Starting a Non-profit
There are several issues to consider if you're thinking of starting a nonprofit, especially if you want to form a 501(c)(3) organization.
Creating a Mission Statement
Your nonprofit's chances of success increase when you create a mission statement. Creating a mission statement might seem complicated, but it doesn't have to be difficult. Begin with a broad view of what you want your nonprofit to achieve, then pare it down to specifics. If some repetition is involved in your brainstorming, that's OK. It will help ensure that you don't leave out any important details.
501(c)(3) and Other Types of Non-profits
Maryland recognizes several kinds of non-profits: charitable, educational, religious, scientific, healthcare and veterans. None of these qualifies for federal tax exempt status automatically. To achieve 501(c)(3) tax-exempt status, you must file Form 1023, an Application for Recognition of Exemption, with the IRS.
Considerations for Starting a Non-profit
- Your non-profit's assets and property belong to the corporation. In the event of lawsuits or creditor claims against the corporation, only these assets are vulnerable. Trustees, officers and managers have no personal liability.
- Some non-profits qualify for tax-exemption in Maryland. This relieves them from having to pay business income, property, and similar taxes.
- Significant time and effort is required to plan and form a non-profit.
- If you want control and autonomy in running your corporation, non-profit status is not appropriate.
Requirements and Mandatory Forms for Creating a Non-profit
- Create a mission statement.
- Draft a fundraising plan
- Draft bylaws. You don't have to file these with the state in Maryland, but you must attach them to your application for federal tax exemption.
- Appoint a board of directors.
- Elect officers.
- File your Articles of Incorporation with Maryland's State Department of Assessments and Taxation.
- File a trade name registration form with State Department of Assessments and Taxation if your entity is using a name other than the one designated in your Articles.
- Apply for an employer identification number, or EIN, from the IRS.
- Hold an organizational meeting.
- Register for charitable solicitation in Maryland.
How to Retain Your Non-profit Status
When you form a not for profit organization, your first consideration is securing nonprofit status. Then you must concentrate on retaining that status by meeting a few requirements.
- Articles of Incorporation must be filed with Maryland's State Department of Assessments and Taxation.
- You must submit a trade name registration form to Maryland's State Department of Assessments and Taxation if your non-profit's trade name differs from the one used in your Articles of Incorporation.
- You must file an annual report with the State Department of Assessments and Taxation.
- A charitable solicitation form must be filed with the State Department of Assessments and Taxation if your entity solicits funds from the public.
Tax-Exemption and Other Benefits
Achieving and maintaining tax-exempt status involves some other requirements.
- You must file Form 990-N, Form 990-EZ, or Form 990 with the IRS, based on your non-profit's annual gross receipts.
- File Maryland Form COF-85 with Maryland's Charitable Organizations Division if you're not filing IRS Form 990.
- After you receive a 501(c)(3) determination letter from the IRS, you must file a Combined Registration Application with Maryland's Department of Taxation to receive state tax-exempt status, as well as an exemption for sales tax.
- You must also apply separately for exemption from property taxes in the state.
- You must file Maryland Form No. 1, a personal property return, with the Maryland Department of Taxation to retain state tax-exempt status.
- Obtain state or local licenses and permits, if necessary.
What It Costs to Form a Maryland Non-profit
Non-profits in the Free State must pay $170 to file their Articles of Incorporation. This includes a $100 filing fee, a $20 organization and capitalization fee, and a $50 assessment for Maryland's Not-For-Profit Development Center Program Fund.
To obtain status as a 501(c)(3) corporation, the IRS requires an $850 application fee. If your non-profit's annual revenues are less than $10,000, this fee is only $400.
Maryland and National Non-profit Resources
Maryland Nonprofits: This site offers events, job openings, training, advocacy, a download center and research updates.
Business Volunteers Maryland: This group's mission is to inspire volunteers and connect motivated individuals and businesses to nonprofits so communities are enhanced and strengthened.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.