nonprofit.
A Realistic Look At Starting A Nonprofit:
We think that a simple realistic look at the future of your idea is in order. If your idea is not really going to generate that much money or donations, that’s perfectly fine. Accepting this fact at an early stage of your planning can save you a TON of time and stress. Most nonprofits are not tax exempt, simply because it takes too much time to get all your directors together and too much paperwork to obtain 501(c)(3) tax-exempt status. Think about it. You’re asking for your organization to be completely tax-free. The IRS and the state(s) you’ll be in do not want to just give this away to any organization. They are going to require a lot from you. We’ve found that many nonprofits are best served by forming a nonprofit organization or nonprofit corporation, but just paying your taxes. You will not be able to get the massive donations, but you will be able to focus more on what you actually want to accomplish with your new nonprofit organization. You can still collect donations; it’s just that the donors won’t be able to write it off. Another great idea is to eliminate your profit by the end of the year. So if you know in November that your nonprofit organization is going to have $10,000 of profit and you are not tax exempt, if you keep that profit in the company you’ll pay corporate income tax on that $10,000, which currently is at 15%. If you give away $9,000 of that to another nonprofit organization that may be tax exempt, you then would only pay 15% corporate income tax on $1,000. The basic goal is to run your nonprofit that doesn’t have tax exempt status like a regular for-profit corporation and try to eliminate as much of your taxable income as possible, while still meeting the goals and desires of the company. The reality is that our local, state and national governments are broke, and there are a lot of lawmakers that want to eliminate this deduction for huge corporations anyway; so counting on this long-term might not be a great strategy.
So if you simply want to form a nonprofit organization and not worry about trying to become tax exempt (501(c)(3) status), the process is fairly quick and easy in most states. You or we can form this at the state level for you. We recommend doing it in whatever state you are based out of.
If you do want to go for tax exempt status, that is fine. Knowing that it’s a long process before you start will make the process less stressful for you. We can still get your new nonprofit organization formed quickly for you. Get an employer identification number (EIN), hold your board meetings and fill out the paperwork to request tax exempt status with the IRS (our federal government). After you get this status you can then apply within your state to be tax exempt at the state level for income taxes, sales tax, and quite often property tax. While you’re applying for tax exempt status at the state level, you can also register as a charity. When you hire us to start your nonprofit, we file the articles with the state with the appropriate language so that your application will not be rejected because of your articles of incorporation.
Nonprofit Organization Guide
What Is A Nonprofit?
The most common type of nonprofit is the nonprofit corporation. It is a corporation. It is taxed the same as corporation (unless it receives tax-exempt status from the IRS), offers the same limited liability, the same formalities and maintenance requirements of a corporation. The only real difference is that nonprofit corporations don’t offer stock, and thus, don’t have shareholders. That’s why some states refer to nonprofit corporations as nonstock corporations.
Within the nonprofit entity type, there are three main types of purposes:
- Mutual benefit organizations: like homeowners’ associations, chambers of commerce, downtown business associations, trade associations, or any group of similar people or businesses that get together to champion a cause that would benefit all of them. These organizations are typically not tax exempt.
- Public benefit organizations: like churches, schools, educational, or scientific organizations. Something that anyone and everyone could have the opportunity to benefit from. These are most likely the type of organizations that anyone and everyone has or could have a reason to donate to.
- Cooperative associations: typically have shares and you set a minimum amount of shares required to become members. Associations have directors also but no officers.
Do Nonprofits Make A Profit?
If a nonprofit is successful, it’s making a profit. The difference between nonprofit corporations and for-profit corporations is what those corporations do with their profits. For-profit corporations distribute profits to its shareholders. Nonprofit corporations distribute their profits to charities or similar organizations. None of a nonprofit’s earnings go to an individual or other entity as beneficial income.
Can A Nonprofit Pay Employees Wages?
Absolutely. Things like wages and salaries are part of the cost of doing business. Its only the net-profit (the money left over after all expenses are paid) goes to charity or similar organization. Even tax-exempt nonprofits are allowed to pay competitive wages to their employees. The monetary compensation must be what the IRS vaguely describes as a “reasonable wage.”
Important Nonprofit Forms:
- Nonprofit Articles of Incorporation
- Mutual Benefit Nonprofit Articles
- Nonprofit Public Benefit Articles
- Religious Nonprofit Corporation Articles
Formation Document Names By State:
Articles of Incorporation:
AK, AZ, AR, CA, CO, DC, FL, GA, HI, ID, IL, IN, IA, KY, LA, ME, MD, MI, MN, MS, MO, MT, NE, NV, OR, PA,RI, SC, SD, TN, UT, VT, VA, WA, WV, WI, WY
Certificate of Incorporation:
NY, OK, DE, CT
Certificate of Formation:
Articles of Agreement:
Articles of Organization:
Not for Profit Articles of Incorporation
Other Nonprofit Facts:
States that require a minimum number of incorporators:
OK – 3, AK – 3, NH – 5, NM – 3, NY – 3, TX – 3
States that allow a corporation to be the incorporator:
KS, ME, WA, NM, PA
States that don’t provide a form:
CA, NE, GA, and IA don’t offer domestic nonprofit articles of incorporation, but we have our own, drafted from their laws. California offers samples with the minimum required by law and meant as a guideline for preparing your own articles. We offer California nonprofit documents here for free.