Step 2 — Hold Initial Board of Directors Meeting
Once you have drafted your bylaws you need to hold your first board of directors meeting in compliance with the bylaws. This meeting is often referred to as the organizational meeting of the board.
This initial board meeting has four main objectives:
- Approve the bylaws and order their adoption
- Appoint officers in compliance with the bylaws
- Select an accounting period and tax year
- Approve any initial business transactions, including opening a corporate account
One other legal requirement for this meeting is that minutes of the meeting are created and stored according to the record keeping requirements in the bylaws.
Step 3 — Apply for 501(c) Tax Exempt Status
One of the biggest advantages of setting up a nonprofit business is being eligible for federal tax-exempt status. The IRS estimates that it will take a novice over 100 hours to complete the required application and gather all of the necessary paperwork. That’s probably an overly optimistic estimate.
Often, tax exempt status applications are more than 100 pages long. In addition to the application itself, nonprofits must submit a variety of different support documents to prove that they meet all the legal requirements for tax exempt status.
Having an expert handle this process for you will help shorten the time it takes to get your application submitted and it will ensure that everything is done correctly.
There are several different types of nonprofit organizations. The most common nonprofits receive tax exempt status under IRS code section 501(c)(3). This includes most charities and foundations. These businesses must use IRS Form 1023 or 1023 EZ to apply for tax exempt status. Other nonprofits, like religious organizations, that want to qualify for tax exempt status under IRS code sections 501(c)(4) or 501(c)(6) must use IRS Form 1024.
IRS Form 1023: If you are starting a nonprofit under the 501(c)(3) tax code you must file either Form 1023 or 1023 EZ. Form 1023 is the standard application and must be used by nonprofits with gross receipts in excess of $50,000 in any of the past three years, projected gross receipts exceeding $50,000 in the next three years, or assets totaling more than $250,000.
Form 1023 requires a detailed narrative describing the organization and its activities. It also requires detailed information about the board of directors. You will be required to provide details of past, current, and projected finances. Copies of the articles of incorporation, bylaws, and conflicts of interest policy will also need to be submitted.
IRS Form 1023 EZ: is a streamlined version that was created by the IRS in 2014. It is intended to make it easier, and less expensive, for smaller nonprofits to obtain 501(c)(3) status.
It requires less detail about the operations of the nonprofit and has fewer documentation requirements. However, because of the requirements dealing with gross receipts and assets detailed above, many organizations will not be able to use it. Additionally, the following organizations are barred by statue from using the streamlined version: churches, hospitals, schools, charitable risk pools, and HMOs.
IRS Form 1024: This application is for nonprofits seeking tax exempt-status under a code section other than 501(c)(3). If your organization files Form 1023 by mistake, it will be rejected and you will be required to restart the process.
Similar to Form 1023, you will need to explain in detail what your organization is and does. You will also need to submit supporting documents relating to activities, articles of incorporation, bylaws, and its finances.