How to Become a 401c3 Organization

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Forming a nonprofit corporation is similar to forming a traditional corporation, but with the added step of applying for tax-exempt status. A nonprofit is typically an organization that exists to meet a need within a community. While a 501(c)(3) can earn profit as a corporation or other business entity, it cannot distribute that profit to its owners. If you currently own or want to start a business that serves a purpose in your community, you may want to consider applying for tax-exempt status. Once you've been granted tax-exempt status, you'll be eligible for grants, tax deductible donations, and be exempt from paying sales, income, and property taxes.

Things You'll Need

  • IRS Form 1023
  • IRS Form 8718
  • Fees to file articles of incorporation (may vary by state)
  • Start by choosing a name for your business. Your name will have to be unique, or not in use by another business entity, and it must meet the laws of the state in which your business operates. These laws vary by state. Typically, your business name should be followed by an identifier, such as "Corporation," "Inc.," or "LLC."

  • File the paperwork necessary to form the general structure of your business. A 501(c)(3) must be incorporated or a limited liability company.

  • File your application for IRS tax-exempt status. You'll need to submit forms 1023 and 8718, along with the application that you filed for the general structure of your business.

  • File for your state tax-exempt status. Depending on the state in which you do business, you may need to file a separate application to receive tax-exempt status. In others, you will be automatically granted tax-exempt status as long as your federal status has been granted. In the remaining states, you will need to send your letter from the IRS stating that you have been granted tax-exempt status in order to qualify in your state.

  • Create your bylaws, appoint a board of directors, and hold your first meeting. Your bylaws are the policies and procedures that you'll follow in operating your nonprofit organization. Your board of directors will serve as an advisory panel and help to ensure smooth operations. It may be necessary to hold your first meeting and submit your minutes from the initial board of directors meeting before you apply for any necessary licenses or permits required of your state or local municipality to operate your business.

  • Consult your state and local authorities to determine what licenses and permits are required to legally operate your business, and submit the appropriate information.

Tips & Warnings

  • Utilizing the services of an attorney experienced in setting up a formal business entity can save you a lot of trouble and headaches. In many cases, the attorney can handle filling out and filing all the paperwork.
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