How to Set Up a Nonprofit Corporation?

Wondering how to set up a nonprofit corporation? The process is similar to setting up a standard corporation, although it does require a few additional steps.3 min read

Wondering how to set up a nonprofit corporation? The process is similar to setting up a standard corporation, although it does require a few additional steps. These include applying for tax exemption with the state tax division and the IRS.

How to Start a New Business as a Nonprofit Corporation

When setting up a business as a nonprofit corporation, you will need to take certain steps:

  • Obtain materials related to nonprofit corporations from the corporate filing office in your state.
  • Select a business name that meets all requirements under the corporation laws in your state.
  • File your company's articles of incorporation and pay the required filing fee, which is between $30 and $40 in most states.
  • Apply for tax exemptions in your state and on a federal level with the IRS.
  • Establish corporate bylaws, which outline the rules and regulations for operating your nonprofit organization.
  • Schedule and hold the initial meeting of the board of directors.
  • Apply for and obtain any required permits and licenses.

Choose a Business Name

Each state has different requirements for business names, but the first step is to find out from the corporations division in your state how to search for existing business names, along with any required phrases or terms that must be used. In some states, you can pay a small fee and reserve your proposed business name until you are able to file articles of incorporation.

Prepare and File Your Articles of Incorporation

After you have selected a name for your nonprofit corporation and found that it is available for use in your state, the next step is preparing and filing the articles of incorporation. Some states call these articles of organization. This document should be filed with the corporate filing office in your state.

Draft Corporate Bylaws

You must also create internal rules that will govern the operation of your nonprofit organization. These rules are called bylaws. The bylaws will include information about the procedures and rules around electing officers and directors, voting on issues, and holding regular meetings.

Apply for Your Federal 501(c)(3) Tax Exemption

Upon approval of your articles of incorporation, the corporation filing office will return a copy to you. When you receive this document, the next step is submitting the application for 501(c)(3) exemption with the IRS. In order to file this application, you must include a copy of the articles of incorporation that has been filed with your state.

Hold a Directors Meeting

Corporations must elect members to their board of directors, and those members must meet regularly. The first meeting's purpose is to handle formalities, such as recording when state and federal tax exemptions are received, as well as to conduct any initial business.

After adopting the bylaws, the owners of a corporation should elect officers to the board. In most states, laws require corporations to elect:

  • A president.
  • A secretary.
  • A treasurer.

You may also be required to elect a vice president to the corporation's board.

From there, the corporation's owners must grant authorization to the elected board members to start taking all necessary actions to begin business activities. Examples include admitting members and setting up bank accounts. After completing the first meeting of the directors, make sure to create and file the meeting minutes in the corporation's records book.

Obtain Licenses and Permits

Both for-profit and nonprofit businesses are legally required to apply for and obtain local and/or state permits and licenses before conducting any business. Corporations must obtain licenses, as must the owners of sole proprietorships, partnerships, LLCs, and other business entities.

Appoint a Registered Agent

In every state, the owner of a nonprofit or for-profit corporation must appoint a registered agent. This role can be filled by an individual or a company. Responsibilities include handling and processing legal paperwork on behalf of the corporation, such as legal forms, important business notices, state filings, and other legal paperwork.

File for an EIN for the Business

The next step in setting up a nonprofit corporation is filing for a federal EIN (employer identification number). Most businesses are required to have EINs, even if they don't currently have employees or plan to hire employees in the future. Since most businesses must have an EIN, the process to obtain one is easy. You can submit a request through the IRS website to get your EIN in the fastest and easiest way possible.

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