Forming a Non Profit

A nonprofit is a corporation or association created to promote and maintain the well-being and greater good of a community, in which profits (or surplus) are directed towards the business and mission rather than divided among the owners and shareholders. Nonprofits are often tax-exempt. There are several different types of nonprofits, each with its own purpose, structure, regulations and limitations, and tax implications.

The process of forming a nonprofit and applying for tax exemption, like forming a regular corporation, can be a complicated process, but knowing the necessary requirements can make it more manageable.

1. Develop a Business Plan

• Define the purpose and goals of the organization
• Research the issues and determine what resources you have and need
• Establish your priorities
• Market your idea to possible volunteers, board members, and donor
• Create a budget and timeline

2. Choose a business Name

After checking corporate name availability through your state’s filing office,choose a business name.

3. Create Articles of Incorporation

This is the legal document that brings the business to life. It includes important information like the nature of the company and the location of the corporate headquarters. Once accepted, the corporation becomes its own legal entity. 

4. Apply for Tax Exemptions

Submit your federal tax exemption application to the IRS. It can take 3-12 months for the IRS to finalize a decision, after which you will receive approval or denial. If you are denied federal tax exemption, but believe you qualify, consider consulting an attorney. In most states, federal tax exempt status includes state tax exemption. In a few states, however, you must apply separately. Contact your state tax agency for details.

5. Create Corporate Bylaws

This document defines the corporation's structure, specifies how the corporation will conduct its affairs, determines the fiscal year of the corporation, and lists the rights and responsibilities of the officers and shareholders.

6. Appoint Directors

The initial board of directors will help coordinate planning and fund raising, translating the organization’s vision into reality. As the organization progresses, the structure of the board and its members may change.

7. Hold a First Meeting and take Minutes
This document is used to record the official actions taken during the first formal meeting of the board of directors. It generally consists of electing officers, recording the receipt of tax exemptions, adopting bylaws, setting up bank accounts, and admitting members.

8. Obtain Licenses and Permits
Before officially conducting business, many businesses are required to obtain certain state and local permits and licenses. Check with your state department of consumer affairs or state licensing agency for more information.

9. Establish Record Keeping and Accounting

Always be sure to keep official records of business activity. Things such as corporate documents, board meeting minutes, financial reports, and other records should be filed and saved for protection of potential legal liability. Public charities are required to make public their IRS 990 forms, which disclose the organization’s financials, mission and operations.

Laws and regulations for nonprofits vary by state, so be sure to consult your state government agencies for specific information. Take Rocket Lawyer’s free Business Legal Check Up to find out what other forms and documents your business needs. We can help you create, customize, and manage all necessary legal forms for your business. Incorporate your nonprofit with our Free Incorporation Service--simply answer a few  questions and we create your initial paperwork and file it with the state.

Laws on this topic may vary from state to state. This content is not meant to provide you with complete information and it is not intended to be legal or tax advice. It is recommended that you consult with your own attorney, accountant or other advisor regarding your specific situation.