Cullinane Law Group does all the work to start new nonprofits with 501(c) tax-exempt status. So you can learn more, here are some key steps on how to start a new nonprofit organization.

Some Background – Nonprofit vs. 501c3

What is a nonprofit?

  • The word “nonprofit” generally describes an organization that works to serve a public purpose, rather than to provide financial benefit to any particular individual, corporation, or entity.
  • Nonprofit status refers to incorporation status under state law.
  • Nonprofits are organized around a cause, mission, or community need. They are organizations that work to serve a public purpose.

What is IRS 501(c)(3) status?

When you’re working to start a new nonprofit organization, remember that is is much more than just the state incorporation piece.

  • “501(c)(3)” refers to a specific tax category in the Internal Revenue Code. There are dozens of 501(c) categories — the (3) is just one of many. Many nonprofit organizations apply for and receive 501(c)(3) status from the IRS.
  • Tax-exempt status refers to state and federal income tax exemption. The 501(c)(3) designation is one such federal tax-exemption. But, it is important to note that there are dozens of 501(c) categories. An organization applies to the IRS to get a tax-exempt designation. Usually, the organization will use IRS Form 1023, Form 1023EZ, or Form 1024 to apply for tax-exempt status.

Steps to start a new nonprofit organization with IRS 501(c)(3) status

 1. Make a Plan

As you’re making plans for your new nonprofit organization, it’s important to clearly define who your organization will serve, what it will do, where it will operate, when it will conduct services, and how it will fill a community need. Decide if you really need to start another nonprofit, or if your philanthropic ideas can be utilized in an already-existing entity. Make a plan, do your research, create a team. Ask:

Who will the new nonprofit serve?

  • What is your community?
  • Is there a specific class or group (people, animals, school, etc.) that you’ll provide support or services to?
  • Who are the clients (if any)?

What programs will the nonprofit offer?

  • What will you do to help the community?
  • How will you provide services?
  • Who will perform the work?
  • How will clients learn of your service?
  • Where will the work occur?
  • When will you perform this work?
  • What will be the nonprofit’s core activities?

Clarify the new charity’s purpose – Why will the organization exist?

  • How is the charity going to meet an unmet community need?
  • How will this nonprofit address this need differently from other nonprofits in the same field?
  • What is the nonprofit’s mission?

Create a Team

Pull together people who care about the cause as much as you do. Work with that team to help develop a business plan and strategy. You may want to work with an attorney who specializes in nonprofit, tax-exempt work so they can help you with your organization’s start-up.

 2. Select a Name for the New Non-Profit 

Pick a name that describes your organization’s mission, that the public is likely to remember, and one that isn’t being used by another business or group as a trademark or domain name.

The legal name of your nonprofit corporation may not conflict with any other registered name. Check availability of your desired name by conducting a name search with your secretary of state.

3. Recruit a Board of Directors

Nonprofits are not owned by any one person – not the founders, not the board, not the staff.

Instead, nonprofits are usually managed by a board of directors or members. If it is managed by a board, that governing board is legally accountable for its actions.  They are accountable to the public, to your supporters, and to your beneficiaries to oversee the accomplishment of the organization’s purposes.

Each state has different requirements on the number of directors; check with the secretary of state.

Note:

  • You will need to set out who manages the organization very clearly in your formation documents – the articles of incorporation (sometimes called certificate or formation) and in your bylaws.
  • Some nonprofits are member-managed; those members may have certain rights, such as voting on a board. Other organizations may be director-managed. Some have a combination of member and director management.
  • Each state has different requirements on the number of directors; check with the secretary of state.
  • Each state sets out legal duties for the directors and officers.

Learn more about nonprofit ownership. One of the most often confused aspects of nonprofits concerns “ownership” of a nonprofit.

  4. Select a Business Structure & File Corporate Formation Documents – Nonprofit Articles of Incorporation

When you’re launching a new nonprofit start up, you’ll want to consider the business entity.

A common business structure in the nonprofit world is the “nonprofit corporation.” Business structures are state law concepts. While a common business structure is a nonprofit corporation, other options in some states include a benefit corporation, nonprofit LLC, or a unincorporated nonprofit association.

You will draft and file documents to become a state nonprofit corporation (or other appropriate state entity). Check with your state’s secretary of state on various business options.

Note: If you file as nonprofit corporation, you likely will include in that filing document:

    • Purpose of organization
    • Name of initial directors
    • Registered agent’s name and address (a registered agent is the person responsible for accepting lawsuits, certain government notices, and legal notices for the organization)
    • Statement on membership (members or no members)
    • Statement that the organization is organized for certain IRS tax-exempt purposes. 

