The 501c3: What You Need To Know About The Nonprofit

If you wish to start an organization that will be both operated and organized exclusively for a scientific, religious, educational, charitable or public safety purpose, then you may qualify for the 501c3 designation. But how do you go about starting your own non-profit entity?

Establishing your non-profit corporation begins with the completion of an Article of Incorporation. Many non-profit companies operate as corporations, and for many reasons. But incorporation isn’t all that it takes to be an official non-profit.

Tax Exemption

Following the application for incorporation, a company must then go to the IRS for tax exemption status and obtain Form 1023, which is 28 pages in length.  Given the number of documents that the IRS requires be attached to this form, a company applying for non-profit status can very well end up with a package to submit that is as high as 50 pages. But why is there so much to be filled out, and so many documents to attach?

Basically, this portion of the non-profit organization designation process is much like an IRS audit. However, this type of audit concentrates on potential future activity as well as past activity. Form 1023 thoroughly examines how a non-profit company will be structured and governed. It also focuses on the purpose of the non-profit as well as the programs it plans to offer and/or employ. The reason such a focus is applied is that it must be confirmed without a doubt that the company applying for this status is going to use it for the purposes of a non-profit. By comparing a company’s proposed programs with the purposes it has stated, a decision can be made.

Compliance with the State

Beyond tax exemption, companies wanting non-profit status must ensure they address several other issues.

The good news is that the federal 501c3 is recognized by most states as enough to grant exemption from state corporate tax. However, if the company wanting exemption is located in California, the story is quite different. California requires an independent application to be filled out. This state also has its own review process for companies wishing to apply for non-profit status. While a separate application is required by other states, California’s is currently the most complex registration process.

In addition to state corporate tax exemption, a would-be non-profit must also register for something called Charitable Solicitations. This registration, required by forty states, this application can usually be obtained via the Attorney General. Unfortunately, a non-profit is unable to solicit donations until and unless the Charitable Solicitations Registration has been completed.

Finally, the non profit must register for sales tax exemption at the state level. Most states that recognize charities will allow those charities to purchase what they need tax-free by granting them exemption to sales tax. A pre-requisite for state sales tax exemption is the obtaining of 501c3 status.

An Organization by Any Other Name May Not Sound as Sweet

Naming a non-profit organization may not seem like an involved process. However, there are some rules that need to be followed. First, one should be aware that the regulations for naming a non-profit will differ by state. Generally, there are three rules by which would-be non-profits are governed.

Depending on where a company is originated, its name may have to include some kind of designator, such as LLC, Ltd. Or Corp. at its end. This is a requirement of approximately half of the states in the country.

As well, the name of the non-profit cannot be the same as any other corporation which may be on the state’s corporations division’s file. And finally, non-profit companies are not permitted to include any designations for which the state holds a reservation. These designations include Reserve, Cooperative and Federal, to name a few.

Once a name has been chosen that adheres to the rules and any other requirements, the company’s owner must apply for it. This can be done by visiting the filing office in that particular state. As well, names can be applied for by calling the corporations division for the state. If availability of the name has been confirmed, then a nominal fee will usually suffice in order to reserve it.

The Mission Statement

This is one of the most important aspects of a non-profit, as it lets the public know what you stand for. And because a non-profit relies on the donations of others for its continuation, the mission statement must be clear and concise, expressing the company’s name, clients, purpose and where it performs its service. And just like any other business, a non-profit must state what makes it different from other such companies.

It may be a good idea to hire the services of an attorney to assist with navigating through the non-profit process, as it can be an involved one, with many details that require successful addressing the first time. It may also help to hire other professionals, such as a web designer. This can ensure that any logos and web pages for the company are as professionally presented as possible.

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