Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Are you looking to give back to your community by starting a nonprofit corporation? Starting your own business can be tricky, but it doesn’t have to be! Here you will find all of the information necessary to create your nonprofit corporation and the beginning paperwork.
Steps to Form a Nonprofit
Follow these steps to hit the ground running on starting your nonprofit.
Name Your Nonprofit & Declare a Purpose
The first step in forming a nonprofit is choosing a name and a purpose. According to the IRS, here are the main categories for exempt nonprofits: charitable organizations, churches and religious organizations, political organizations, private foundations, and other nonprofits.
For a complete list of what purpose qualifies under each category for a nonprofit corporation, visit the IRS Website here.
Choose your Registered Agent and Incorporator
After choosing a name and a purpose for your nonprofit, you will need to name a registered agent and an incorporator.
A registered agent is a person (or company) that accepts legal documents on behalf of your nonprofit. You or anyone associated with the corporation can be your registered agent, provided that person is available to receive legal documents at the publicly listed address. It is also typical to choose a professional service or a lawyer.
An Incorporator signs the formation document to officially incorporate the corporation. This is usually someone involved in the nonprofit, a lawyer, or a professional service.
While keeping these services in-house can save some money, using an incorporation service saves time and worry.
Draft Bylaws
Bylaws are the rules and laws your nonprofit will operate by, particularly your board of directors. This document will outline how they hold their meetings, are appointed to the board, and how your nonprofit corporation makes large-scale decisions. Here are some essential components of good bylaws of nonprofit corporations:
- Basic Information- this includes the name of your nonprofit, the main address of operation, and the purpose of your nonprofit.
- Rules for Board Members – the Bylaws affect your board of directors most of all, so they need to include the rules with which they are governed. These include the minimum and the maximum number of members, term limits, officers and their duties, procedures for appointment and removal of members, and their powers and responsibilities.
- Guidelines for Meetings – the Bylaws also primarily dictate how the board of governors will hold meetings, so they should detail the guidelines for meetings, like the necessary quorum – how many members are required to be present to make a decision. Other meeting guidelines could be voting procedures for an item to pass and schedules for all board meetings.
- Nonprofit Specific Policies – nonprofits have different policies that they must or may want to follow that don’t apply to for-profit corporations in the same way. There are policies about conflicts of interest, compensation for board members, document retention and destruction, or public disclosure.
- Bylaw Amendment Procedures
- Fiscal Year Dates
- Dissolution Procedures
It is important to be aware of state and local rules. It may be helpful to know them before filing your nonprofit articles of incorporation so that nothing needs redoing. Different states have different rules and regulations regarding nonprofits. A list of these requirements can be found here to make sure that you comply with your specific state’s laws.
File Nonprofit Articles of Incorporation
Now that you have all of these things together, you can file your articles of incorporation with your state government. Requirements for each state will vary, but you will at minimum need the name, purpose, registered agent, and incorporator. In addition, bylaws will be necessary to run the nonprofit and will likely be needed in the incorporation process, so it is best to have them finished before filing.
Harbor Compliance has another chart here that can help you with the specific forms, fees, and expected waiting time involved with incorporating based on which state you live and operate in. These are things associated only with incorporating and not all the costs of starting a nonprofit.
File a 501(c) Application
As mentioned before, the IRS considers five organization types to be tax-exempt and thus a 501(c) organization: charitable, religious, political, private foundation, and other. Check to see which kind of organization your nonprofit falls into.
Tax-exempt status means that all income from a nonprofit organization is exempt from any federal income tax. Before applying for tax-exempt status, you need to apply for a Federal Employer Identification Number (FEIN). A FIEN will allow your corporation to pay employees. Before filing for a FIEN, make sure you have legally declared your nonprofit corporation.
Can You Hire A Nonprofit Incorporation Service?
Yes! It may be more beneficial than trying to handle incorporation yourself. A nonprofit incorporation service can manage the legal side of things, so you don’t have to. They will be available to pick up all of your paperwork, answer your questions, and handle the federal and state government on your behalf. The most significant advantage of using an incorporation service for a nonprofit is that you can be sure that your business is entirely in compliance with the law so that you don’t have to stress over penalties, fees, or delays in your incorporation.
Again, check that the incorporation service is licensed to operate in your state. This can be another benefit of an incorporation service, as they will know the specific rules and regulations that your state or local government has and will save you worrying that you got them all right.
Here is a helpful chart of some of the best incorporation services and which may be best for your individual needs.
Costs Of Forming A Nonprofit Corporation
As mentioned before, the overall cost will vary by state. NPCrowd has a great chart here that details the minimum, maximum, and average cost per state to start a nonprofit corporation. On average, it will take about $750-$1250 to form a nonprofit, including insurance and marketing.
501(c)(3) filing is a fixed price anywhere in America. However, depending on which form you use, Form 1023-EZ is cheaper at $275, and Form 1023 is $600. If you are just starting and expect to make less than $50,000 per year, you are eligible for the 1023-EZ form for the first three years and may want to start with it.
Incorporation fees range by the state but max out at around $150 for basic incorporation and average about $20-$50. In addition, there are other fees associated with expediting the process, depending on how quickly you intend to incorporate and launch your corporation.
Most states also have a charitable registration fee, ranging from free to $400, though most average out to be anywhere from $25-50. This is not required in all states, however.
Insurance will also be a cost to consider, though it will vary based on your state, your corporation’s size, and your coverage. Using an incorporation service may also entail fees, depending on which service you use and the extent of their services; some are free or have free trials.
Keep in mind that some of these fees are annual fees, like filing for tax-exempt status with the IRS. Whether or not other fees are annual will vary based on what state you operate in, and different states may have miscellaneous costs involved with getting started, so make sure to look into your state thoroughly.
It is also worth considering paying someone to help launch your brand and marketing presence, which will vary depending on who you employ and how much you want to invest into a solid brand immediately. Some graphic designers or marketing agents may even work pro-bono since your business is a nonprofit like a lawyer would.
What To Do Right After Forming Your Nonprofit Corporation
After forming your nonprofit, it is crucial to get started on two things immediately: setting up your nonprofit’s bank account and getting insurance.
Set Up a Bank Account
Setting up a separate bank account for the corporation early on will help ensure that you keep everything for your new nonprofit separate from your personal accounts. In addition, keeping a separate account just for the new nonprofit corporation will allow you to easily see how much money is still left available and where it is being spent.
To open a new bank account for your nonprofit, you will need to provide the bank with the FEIN and a copy of the bylaws and the articles of incorporation. With the bylaws and articles of incorporation, the bank will have an idea of the officers on the account and the procedures involved with things like writing checks or safety deposit boxes.
Get Insurance
The most basic form of business insurance is general liability. Still, you may also want to consider insurance that protects the people working for the nonprofit, like workers’ compensation or health insurance for your board members.
The Last Word
Those are the steps you should take to form a nonprofit corporation. Read our guides on what is a nonprofit corporation and nonprofit corporation pros and cons for more information on this entity type. Have questions? Let us know.
Filed under: Advice Columns