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Forming a Non-Profit Corporation
Credit: ACorporation4Less.com
| What is a nonprofit corporation? A nonprofit corporation is an organization formed as a corporation for purposes other than generating a profit, and in which no part of the organization's income is distributed to its directors or officers. Nonprofits are formed pursuant to state law, often under the Revised Model Non-Profit Corporation Act (1986). A nonprofit can be a church or church association, school, charity, medical provider, legal aid society, volunteer service organization, professional association, research institute, museum, or in some cases a sports association. Being formed with the state as a nonprofit corporation does not automatically provide an organization with tax-exempt status. Nonprofits must apply for tax-exempt status at the federal and sometimes at the state level. Back To Top |
| What steps need to be taken to form a nonprofit? The first step is to file nonprofit articles of incorporation with the proper state agency. It is important that the articles contain the required clauses to ensure your nonprofit will qualify for tax-exempt status. ACorporation4Less.com prepares and files nonprofit articles of incorporation in every state. After the nonprofit articles of incorporation are filed, tax-exempt status must be applied for at the federal level and sometimes at the state level. To apply at the federal level, a timely filing of Form 1023 must be made with the Internal Revenue Service (IRS). ACorporation4Less.com does not prepare IRS Form 1023.. To determine what form needs to be filed at the state level, contact the state department responsible for taxation. Additionally, the nonprofit corporation must comply with corporate formalities and hold annual meetings of directors and members. Bylaws must also be adopted. Documents that help you comply with these corporate formalities are contained in ACorporation4Less.com' nonprofit corporate kit. Back To Top |
| What business purposes are valid for a nonprofit? To qualify for federal tax-exempt status under 501(c)(3) of the Internal Revenue Code, the nonprofit must be organized and operate for some religious, educational, charitable, scientific, literary, testing for public safety, fostering of national or international amateur sports, or prevention of cruelty to animals or children purpose permitted under this section of the code. Nonprofits may also be formed for other purposes pursuant to different sections of the Internal Revenue Code. To qualify for federal tax-exempt status as a nonprofit under a different section of the code, your corporation must comply with the requirements of that federal tax code section. The business purpose of the nonprofit must be listed in the articles of incorporation, and to apply for tax-exempt status, it is very important that the purpose of the organization be well described in the articles. Additionally, certain states require approvals from state departments prior to approving the formation of a nonprofit corporation. One example of this is New York. New York often requires one or several departmental approvals based on the business purpose of the prospective nonprofit. Please keep in mind that there may be additional time required to obtain these approvals, and additional fees charged. This varies by state. If you would like ACorporation4Less.com to obtain these approvals on behalf of your prospective nonprofit organization, the fee is $100 per approval. For a specific answer to whether or not your organization’s purpose is acceptable to be classified as a nonprofit, contact an attorney or accountant. Back To Top |
| What are the IRS classifications of nonprofits? ACorporation4Less.com prepares articles of incorporation for nonprofits pursuant to section 501(c)(3) of the Internal Revenue Code. Nonprofits formed under 501(c)(3) must be formed for some religious, educational, charitable, scientific, literary, testing for public safety, fostering of national or international amateur sports, or prevention of cruelty to animals or children purpose. Nonprofits may also be formed for other purposes pursuant to different sections of the Internal Revenue Code. If you want ACorporation4Less.com to form your nonprofit pursuant to a different provision of the Internal Revenue Code, please let us know the code section in the purpose portion of our order form. To determine if your nonprofit needs to be formed pursuant to another provision of the Internal Revenue Code, please consult the IRS organizational reference chart. For specific advice, please consult an attorney or accountant. Back To Top |
| How many directors are nonprofits required to have? Most states require nonprofits to have a minimum of three directors; however, some only require one director, and others allow for less than three directors. Back To Top |
| What is a federal tax ID number and why do I need one? A federal tax identification number, also known as an employer identification number or EIN, is basically a social security number for businesses. It is the number the IRS uses to identify the business, and it must be included on tax filings the business makes. Businesses apply for an EIN by preparing IRS Form SS-4 and filing it with the IRS. ACorporation4Less.com can assist with the preparation and/or obtainment of your company's tax ID number. Futhermore, certain states also require a state tax identification number. To learn if your state requires a separate number, contact your state's taxation authority. Please note, ACorporation4Less.com does not assist with the obtainment of state tax identification numbers. If you operate your business as a sole proprietorship or partnership and are now looking to incorporate or form a limited liability company (LLC), you must obtain a new EIN for your business. Back To Top |
| What are the advantages of forming a nonprofit? Nonprofits receive the same limited liability protection as do for-profit corporations. This means that directors or trustees, officers, and members are typically not personally responsible for the debts and liabilities of the nonprofit organization. Other benefits include:
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| What are the disadvantages of forming a nonprofit? The main disadvantage of forming a nonprofit organization is the increased paperwork that is required. Articles of incorporation must be filed with the state, bylaws prepared, and meeting minutes must be kept with your organization’s records. ACorporation4Less.com can help with these steps by preparing and filing your incorporation papers, and our nonprofit corporate kit contains sample bylaws and meeting minutes. Also, applications for tax-exempt status must be filed at the federal and sometimes at the state level. ACorporation4Less.com does not prepare the necessary federal or state tax-exempt application forms; therefore, you will need to complete this process separately. It is also important to remember that nonprofits cannot be used to generate profits for the owners, and the nonprofit’s business purpose must conform to IRS regulations. Back To Top |
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