How to start an Alabama nonprofit

Start by doing research. Is your nonprofit serving a mission in the community? And do you have the means to maintain it? Then make your case: write your mission statement, think about a name, and select your directors carefully. After that, all there’s left to do is file. 

Advantages and disadvantages of having an Alabama nonprofit organization

A nonprofit is an entity 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. Here are the pros and cons of having one in Alabama:
 

PROS

CONS

Registering a nonprofit protects your personal assets from lawsuits and creditor claims. It also protects your trustees, officers, and volunteers. Alabama nonprofits are usually exempt from federal tax on any income related to the organization's exempt purposes. Your Alabama nonprofit organization may also receive Alabama's state tax exemption. You may be able to collect tax-deductible contributions. There is no need to file a separate application for recognition of exemption with the state of Alabama. Your nonprofit may qualify to receive private and public grant money.

You may not have individual control and autonomy over your corporation because your nonprofit is not owned by you or your stockholders. Increased paperwork is involved, such as creating bylaws and recording and maintaining corporate minutes. You'll need time and money to apply for the federal tax exemption, and you'll need an accountant or legal professional to help you operate your nonprofit. Your nonprofit's finances are open to public inspection. Charitable organizations in Alabama that solicit contributions within the state must register with the Alabama Attorney General's Office. Some exemptions exist.

How to form a nonprofit in Alabama

1. Developing a business plan for your Alabama nonprofit

• 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 and board members.
• Create a budget and timeline.

2. Writing a mission statement 

A mission statement clarifies your goals and explains how you plan to meet them. As a guideline, describe what, where, when, and how your nonprofit's purpose will be met, as well as who is going to help your nonprofit meet it. It may take a few tries to narrow your ambitions down into a workable plan.

Although you're creating a nonprofit because you want to give back to your community, you still have to meet certain requirements to protect yourself and to ensure that you achieve your organization's goals. When you create a mission statement, you can explain your organization's purpose. Consider what problem or issue your organization wants to address, then focus your statement on including the efforts and values that will guide your nonprofit to these goals.

3. Choosing a unique name 

Your nonprofit's name must be distinguishable from existing names registered with the Alabama Secretary of State. This means it shouldn't be the same as or too similar to another organization's name. The name should also not be misleading to the public – it must accurately reflect the nature and purpose of your organization.

4. Filing your Certificate of Formation in the state of Alabama

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.
 

Other forms and requirements for Alabama nonprofits: Name Reservation Certificate. Nonprofit Bylaws. AAG-Charity Form. IRS Form SS-4 for an employer identification number, if your nonprofit has employees. IRS Form 1023 for tax exemption. IRS Determination Letter. Form 990 or a financial statement for reporting receipts or revenue from donations.

5. Applying for grants and loans in Alabama 

Grants and loans from federal, state, and private sources are a major source of funding for Alabama nonprofits. A not-for-profit corporation is responsible for complying with grant requirements and keeping appropriate records. It's important for nonprofits to keep money received from grants separate and apart from the nonprofit's general fund. A good reputation in administering grant monies helps nonprofits obtain more funding from these sources. 

The State of Alabama has more information about applying for grants on behalf of your nonprofit.

What to do after forming a nonprofit organization in Alabama

After forming your Alabama nonprofit organization, you must follow specific guidelines to retain your status:

• Keep detailed records of all your sources of income.
• File annual reports.
• Keep unrelated activities separate, and pay taxes on them separately.
• Make sure your time and resources spent are related to your organization's exempt status.
• Keep written disclosures made to any donor who contributes to the organization – even small contributions need documentation.
• Maintain careful records of corporate meetings.
• Do not distribute any corporate income to board members or anyone else. Salaries may be paid as long as they're reasonable.

Alabama nonprofit resources

1. Alabama Department of Economic and Community Affairs (ADECA): This grant resource center assists nonprofits in researching, writing, and obtaining grants.
2. Alabama Association of Nonprofits: When you become a member, you'll have access to a number of services, including workshops, IRS information, accounting services, and grant opportunities. Membership is free.

Still have questions? Learn more about how to register your own nonprofit with Rocket Lawyer and get started today!
 

Key takeaways Starting a nonprofit takes planning, like creating a mission statement, picking a name, and choosing responsible directors to lead the group. There are good things about having a nonprofit in Alabama, like tax breaks and protection from personal lawsuits, but it also comes with extra paperwork and public financial records. After forming an Alabama nonprofit, it’s important to stay organized, follow state laws, and stay focused on helping the community to keep your nonprofit status.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is a nonprofit organization?
• How to start a nonprofit organization
• How are nonprofits taxed?
• How to get 501(c)(3) tax-exempt status
• How to register a nonprofit by state