Forming a Nonprofit Corporation

These are the general steps you need to follow in order to form a nonprofit corporation in compliance with local, state, and federal laws. For information specific to your state, please see State Law: Forming a Nonprofit Corporation.

1. Preliminary Matters
a. Your mission
Take the time to write out a mission statement that identifies the societal need you wish to satisfy. Then outline how your nonprofit corporation will go about satisfying the need. See MinnPost.com for a terrific example of a mission statement in the context of online journalism.

This may sound like a distraction at first, but do not underestimate its importance: you will return to this statement time and again throughout the process, whether in preparing your articles of incorporation or planning your fundraising activities. You need to be clear about why you are investing time, effort, and money into forming a nonprofit organization not only for yourself, but because clarity of vision will help attract others to your nonprofit organization, whether as directors, officers, employees, or donors.

b. Figure out a fundraising plan
501(c)(3) status not only gives your nonprofit corporation tax exemptions, but also makes the ability to raise money easier because donations are tax-deductible. You will need to have a plan on how to attract and collect donations. Refer to resources such as Network for Good and Nonprofit Good Practice Guide for information on fundraising plans and ideas.

Remember that organizations that inspire confidence in donors are ones that:

1. are able to communicate who they are and what they do

2. define reasonable and attainable short-term and long-term goals

3. show financial acumen in how to fulfill these goals

4. can chart progress made toward the goals

5. have programs that clearly speak to the organization's mission

6. keep accurate and up-to-date accounting books and corporate records

7. are professionally and efficiently run

8. have 501(c)(3) status so that donations are tax-deductible


c. Plan the annual budget

You should create an operating budget for the upcoming year. An operating budget outlines your planned revenue and expenses, broken down by category. These categories include: personnel (salaries and benefits), administrative (computer equipment and office supplies), and fundraising (marketing and soliticing donations). Once you've incorporated, the board of directors has to authorize the annual budget. Plan the nonprofit corporation's finances for the year using resources such as Free Management Library, The Nonprofit Times, and Nonprofit Guides.

This budget will be of immense help when applying for grant money or asking for donations as you will be able to show how you plan to use the funds. See Bush Foundation's Sample Budget.

d. Reassess your decision to incorporate

Now that you have a mission, a fundraising plan, and a budget, reassess your decision to incorporate. Ask yourself whether the ban on political and legislative activity frustrates your mission. If so, consider one of the other business types available. Also ask yourself whether your budget allows you to operate for a year, or whether you have the time to execute on your fundraising plan. If you feel a financial crush approaching, but still feel that your goal is to become a 501(c)(3) organization, perhaps starting out with a fiscal sponsorship may be best for you.

2. Incorporate your Nonprofit Organization

Most small nonprofit organizations incorporate in the state where they are operating. If you are thinking of something different, Findlaw has a good overview on choosing where to incorporate.

Get in touch with your Secretary of State and request all the forms needed to incorporate as a nonprofit corporation. Additionally, ask whether you can get copies of any statutes on establishing and running a nonprofit corporation as they will be a valuable resource throughout this process. The State Law: Forming a Nonprofit Corporation section in this Guide has many state-level resources to help you in this process.

a. Choose a business name for the corporation and check for availability.
If you are currently operating under a business name, you may want to keep that name because it already identifies your business. However, you could also take this opportunity to change your organization's name to something more appropriate. Please see our section on choosing and checking the availability of a name for your non-profit organization, as well as our section on the trademark law aspects of choosing a name.

Although the details vary based on state law, ordinarily the name of a nonprofit organization:

i. must not be the same as that of another corporation on file with the state (substantially similar names will likely be rejected as well)

ii. must contain the words "Corporation" or "Incorporated" or an abbreviation of one of these words ("Corp." or "Inc.")

iii. must not contain words that suggest an association with certain specialized entities like the federal government (prohibited names include: "Federal," "National," or "United States") or a restricted type of business (prohibited names include: "Bank," "Lawyer," or "Doctor") or a special legal entity (prohibited names include: "Cooperative," "Reserve," or "Trust").

Although you are not required to do so, you should consider registering your business name as a federal and/or state trademark. See Trademark for Business Naming for details.

b. Recruit and appoint a director or directors
The board of directors makes the major strategic and financial decisions for a nonprofit corporation, including appointing its officers. Some states require that directors be named in the articles of incorporation, while others allow the owners/incorporators (those filing the paperwork) to appoint directors at the initial organizational meeting. The minimum number of directors and any additional requirements for director eligibility varies based on state law. As you consider who you would like on your board, think about whether the potential director:
  • has demonstrated a commitment to your nonprofit organization's purpose
  • possesses good fundraising skills
  • is well-connected
  • has experience managing money
There are a many strategic decisions to make here, which are beyond the scope of this Guide. You should consult with a nonprofit attorney and others experienced in this field about what kind of personalities you will want on your board, as well as setting an appropriate board size.
c. Prepare and file articles of incorporation
Refer to our section on Articles of Incorporation for Nonprofit Corporations on how to prepare articles for your nonprofit organization. You will want to file the document with the appropriate state office, usually the Secretary of State.

