Pre-Incorporation Matters
Prior to incorporation, you should have a clear understanding of what your non-profit organization will be. After determining what societal need you are attempting to address, create a detailed outline of how that need will be addressed. The clearer and more developed your purpose becomes, the easier the next steps will be.
Beyond developing a plan for your non-profit organization, it will be important to figure out a fundraising plan. An organization should have an idea of who the typical donor will be for the organization and should know how to best solicit donations and how to sustain a reliable source of donations.
Also make a plan for an annual budget that will account for expected revenue and expenses (i.e., personnel, administrative costs, fundraising costs, etc.). Often, an annual budget gives greater creditability to a non-profit organization when asking for donations from private donors or applying for special grants/fellowships/loans.
Incorporating your Non-profit Organization
Incorporation procedures for non-profits are similar to incorporation procedures for a general for-profit business. Generally, non-profit organizations incorporate in the state in which they are operating. You should contact your Secretary of State to determine what forms are necessary to apply for non-profit incorporation. Here are some steps to follow:
- Choose a business name and check for availability. In order to incorporate your non-profit organization, you must select a business name. States vary on their requirements on picking a business name. Generally, the business name must be unique (not used by another corporation within the state where you are incorporating), include the word “Corporation” or “Incorporated” within the business name, and not contain words that suggest an association with a specialized entity (i.e., federal, national, bank, doctor, trust, cooperative, etc.).
- Prepare and file Articles of Incorporation. The non-profit organization must file its Articles of Incorporation with the designated state office, generally the Secretary of State. Filing fees vary depending on the state, but usually cost less than $150.
- Create Bylaws. Beyond the Articles of Incorporation, a non-profit corporation (or any corporation in general) should create bylaws that will detail how the corporation will be operated. The bylaws should specify how the business will be run, who will make the decisions, how the decision-makers will be selected, and other important issues. This document does not need to be filed with the state; however, a non-profit corporation should keep a copy of the bylaws within its principal place of business.
- Hold an organizational meeting. After filing the Articles of Incorporation, the non-profit corporation should hold its initial organization meeting. During this meeting, the corporation should appoint directors to its board (if not already listed within the Articles of Incorporation), appoint the corporate officers (CEO, CFO, COO, etc.), adopt the bylaws, set the budget for the fiscal year, designate a bank, and select a corporate seat. Minutes of the meeting should be recorded and copies held within the corporation’s principal place of business (need help keeping minutes? Get our Corporate Minute Writer as a GoSmallBiz member!).
- Get your Employer Identification Number (EIN). You will need to apply for an Employer Identification Number with the IRS. The EIN, or Federal Tax Identification Number, is necessary for tax purposes. The EIN is also necessary to apply for tax exemption. A corporation can apply for an EIN online (through the IRS website), over the phone (800-829-4933), or by mailing/faxing Form SS-4. Your state may also require its own Employer Identification Number or account for tax purposes. Please contact your Secretary of State for the necessary forms/applications for your state employer identification number/account.
Applying for Tax Exemptions
As with any entity/corporation, your non-profit corporation will initially be subject to federal, state, and local taxes. You must apply for federal tax exemption. Some states will also require their own tax exemption application; however, other states simply apply a federal tax exemption to state taxes as well.
Certain local governments also allow tax exemptions for non-profit organizations. You should consult your own local government to learn what tax exemptions (if any) are given to non-profits within your jurisdiction.
Other Considerations
Depending on the jurisdiction and the actual business of the non-profit corporation, other considerations may be necessary. Regulation of non-profit organizations is generally under the authority of the state’s Attorney General. Certain states require non-profits to register with the State Attorney General.
Businesses generally require a local or state license/permit to conduct business. These licenses and permits can vary depending on the jurisdiction and the business your non-profit corporation is conducting, so your local government should be contacted for more details.
Generally, your local county or city clerk’s office will be the best source of information for these licenses and permits. The non-profit corporation may be required to pay a nominal fee for the licenses/permits.
Also, a federally tax-exempt non-profit organization is generally eligible for reduced postal rates for certain types of mail. Contact the U.S. Postal Office for more details.
Finally, a non-profit corporation should obtain any appropriate insurance. A non-profit corporation should consult a professional to consider what insurance may be necessary for the corporation.
