How to Create a Nonprofit Corporation
A nonprofit corporation is an entity whose main purpose is to accomplish a goal rather than accumulate earnings and profits. Typically, nonprofit corporations strive to attain nonprofit status under Section 501(c)(3) of the Internal Revenue Code. Nonprofit status exempts a corporation from paying federal income tax and various state and local taxes. In addition, donations to a corporation with nonprofit status are tax deductible on the donor's income tax return.
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Instructions
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Define the purpose of the organization. Generally, the purpose of the organization promotes educational, charitable or religious practices in our society. The purpose of the organization, or the mission, should be specific and indicate the audience the organization is targeting and how the mission is accomplished. For instance, homeless shelters often state the organization exists to improve the lives of the underprivileged by providing meals, shelter and clothing.
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Elect the board of directors. The board of directors of a nonprofit organization is the party responsible for ensuring that the actions of the organization are compatible with the mission. The board of directors oversees the organization's officers, sets compensation, reviews financial statements, defines policies and procedures and sets the overall tone of the organization. The board of directors includes individuals that have direct knowledge of how to accomplish the organization's goals and often includes an attorney or an accountant.
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Draft organizing documents. Organizing documents include at a minimum articles of incorporation and bylaws. Articles of incorporation are the governing policies of the organization. According to the Foundation Center, nonprofit articles contain the organization's name, registered agent, office address and tax-exempt information. The Foundation Center refers to bylaws as the organization's operating manual. The bylaws define essential matters such as required number of board members and the official duties of the organization's officers.
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File Form 1023, Application for Recognition of Exemption. The Internal Revenue Service (IRS) requires an organization to file Form 1023, in order to obtain tax-exempt status. The form requires submission within 27 months of legal formation of the organization and must be submitted with a user fee. According to the IRS, Form 1023 is not necessary for organizations that are organized as churches, auxiliaries of churches or an organization the has gross receipts not more than $5,000. Approval of an application is indicated with the issuance of a letter of determination from the IRS.
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Tips & Warnings
In order to submit Form 1023, a newly formed organization requires an employer-identification number (EIN). An EIN is obtained by filing IRS Form SS-4 or applying online with IRS.
The information return, Form 990, is required annually for a corporation with nonprofit status. Failure to file this return could result in revocation of the organization's tax-exempt status.
References
Resources
- Photo Credit the homeless image by Yuriy Rozanov from Fotolia.com
