5 Legal Things to Know Before Starting a Nonprofit

A nonprofit dedicates its activities to a social cause. A nonprofit’s revenue goes to furthering its causes but not distribution to members, shareholders, or employees. A nonprofit must also comply with the law. Below are 5 legal things that someone intending to start a nonprofit should know.

1. Requirements by Regulating Body

Nonprofits answer to regulating bodies with the legal mandate to monitor how they operate. For instance, the Internal Revenue Service (IRS) monitors nonprofit organizations in the United States using a Code Section. It is essential to know about the code before starting a nonprofit to evaluate its eligibility for nonprofit status.

A fundamental requirement is a service to the public. The bylaws must structure the organization to operate for a specific purpose like securing animal welfare, ensuring children’s safety, research, charity, or research.

An institution that deals with issues relating to activities by nonprofits like universities, hospitals, or churches can apply to be nonprofits. In such instances, they must share operating and finances with the public. Sharing enables founders, donors, and volunteers to stay aware of the use of their contributions.

2. State Requirements

States may have their requirements that potential founders should know before starting a nonprofit. For instance, states like Arizona, Pennsylvania, Georgia, and Nebraska require nonprofits to publish a notice of incorporation in the local newspapers. Alaska requires the filing of an initial report in addition to biennial or annual reports. It is crucial to determine the state requirement as some might require a nonprofit to apply for specific permits or local licenses.

3. Preparing Articles on Incorporation

A nonprofit must file a formation document called “articles of incorporation” according to requirements by the state where the organization will operate. The minimum requirements for an article of incorporation are:

Unique name: The name of a new nonprofit cannot be the same or closely similar to that of another entity that the state has registered. A state business registration website is the place to countercheck because it contains names of registered businesses.

Registered Agent: A registered agent is someone chosen to be accepting notices on behalf of the nonprofit. It might be beneficial to hire one if board members are volunteers with other jobs.

Incorporator: An incorporator signs a formation document and submits it to a state governing agency.

Some states may require a list of directors, the purpose of business, and maybe more. Filing articles of incorporation is usually to a business registration department or secretary of state and fees are something to know.

4. Draft Bylaws

Bylaws are rules governing a nonprofit by dictating core activities like the election of officials and distribution of assets in case of dissolution. The bylaws will be part of the documentation when applying for tax exemptions, so they should not conflict with the requirements of the regulating body. The first official meeting is the time to adopt bylaws, elect directors, officials and make other corporate resolutions.

5. Applying for Tax Exemption

There are different application procedures and forms to apply for tax exemption according to the organization’s purpose. For instance, nonprofits in the United States can seek tax exemption under status 501(c). The application requires supporting documents like bylaws, financial reports, and articles. Employer Identification Number (EIN) helps regulators to identify businesses at tax-related filings. It is valuable to learn how to apply for EIN.

After learning how to fulfill the above requirement, it is good to plan how a nonprofit will run without associating with politics and avoid incurring high expenses because they attract regulatory scrutiny.