  5. Prepare Nonprofit Bylaws

Bylaws are your organization’s operating manual. They set out the rules that govern the internal management of an organization.

The initial board of directors should prepare and adopt bylaws for the corporation simultaneously with the preparation of the articles of incorporation or soon thereafter. A copy of the bylaws, signed by a corporate officer, are submitted when applying for the federal tax-exemption.

Learn more: what is the difference between articles of incorporation and bylaws?

    6.  Hold an  OrganizationalMeeting

Your new nonprofit corporation will hold an organizational meeting to complete the formation of the entity. At this meeting, the organization should approve the bylaws, elect additional directors, appoint officers, and approve initial resolutions such as opening a company bank account. Remember that it is important to keep minutes of this meeting.

  7.  Apply for a Federal Employer Identification Number – EIN

Your organization will obtain an EIN regardless of whether it will hire employees. You will use this EIN number on federal tax returns and receipts. Additionally, your organization needs an EIN to open a bank account. To obtain an EIN, your organization should complete IRS Form SS-4, available on the IRS website.

 8. Apply for 501(c) Tax-Exempt Status with the IRS

Tax-exempt status means that an organization is exempt from paying certain taxes.

There are DOZENS of IRS 501(c) categories, each with unique rules and obligations. Generally, IRS tax-exempt status exempts a nonprofit from paying corporate federal income tax on income generated from activities that are substantially related to the purposes for which the group was organized.

To apply for federal tax-exempt status, a nonprofit applies to the IRS using Form 1023, 1023EZ, or 1024, depending on the type of work and budget projections.

Non-profit with 501(c)(3) status – IRS Form 1023 or IRS Form 1023EZ

This tax-exempt status is NOT automatic. You next need to set up the non-profit with 501(c)(3) status. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

The application to apply for section 501(c)(3) status is the Form 1023 or the Form 1023-EZ, depending on the organization’s expected revenue.

IRS Form 1023 EZ

The Form 1023-EZ is for small organizations that expect to have less than $50,000 in annual revenue.

In 2023, the IRS filing fee for Form 1023EZ is $275. This is an online application.

IRS Form 1023

The IRS Form 1023 is the application that organizations use to apply for 501(c)(3) tax-exemption. The IRS periodically changes the applications. But, the Form 1023 application usually requires the applicant submit:

  • Articles of Incorporation – a certified copy of the articles of incorporation from your state
  • Bylaws
  • Financial information – pro forma financial statements, including revenue and expense statement for current and three preceding fiscal years and/or proposed budgets for upcoming years
  • Narrative description of past, present, and future planned activities
  • Names and addresses of directors and officers
  • Annual accounting period (fiscal year)
  • Statement as to whether the organization is claiming status as a private foundation, public charity, supporting organization, church, or other category
  • Employer Identification Number (EIN).

In 2023, the IRS filing fee for Form 1023 is $600. This is an online application.

IRS Form 1024

The IRS Form 1024 is the application that organizations use to apply for other 501(c) categories of tax-exemption. 

 9. Apply for State Exemptions and Permits – State Tax Exemption

The state comptroller oversees collection of state and local taxes, fees, and assessments. Many state laws allow certain organizations to be exempt from paying sales tax, hotel occupancy tax, and franchise tax. You must apply for these state exemptions; it is not automatic.

Your organization may also need to obtain applicable licenses and permits.

Some may include:

  • State tax-exemption applications – sales tax, franchise tax
  • State or local business licenses

As you work towards your new nonprofit start up, remember to check with other state offices – the comptroller or tax office.

 10. Apply for Federal Charitable Solicitation & Fundraising

Many states require registration prior to soliciting funds or hiring solicitors.

 

Learn More

 

Get assurance that your organization is set up the right way, the first time

Launching a nonprofit can be an exciting (but sometimes overwhelming!) experience.

Cullinane Law Group provides a quick, straightforward solution to set up a nonprofit with 501(c)(3) status. From drafting your governing corporate documents and obtaining federal tax exemption, to counseling on compliance and reporting requirements, we offer complete flat-rate packages to get you off the ground. Please give us a call when you’re ready to start a new nonprofit organization.

We handle all of the work to set up for 

  • 501(c)(3) public charities, foundations, supporting organizations
  • 501(c)(4) social welfare organizations, civic leagues
  • 501(c)(6) associations, business leagues, chambers of commerce
  • 501(c)(7) social and recreational clubs
  • other tax-exempt entities.