A 501(c)3 organization is a nonprofit corporation classified by the Internal Revenue Service either as a “public charity” or a “private foundation.” The types of organizations eligible for nonprofit status include religious, educational, charitable, scientific and the arts. Although nonprofit companies do not pay business income or property taxes, they are subject to a high degree of fiscal scrutiny, and thus must operate within strictly proscribed federal guidelines. All revenue generated by a 501(c)3 company must be used to further the mission of the company.
Formulate a mission statement. The statement should be a succinct one- or two-sentence explanation of the nature and purpose of the company and what it hopes to accomplish. The mission statement will be used on all of the company’s published materials.
Form a board of directors. Each state has a minimum requirement for the number of nonprofit board members. Recruit people who believe in your mission statement, and have the time and energy to work on the company’s behalf.
File articles of incorporation. Articles of incorporation must be filed with appropriate state agencies. They protect both board and company staff members from legal liabilities.
Requirements on how to incorporate vary from state to state, but the primary articles usually include the name of the corporation; the name and address of the company’s registered agent and the founders of the corporation; the company’s purpose; the identity of the company’s initial directors; a statement defining the period of existence of the corporation (short term vs. perpetual); and membership provisions.
Draft bylaws, which are basically the rules of how the organization operates. Although not legally required, bylaws are important because they help the organization run smoothly. Bylaws should be drafted with the help of an attorney familiar with nonprofit companies.
Develop a game plan. Before formally filing for 501(c)3 status, and raising funds and other resources, it’s important to have a cohesive overall strategic plan, including the company’s mission, and long- and short-term goals. You will also need a solid business plan that includes a budget, as well as a transparent accounting and record-keeping system.
File for 501(c)3 status with the federal government. You’ll need two forms: Form 1023 (application) and Publication 557 (detailed instructions) from your local IRS office.
Apply for a Federal Employee Identification Number. Regardless of whether or not you have employees, nonprofits are required to procure a federal Employee Identification Number (EIN)—also referred to as the federal ID number, which is available from the IRS. The EIN is used to identify the organization for tax purposes.
Filing for state and local tax exemption. In compliance with state, county and municipal law, a 501(c)3 may apply for exemptions from income, sales, and property taxes.
Comply with state and local laws on charitable solicitation. Although laws vary form state to state, compliance usually involves obtaining a permit or license and then filing an annual report and financial statement. These documents are a matter of public record for a 501(c)3.
The 501(c)3 application is an important legal document, so it is advisable to engage an experienced nonprofit attorney when preparing it.
The federal government provides reduced postage rates on bulk mailings for nonprofits. For more information on eligibility for bulk mailing discounts, contact the U.S. Postal Service and ask for Publication 417, Nonprofit Standard Mail Eligibility.
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