Get liability protection and tax-exempt status benefits for your qualifying nonprofit organization.
your organization is involved primarily in educational, scientific, religious, or charitable endeavors, you'll probably want to form a nonprofit corporation for the liability protections and tax advantages this status provides.
How to Start A Nonprofit Organization
Incorporating your nonprofit will set legal protections in place that can keep you and your directors' personal assets separate from the company's liabilities. There are a number of other benefits to forming a nonprofit, as well.
In general, nonprofit corporations enjoy the following benefits:
- Limited liability protection. Directors and officers are not personally liable for the organization's debts and liabilities.
- Perpetual existence. The corporation continues even if a director leaves the business or passes away.
- Eligibility for grants. Nonprofits may be eligible for certain public and private grants.
While nonprofits are bound by different state laws than for-profit enterprises, in general their formation processes are quite similar. Like a regular corporation, nonprofits must file Articles of Incorporation with the state in which they wish to incorporate.
Nonprofit Tax Forms
In addition, the IRS requires nonprofit organizations seeking tax-exempt status to file Form 1023. Several states also require organizations to file for state-level tax-exemption. The nonprofit status most commonly sought by organizations is the Internal Revenue Service's 501(c) tax-exempt status. Organizations that qualify for 501(c) status enjoy the following advantages:
- Tax-exempt status. Qualifying nonprofits can apply for federal and state tax-exempt status
- Enhanced credibility. Potential donors may be more inclined to give to an organization that has an official nonprofit status
- Tax-deductible donations. Donations made by individuals to the nonprofit corporation may be tax-deductible
- Possible exemption. from certain property taxes.
- Reduced postage rates.
ASM Legal Professional Corporation Can Help Nonprofit Incorporation
ASM Legal Professional Corporation can help you form a nonprofit corporation in any state or the District of Columbia and assist your nonprofit by providing the forms necessary for it to obtain tax-exempt 501(c) status with the IRS.
It is important to remember that a 501(c) must satisfy certain conditions and requirements imposed by the IRS to obtain and maintain tax-exempt status. ASM Legal Professional Corporation cannot provide legal or tax advice regarding these conditions and requirements and it may be necessary for your nonprofit to consult with other professionals, such as lawyers, accountants or tax advisors.
Nonprofit Corporation FAQs
What is a nonprofit corporation?
Educational, scientific, religious, and charitable organizations typically form nonprofit corporations to provide limited liability for the people involved in their management. Incorporating your nonprofit association can help you to establish the legal protection that separates the personal savings and possessions of those involved in the nonprofit from the activities of the corporation.
How do I qualify for Tax-Exempt Status as a Nonprofit?
Though other types of nonprofit organizations exist, most of our customers seek 501(c)(3) tax-exempt status with the Internal Revenue Service (IRS). ASM Legal Professional Corporation can help you form a nonprofit corporation in any state or the District of Columbia and assist you in obtaining your tax-exempt status with the IRS.
What are the benefits of forming a nonprofit corporation?
Nonprofit corporations that qualify for 501(c)(3) status enjoy the following advantages:
- Personal asset protection and limited liability for directors and officers
- Tax exemption from federal income tax as a charitable organization
- Grant eligibility to receive private and public grants
- The ability to receive tax-deductible donations from donors
- Perpetual existence, even if a director leaves the business or passes away
- Possible exemptions from property taxes
- Application for special postage rates at a reduced cost
Should I incorporate my nonprofit association?
4 Reasons to Incorporate your Nonprofit Association:
- A nonprofit corporation enjoys exemption from corporate income taxes on profits from activities related to their purpose.
- Qualifying for a tax exemption is harder for associations than for corporations. Without tax-exempt status, your group is unlikely to qualify for many public and private grants.
- Donors can deduct gifts to your group on their federal and state tax income returns once your organization becomes a tax-exempt nonprofit corporation.
- Members and directors of nonprofit corporations are generally protected from personal liability, meaning that their own money, houses, and cars aren't at risk. That's not true for an unincorporated association.
What are the steps to form a nonprofit corporation?
8 Steps to Form a Nonprofit Organization:
- Choose a business name.
- Incorporate online or by phone with ASM Legal Professional Corporation
- Apply for your IRS tax exemption.