There will be a filing fee, which generally ranges between $20 and $125 depending on the state. See the State Law: Forming a Nonprofit Corporation section for details on state filing fees.

d. Create the bylaws
Bylaws set out the details of how the business will be run, who will make what decisions, when decisions will be made, and so forth. It is important to think about the bylaws carefully because you will be expected to follow them. You are not required to file bylaws with a state office, but you should keep a copy at your principal place of business.
e. Hold an organizational meeting
The owners/incorporators, or the initial directors if named in the articles of incorporation, should hold an initial organizational meeting to:

1. appoint directors (if not named in the articles)

2. appoint corporate officers
3. adopt the bylaws
4. set the nonprofit corporation's budget for the fiscal year
5. designate a bank
6. select a corporate seal

Someone present at the meeting should record minutes of the meeting, and the minutes should be stored at the nonprofit corporation's principal place of business.

f. Keep a Records Book

You will need to set up a records book to store all the important documents pertaining to your incorporation in one place.

3. Get your Employer Identification Number

You will need to apply for an Employer Identification Number, also known as EIN, from the IRS for your nonprofit corporation. You can apply for an EIN:

  • by submitting the required information online at the IRS website
  • by telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. in your local time zone
  • by mailing or faxing Form SS-4, the Application for Employer Identification Number
Instructions for Form SS-4 are available on the IRS website. The EIN is issued immediately once the application information is validated.

You will also likely need to obtain a state employer identification number or account for tax purposes. See State Law: Forming a Nonprofit Corporation for details on state requirements.

For general information on the tax obligations of corporations, including requirements relating to self-employment and employment taxes, see the Tax Obligations of Small Businesses section of this Guide.

4. Apply for tax exemptions

As with any corporation, a nonprofit corporation initially is subject to federal, state, and local taxes. You will have to apply for federal income tax exemption before being able to enjoy state and local tax exemptions.

a. Federal Income Tax Exemption

You will likely have to to apply to the IRS in order to become a tax-exempt organization under 501(c)(3) of the tax code. Refer to Applying for 501(c)(3) Tax Exemption for more on this process, and also see our detailed guide to the IRS's decision-making process for granting tax exemptions to journalism non-profits. There are many potential pitfalls in this process. We strongly recommend reviewing this guide before applying for an exemption.

b. State Tax Exemptions

Your state may impose taxes on your nonprofit corporation based on its net earnings. In some states you will receive state tax exemptions once you've filed your articles of incorporation and have gained 501(c)(3) tax exemptions from the federal government. In others, you will have to apply for state tax exemptions. Refer to our state guide for more information on how to obtain state tax exemptions.

c. Local Tax Exemptions

Your nonprofit organization may be exempt from paying property taxes on property it owns or leases. Such exemptions vary widely by location; check with the tax assessor of your local government (town or city hall, or the seat of county government) to find out how to apply for applicable exemptions.

5. Other steps to take
a. Register with your State's Attorney General
One duty of a state's Attorney General is to oversee nonprofit organizations and ensure that they are in compliance with the law. As a result, some states require nonprofit organizations to register with the Attorney General's Office and send periodic reports on the allocation of the nonprofit organization's funds. Refer to our state guide for more information on the requirements of your state.
b. Open a Bank Account for Your Business
You should keep the nonprofit corporation's finances separate from your personal accounts. A good way to do this is by opening a bank account for your nonprofit corporation. You will probably need your EIN, a copy of the articles of incorporation, and a resolution identifying authorized signers if those names are not listed in the articles. Here is one example of the documentation that banks ask for.
c. Obtain any required local licenses or permits
As a business doing journalism, you are not required to obtain any federal or state licenses or permits relating to carrying on a particular trade. Most local or city governments, however, require every business to obtain a basic business license, sometimes called a tax registration certificate. You get this license from your city or county. The best way to get information about fees and procedures is to contact your county or city clerk's office or other local government authority. The local chamber of commerce and other small business owners might also be a good resource for information regarding local licenses and permits.
d. Apply for a Nonprofit Postal Permit
In general, 501(c)(3) nonprofit organizations qualify for significantly reduced postage rates for certain types of printed mail. In order to take advantage of these rates, you will have to apply for a nonprofit mailing permit from the U.S. Post Office using PS Form 3624.
e. Insurance
Obtain the appropriate insurance for your nonprofit corporation. You will probably need to take out new policy for the nonprofit corporation from organizations such as The Nonprofits Insurance Alliance Group, Nonprofit Insurance Services, First Nonprofit Insurance Company, and Riverport Insurance. Talk to a legal professional about what you need coverage for, and consider what you are willing to risk.
 

Last updated on September 30th, 2008

   
 
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