The establishment and management of nonprofit organizations require strict compliance with a variety of federal, state and local regulations. The rules that apply to your organization depend your classification, according to each jurisdiction’s laws. Charitable organizations that have a 501c3 status must meet more regulations than other nonprofits. Watchdog organizations also rate the performance of nonprofits, using standards and criteria they believe are in the best interest of donors and the public.
The Internal Revenue Service is the federal agency that approves applications for tax-exempt status for nonprofit organizations. To obtain the 501c3 classification, an organization must provide documentation of its mission, organizational capabilities, board members and operating budget. The organization’s charter and status also require certification from a state government that registers businesses and organizations, in accordance with local laws.
Each of the 50 states has an office for business registration or secretary of state. This agency’s job, among others, is to supervise and monitor the transactions of all businesses within its jurisdiction, including charitable organizations. This office approves business names, protects trademarked business identities and approves the use of special business identities, for entities that conduct business under a fictitious name or doing business as, DBAs. In most cases, a nonprofit organization must register with the secretary of state and in many, the organization must file articles of incorporation and receive approval from the secretary of state before it can open an office or conduct any transactions. Contact your secretary of state to get information about fees and a list of the documents that the organization needs to register or incorporate.
Local governments issue business licenses for organizations within their jurisdiction. They also regulate and approve the physical location for businesses and nonprofit organizations based on zoning ordinances. These factors usually mean that a tax-exempt organization must request a business license from its local government and comply with zoning, reporting and labor laws that apply.
The ability of a 501c3 organization to solicit donations depends on its compliance with local, state and federal laws that govern these activities. Nonprofit watchdogs, such as Guidestar and Charity Navigator, issue reports on the financial soundness of nonprofit organizations along with reviews of their compliance with applicable laws. To remain in good standing with these nonprofit monitoring and evaluation groups, an organization must comply with all applicable government requirements and keep registrations and business licenses current.