- Apply for a state tax exemption.
- Draft bylaws.
- Appoint directors.
- Hold a meeting of the board.
- Obtain any necessary licenses and permits.
What documents are required to form a nonprofit corporation?
Typically Articles of Incorporation or a Certificate of Incorporation is filed with the Secretary of State (or equivalent office).
Does my nonprofit need to register with the state in order to fundraise?
Most states require that nonprofits register in a state before soliciting donations from residents of that state, and some states require registration if the nonprofit can receive donations from within that state (e.g., over the Internet), even if the nonprofit does not directly solicit donations from that state. In addition, the IRS requires disclosure of all states in which a nonprofit is registered on Form 990 if the nonprofit has income of more than $25,000 per year. Penalties for failure to register can include being forced to give back donations or facing criminal charges. ASM Legal Professional Corporation can assist you in registering in those states in which you intend to solicit donations.
What must a 501(c)(3) organization do to be classified as a publicly supported organization (rather than as a private foundation)?
A nonprofit organization that receives substantial portions of its income either from governmental sources or from direct contributions from the general public may qualify as a publicly supported organization under section 509(a) of the Internal Revenue Code. This designation leads to less regulation, exemption from certain taxes that private charities must pay, and other benefits. However, due to the complexity of the laws and regulations governing designation as a publicly supported organization, ASM Legal Professional Corporation recommends that any nonprofit interested in this designation seek legal and tax counsel to provide the necessary advice.
Can I still be a nonprofit if I don't apply for tax-exempt status?
Where should I form my nonprofit?
Most individuals or groups form nonprofit corporations in the state in which they will primarily operate. Advantages of forming a nonprofit corporation in your home state include:
- Fewer complications, if you only plan to operate the nonprofit in your home state
- No need to pay franchise taxes and file annual reports in more than one state
- Less cost
Many companies conduct business throughout the United States and abroad. A nonprofit corporation with business locations in multiple states may form in a single state, then register to do business in other states. This means that nonprofit corporations must formally register, file annual reports, and pay annual fees in every state in which they conduct business.
Is a nonprofit corporation required to have a registered agent?
State laws require all nonprofit corporations to maintain a registered address with the Secretary of State in each state where they do business. The person or company located at that address, known as the Registered Agent, must remain available during all business hours. A Registered Agent receives and forwards important legal documents and state correspondence on behalf of the business.
After I form my nonprofit, how do I remain in compliance?
All corporations are generally required to file annual reports and pay franchise fees to the state in which they're incorporated; however, nonprofits are often exempt from paying franchise fees. In addition, nonprofits are generally required to annually renew their registration in any state in which they are registered. Nonprofits are also subject to various laws and regulations regarding their tax-exempt status. ASM Legal Professional Corporation cannot provide legal or tax advice regarding the tax-exempt status or maintenance of your nonprofit corporation.
What's the difference between a public charity and a private foundation?
Every exempt charitable organization is classified as either a public charity or a private foundation. They are distinguishable primarily by the level of public involvement in their activities.
Generally, organizations that are classified as public charities have an active program of fundraising and receive contributions from many sources (including the general public, governmental agencies, corporations, private foundations or other public charities). Examples include: churches, hospitals, schools, colleges and universities.
By contrast, private foundations typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources). Many offer grants to other charitable organizations and to individuals, rather than operate charitable programs.
What are the common tax forms for charities?
Common tax forms for charities are:
- Form 990, Return of Organization Exempt from Income Tax
- Form 990-EZ, Short Form Return of Organization Exempt from Income Tax
- Form 1023, Application for Recognition of Exemption for 501(c)(3) Charitable Organizations
- Form 1024, Application for Recognition of Exemption for 501(a) Organizations
- Form 1120, U.S. Income Tax Return for Certain Political Organizations
Are there limitations on the activities in which my tax-exempt organization can engage?
Yes, depending upon the nature of its exemption, your tax-exempt corporation may jeopardize its tax-exempt status if it engages in certain activities. For example, section 501(c)(3) charitable organizations may not intervene in political campaigns or conduct substantial lobbying activities. Consult an attorney for more specific information about your organization.
How many directors are nonprofit corporations required to have?
Some states only require one director, but the majority of states require a minimum of three directors