Non profit incorporation for a non profit organization:
How-To Form A Nonprofit Corporation
Internet marketing, website promotion, online marketingBy definition, nonprofit corporations exist not to make money but to meet one of several purposes defined by federal law: to fulfill a stated mission benefiting the larger community. Though a nonprofit organization can be an association and not a corporation, most choose to become a corporation under State and Federal laws io order to qualify for the numerous benefits available to nonprofit corporations.

Why Go Nonprofit?

85% of California's popular Santa Catalina Island is owned by a nonprofit foundation. For this reason, most of the island will remain wild forever.  

What's the logic in actually setting out not to make a profit? There are good reasons. Becoming a 501 (c) (3) corporation allows a nonprofit organization to become tax-exempt as well as a legally recognized nonprofit corporation. This dual classification will allow your organization to:

  • Collect charitable contributions (ranging from bequest of money, to donations of goods and services, to gifts of real estate) that are tax deductible to the giver. 
  • More easily qualify for private and public grants and other subsidies. 
  • Produce profits from engaging in nonprofit activities related to the mission of the organizations (including fundraising events) that you do not have to pay taxes on. 
  • Qualify for real and personal property tax exemptions. 
  • Enjoy protection from legal liability (desirable when you are doing issue-sensitive work or performing social services primarily with volunteers). 
  • Take advantage of discounted U.S. postal rates for large, pre-sorted bulk mailings, which can save you a good deal of money over the course of a year.

But remember - a nonprofit corporation's tax exempt status is not a shelter for taxes, as it only applies to profits made from activities related to the organization's mission. Your 501 (c) (3) corporation is required by law to pay tax on profits that are unrelated to your nonprofit corporation's exempt-purposes (only up to $1000 can be earned tax free).

Think becoming a nonprofit corporation is the way to go? Follow the next steps to get there.
 
1.  Make sure that your nonprofit meets the following conditions, as mandated by law:
  • The assets of your nonprofit must be irrevocably dedicated to charitable, educational, religious, scientific, literary or similar purposes 
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    promoting the greater good. These kinds of nonprofits include: shelters for the homeless, child care centers, community health care clinics, churches and other places of worship, schools, performing arts groups, conservation societies, medical research organizations, literary societies and more.

  • Your organization must exist outside of the political realm, i.e., it cannot lobby for certain laws, or participate in campaigning for or against political candidates.
 
2. Apply for tax-exempt status under the Internal Revenue Code Section 501 (c) at both the state and federal levels.
  • Federal Level. To accomplish this at the federal level, you need to fill out an IRS Package 1023 exemption application. This formal application is a 
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    lengthy and technical application with many references to the federal tax code. Many nonprofit organizers get outside expertise (such as an attorney or accountant) to help them successfully complete this document. Others obtain reference books or other self-help resources to aid them in this process. 

  • State Level. To accomplish this at the state level, fill out the tax application paperwork as required by your individual state. If possible, apply for your tax-exempt status at the state level before filing your Articles of Incorporation (sometimes alternately titled in different states) to become a legally recognized nonprofit corporation. This way you get to file your Articles without having to make the hefty tax payments that most states require of non tax-exempt corporations. 
 
3. Prepare standard Articles of Incorporation with your Secretary of State.

Because a corporation is a legal entity, the way it must be organized and operated is governed by very specific state laws, which often vary from state to state. However, all states possess the similar general requirements and procedures as outlined below.

  • Articles should be prepared by one of the founders of the organization. This is basically a short legal document that lists the name of 
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    the organization and identifies its Board of Directors and Corporate Officers. 

  • Most states have a required minimum for the number of Board Members. The Board of Directors for a nonprofit is most often composed primarily of volunteers already involved or who are interested in becoming involved in running the nonprofit corporation. The duties of Board Members are to meet regularly (usually monthly) in order to make policy, real estate and other key decisions, as well as help initiate new programs and fundraising activities. The Board is also responsible for electing Corporate Officers.
  • Corporate Officers are usually those who carry out the day-to-day business of the nonprofit and receive salaries. According to law, Corporate Officers must include at least a President, Secretary and Treasurer. The President is usually the chief operating officer of the corporation. The Secretary is responsible for all corporate records and required paperwork, including notes that must be taken at each Board of Directors meeting. The Treasurer is responsible for the corporation's finances, though it's common practice to hire a part-time bookkeeper to handle day-to-day accounting duties. The corporation can, of course, have other officers, such as a Vice President. In most states, one person is able to hold all of the required offices. 
  • Nonprofit tax-exempt status only applies while your corporation is actively in operation. If for any reason it dissolves, all assets it owns must be immediately transferred to another 501 (c) (3) corporation. A broad dedication clause to this effect should be included in your Articles of Incorporation. 
  • If you need assistance in drafting your Articles, there are many books and publications that contain examples of Articles of Incorporation. You may also obtain help - or a sample - from your attorney, CPA or state office. Generally, there is not much difference in the Articles of Incorporation required for nonprofit and for-profit corporations. Both are bound by similar rules and operate in a similar fashion.

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