Legal Center for Nonprofits, Inc. – Building Nonprofit Capacity

Lots to consider. Path to creating a viable, respected, successful nonprofit corporation is: Expensive – filing fees + (potentially) lawyer’s fees Time-consuming -- several weeks to incorporate & register, ~ 6 months for taxexempt status, plus time to “get it moving” Legal/regulatory environment Alternatives to forming a nonprofit corporation Volunteer with existing nonprofit To find nonprofits in your interest area, visit: www.idealist.org (has searchable database of organizations) www.unitedwayofgnb.org Approach existing nonprofit with project idea & form cmte to carry out Best if you already have a couple of people to help Try this if local nonprofit is doing work along the lines of your interest area Form unincorporated association to carry out project: Good path of no other organization is doing work like your project Good path if funding required is minimal Good path if risk is low See section below on unincorporated associations Seek fiscal sponsor Fiscal sponsorship is a relationship between two organizations where one organization (the Sponsor) is a tax-exempt charity, while the other is not. Through their formal sponsorship relationship, the not-tax-exempt organization (unincorporated assn., committee, club, or corporation) can receive tax-deductible contributions. Sponsors generally charge fee Specific legal requirements No annual reporting requirements other than to the Sponsor Websites with more info: https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/fiscal-sponsorship-nonprofits https://www.tides.org/fiscal-sponsorship-at-tides/nonprofit-project/learn-about-fiscal-sponsorship-at-tides/ http://www.fiscalsponsors.org/ Do Your HomeworkNEED?Is there a need for the work you want to do? Answer NOT always “yes”!Research the need. Online research—Google, etc.Library research—Librarians often know “who’s doing what”Are others already doing the project? Use strategies above to identify.Talk to local nonprofits—executive directors, board members, volunteers PEOPLE? Do you have a few people willing and able to help you by giving “time, treasure or talent”? In other words, a couple of friends willing to commit to work and support financially the project? ii. Some people will give $$$, while others prefer to give time or goods FUNDING? Where will the money come from, both for start-up and to sustain the project?Are grantors likely to support it? Research grantmaker interests: Community Foundation of South Eastern Massachusetts www.cfsema.org or 63 Union St., New Bedford; 508-996-8253 The Foundation Center: www.foundationcenter.org d. SKILLS?What kind of skills, knowledge, and experience do you have?For the skills you lack, seek people to help you. Some of the skills needed include:Persistence, detail-orientation, “people skills”, entrepreneurshipMath skills, financial, bookkeeping, ExcelTime management, project management, organizational, planningPersuasion, fundraising, supervisory, personnel/human resource managementVerbal, writing, communicationTechnical, computers, email, word processing, spreadsheets, social mediaAnd more… Don’t let this list scare you, but DO take it to heart! The Unincorporated AssociationTwo or more persons organized for a common purposeNo governmental approval needed to form or to dissolve.No bylaws or constitution needed unless seeking tax-exempt status, but recommended.No separate legal existence apart from its members; therefore, individual members may be found personally liable.Cannot receive or hold property, or title to property, in association’s name.No perpetual duration.No ability to contract. Banks, creditors, and other vendors are reluctant to conduct business with it. The Nonprofit CorporationAn artificial entity that can sue and be sued, contract, and hold property in its own nameIndefinite existence – it does NOT “go away” unless action is taken to make it “go away”Voluntary dissolution – requires court action!Involuntary dissolution – if this happens, costly to revive!Limited liabilityGovernmental approval required to create or dissolve (e.g., filings with state) Additional requirements, such as Articles, Bylaws, Board of Directors & much more. Forming the Nonprofit corporation Start by thinking about: Name ii. Purpose – is it a charity? Or is it something else? Members: Inward focus i.e. the members Outward focus i.e. no members Board of Directors Minimum 3 Diverse control Follow these steps to form the corporation File Articles of Organization ($35 filing fee) with Secretary of State Adopt Bylaws -- Bylaws address governance structure of the corporation, including (but not limited to): Lawyers fee can be $500-$5000 Directors, Board of Directors Minimum 3 Diverse control Meetings Committees If a charity, register with MA Attorney General’s Office ($150 total filing fee) http://www.mass.gov/ago/doing-business-inmassachusetts/public-charities-or-not-for-profits/ Employer Identification Number (EIN) EIN is NOT a "tax-exempt number"!! Possession a TIN/EIN is NOT an indicator of tax-exampt status. Obtain Employer Identification Number (EIN) from IRS: Identification number used by the Internal Revenue Service (IRS) in the administration of tax laws Go to www.IRS.gov site. Apply for tax-exempt status with the IRS -- To avoid paying income tax, organizations must apply to the IRS for recognition of exemption if gross receipts are expected to be more than $5,000 annually. ($275 or $600 filing fee based on expected gross receipts over years projected in application and other factors) Two types of tax-exempt status:Public charity – 501(c)(3)Charitable gift deduction on donor’s taxesPublic benefit/public supportExemption from sales tax. Validity of the organization Grants generally only go to 501(c) Noncharitable nonprofit organizations (other 501(c) organizations) Examples Social clubs Industry associations Fraternal organizations And many others… ii. No public benefit/public support requirement No deductibility of contributions on donor’s taxes (except Vet’s orgs) Additional stepsSeek State Sales Tax Exemption -- Charitable organizations receive an exemption from Massachusetts sales and use taxes.Must register with MA DORProvide tax-exempt status determination letter Stay Organized! Your corporate documents are important! Three sets of important documents for the nonprofit: Corporate Binder Minutes Binder Policy Binder Hold Board Meetings! Board is governing body Board acts collectively Fiduciary duties But wait! You’re not done… Annual Filings! Secretary of State – Annual Report ($15 fee) Failure to file for 2 consecutive years may result in revocation of corporate status! Attorney General’s Office – ($35+) Internal Revenue Service – Form 990, 990-EZ or 990-N (electronic postcard) Failure to file for 3 consecutive years results automatically in revocation of tax-exempt status! Even small nonprofits that were not required to apply for tax-exempt status are subject to revocation! Legal Center for Nonprofits Important Information provided herein is not legal advice and is intended for informational purposes only. Consult an attorney before acting on the information contained herein. Providing this information does not result in an attorney-client relationship. Thanks to Ed Tremblay and Linnea Michels

Legal Center for Nonprofits

Building Nonprofit Capacity

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