law

Forming a Nonprofit Organization

In starting a nonprofit organization, you should already have contacted a San Diego nonprofit attorney to help you in the startup of your organization. A nonprofit organization has the same structure as a corporation from a legal standpoint, and there are many steps to charter one – the setting up of the organization applies to both profit and nonprofit organizations.

If you want to have a kick start on starting your nonprofit organization, here are some steps which you can follow in forming your own nonprofit 501(c)(3) corporation:

  1. Choose the name for your organization

In choosing the name of your nonprofit organization, it should not be the same with the name of another corporation on file with your state’s corporation office, this is usually the Secretary of State’s office. The name must end with a corporate designator like “Corporation”, “Incorporated”, or “Limited”, or you can opt to put the abbreviation of any of those words.

Your respective state’s corporations office will be able to tell you how to determine whether your proposed name is still available for you to use. You can also reserve the name of your organization in the state’s corporations office until such time you are able to file your articles of incorporation, you just have to pay for a small amount. For more pertinent information you may coordinate with your respective state’s corporations office.

  1. File your organization’s articles of incorporation

If you already formed your “articles of incorporation”, you will have to file your “articles of incorporation” with your state corporations filing office. You will be required to fill out some basic information like your nonprofit organization’s name and office address. Even though the preparation of the “articles of incorporation” is not that difficult, you will still need to incorporate specific languages to make sure that you will receive tax-exempt status.

Here are the documents that you must need in your Nonprofit organization:

  • Your organization’s articles of incorporation – this is your primary corporate document

The articles of incorporation are the primary corporate document for every nonprofit organization. The existence of a corporation is on the date its articles of incorporation are filed with the state’s corporate filing office.

The organization’s articles of incorporation contain the basic structural information like the name of the nonprofit corporation, the organization’s registered agent, the organization’s registered address, and the corporation’s membership structure if there are any.

A nonprofit organization often includes their essential tax exemption information in their articles of incorporation, which specifies their tax-exempt purpose, a clause which dedicates their assets to another nonprofit organization, and other operating restrictions that are necessary for the nonprofit organization to obtain its tax-exempt status.

  • Your organization’s Bylaws – this serves as your operating manual

Your nonprofit organization’s bylaws are the second most important document. This is basically your organization’s operating manual. So, when someone will ask questions like “What is the maximum time that one of the board members can serve?” or “How many board members are needed for a quorum” the bylaws will be able to provide you with answers. Your organization’s bylaws should also contain information like the rules and procedures for holding meetings, electing directors, appointing officers, and taking care of other essential corporate formalities.

Just like your organization’s bylaws, state nonprofit laws are also covering basic corporate governance matters. However, you can still choose different rules as long as you put those rules in your bylaws, and that they do not violate state laws.

  • Your nonprofit’s organizational meeting minutes

In a newly formed nonprofit organization, the first order of business is by holding a meeting to approve standard items of business that are necessary for starting the organization’s operations. This meeting is often referred to as the organizational meeting of the corporation. This meeting can either be held by the board of directors or the incorporators – whoever signed and filed the organization’s articles of incorporation on behalf of it.

The minutes of the meeting is simply a formal record of the proceedings and the actions being taken. These actions usually include items like:

  • The setting of an accounting period and taxable year
  • The approval in the issuance of memberships, membership certificates, and, setting and scheduling of membership dues and assessments, if applicable.
  • Authorizing and establishing the board and other organizational committees
  • The appointing of officers
  • The approval of the bylaws
  • The authorization of the nonprofit to apply for tax-exempt status, and if this is already taken care of, the effectivity date and terms of the tax-exempt status
  1. Apply for your organization’s IRS Tax Exemption

You will have to submit a federal 501(c)(3) tax exemption application to the IRS together with the copy of your filed articles with your application. For you to apply, you will have to complete the IRS Package 1023, the Application for Recognition of Exemption. You can consult online pages to serve as your guide in this somewhat complicated process.

Some other smaller nonprofit organizations may be eligible to file Form 1023-EZ, or the Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This is a much shorter and simpler application form which you can complete online. You can check the IRS website and instructions to the form which includes an Eligibility Worksheet that you must complete. This will determine if your nonprofit organization meets the requirements for using the shorter streamlined form.

  1. Apply for your nonprofit’s state tax exemption

This step, however, may not apply to nonprofit organizations in all states. In some few states, you must have to complete a separate application to get a state tax exemption. But, in most states, as long as you file nonprofit articles of incorporation and have been able to obtain your federal 501(c)(3) tax-exempt status, your state tax exemption will be automatically granted.

  1. Draft your nonprofit organization’s bylaws

As mentioned in step 2, a nonprofit organization’s bylaws serve as the internal governing rules that contain the rules and procedures for holding the meetings, voting on issues, and the election of directors and officers. These bylaws are typically adopted by the corporation’s directors at their first board meeting.

  1. Appoint your nonprofit organization’s directors.

The director will make the major policy and financial decisions for your nonprofit organization. A lot of states allow for just one director, however other states require at least three.

  1. Hold the meeting of the board.

The first meeting of the board of directors, the directors will take care of formalities such as adopting the bylaws, electing officers, and the recording of the receipt of federal and state tax exemptions.

  1. Obtain the necessary licenses and permits

You will have to check with your state department of consumer affairs or other similar states licensing agency for the information concerning state licensing requirements for your type of organization.

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