Nonprofit Incorporation Guide
A nonprofit corporation is a corporation formed with a specific purpose that benefits either the public or the shared interests of a group. Unlike traditional corporations, nonprofits do not issue stocks or dividends to owners—rather, profit is either donated to other nonprofits or reinvested into the nonprofit to further the mission. When properly formed and maintained, nonprofits can become eligible for tax-exempt status.
Skip ahead:
- How to Start a Nonprofit
- 501(c)(3) Tax Exempt Status
- Can a nonprofit make money?
- How our Nonprofit Incorporation Service works
- Nonprofit Frequently Asked Questions
How to Start a Nonprofit
If you’ve done some research and you’re ready to form a nonprofit, these are the core steps you’ll take to do so.
- Name your nonprofit. You’ll need to make sure your nonprofit’s name is unique in your state, includes an identifier like “Inc,” is not federally trademarked, and is available as a domain name.
- Appoint a registered agent. This is an individual or business you designated to receive legal notifications on behalf of your nonprofit. Your registered agent will need a physical address in the state where you plan to do business.
- File Nonprofit Articles of Incorporation. This is the document you’ll fill out and submit to your state’s Secretary of State (or equivalent agency) with a filing fee. Once they record the document, your nonprofit is live.
- Draft Nonprofit Bylaws. These are the rules for how your nonprofit will make decisions, handle conflicts of interest, and other procedures essential to your nonprofit’s operations.
- Get an EIN for your nonprofit. Your nonprofit needs an EIN, which is a nine-digit tax identification number (not unlike a social security number for your business). You can apply for one for free online with the IRS.
- Apply for tax-exempt status. Once your nonprofit is formed, you can apply for tax-exempt status with the IRS. There are over 25 different tax exemptions, but most nonprofits apply for 501(c)(3) status by filing a form with the IRS and paying a filing fee.
Of course, there are a lot of other steps you’ll take to get your nonprofit set up to run, like building a website, obtaining business licenses, and opening a bank account. But if you take the above steps, you’ll have an official nonprofit.
501(c)(3) Tax Exempt Status
There are 25 different tax exempt statuses, but most nonprofits apply for 501(c)(3) tax-exempt status for public charities and private charitable foundations. To apply, you’ll file from the Form 1023 Series with the IRS (there are two possible forms—Form 1023 and Form 1023-EZ). Nonprofits with 501(c)(3)s typically have a purpose that’s either religious, charitable, or educational. Working to elect (or oppose) a political candidate is disqualifying.
Benefits of 501(c)(3) Nonprofits
Qualifying for 501(c)(3) status is not easy—it’s not uncommon for Form 1023 to exceed 50 pages. It’s a federal process undertaken with the IRS, not your state government. But if you’re patient and put in the work, your nonprofit will stand to benefit greatly. Here’s why.
Tax exemptions
This one is obvious. Nonprofit corporations with 501(c)(3) tax status do not have to pay the corporate tax rate on profits. But there are other taxes your nonprofit may be exempt from as well, such as local and state taxes, property taxes, and the federal unemployment tax. There are several complicated factors that these tax exemptions hinge on, but getting 501(c)(3) status is the first step.
Credibility
Many nonprofits are funded by donors, so you’ll want to appear as credible as possible. When your nonprofit gets 501(c)(3) status, it signals to donors and volunteers that it meets rigorous requirements and is accountable to outside agencies.
Tax-Deductible Donations
If your nonprofit has 501(c)(3) tax status, donations are tax-deductible. Most donors expect that their donation will be tax deductible, so this helps attract and build relationships with people who can support your mission.
Can a nonprofit make money?
One common misconception about nonprofits is that they can’t make a profit. In fact, nonprofits can and should try to make a profit. The term “nonprofit” refers to two key differences between a nonprofit corporation vs a traditional corporation:
- Corporations are required to serve shareholders’ best interest (maximizing profit). Nonprofits are required to support a public or community interest.
- Corporations issue shares or dividends to shareholders, while nonprofits do not.
So nonprofits can and do generate profits. Those profits are then either reinvested into the nonprofit to build a reserve fund and further the cause or given away to other nonprofits and charities. Either way, the nonprofit’s financial gains are used to support its public or community mission.
How Our Nonprofit Incorporation Service Works
As a Registered Agent company, we form businesses everyday—including nonprofits. Here’s how it works.
- You tell us a little bit about your nonprofit. Where will you be doing business? Do you have a business name in mind? We’ll ask the questions and gather the needed info for your paperwork.
- Add on any branding tools you need to launch your business. We provide a free domain name with your business for one year, and you can try out our business email address, phone number, and secure website service free for 90 days.
- Submit your order! We charge $300 plus state fees to form your business, and this includes a year of registered agent service. While the state is processing your documents, you’ll get access to your secure account. From there, you can manage services and access every state form you could ever need.
Nonprofit Frequently Asked Questions
Can nonprofits pay employees?
Definitely. The notion that nonprofits can only use volunteers is a common misconception. In fact, nonprofits are required to pay employees at least the legally required minimum wage. But when determining how much your nonprofit should pay employees, keep in mind that the IRS requires that compensation should be “reasonable,” and defines this as “the value that would ordinarily be paid for like services by like enterprises under like circumstances.” To protect your nonprofits tax-exempt status, you’ll want to do research on what workers in your area are being paid for similar work, and be sure to account for bonuses, PTO, and other benefits.
How much money does it cost to start a nonprofit?
There are several costs associated with starting a nonprofit. Here are the essentials:
- Incorporation fees. Each state has its own filing fee, ranging from $8 to $125.
- 501(c) application fee. It’s $275 for Form 1023-EZ or $600 for Form 1023.
- Charity registration fees. Some states require you to register as a charity and charge a fee. This will vary by state.
You may also need to pay for insurance, building a website, marketing, and staffing.
Can I start a nonprofit solo?
Yes! There’s no rule that precludes you from starting a nonprofit alone. However, your nonprofit will soon need to include other people—like a board of directors. And if you want to be successful, you’ll need to create a network of donors, volunteers, and supporters.
How can you fund a small nonprofit?
Small nonprofits are typically funded by government grants, donations, and crowdfunding.
How is a foundation different from a nonprofit?
Foundations and nonprofits have a lot in common. They both exist to serve public or community interests. A foundation may be a nonprofit or another kind of entity, like a trust. A foundation is typically started with the seed money of a single benefactor. That money is invested, and as it grows, is distributed to charities or nonprofits that further the foundation’s mission. Most nonprofits gather funding from a variety of sources and, along with distributing money to other entities, do work that furthers the nonprofit’s cause.