Starting a Nonprofit

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Starting a Nonprofit Organization - 501c3 Charity

Starting a nonprofit business is a much more complicated process than forming a for-profit business. In addition to the standard legal formalities, you also need to go through the process of obtaining tax exempt status from the federal government and the State of Florida.

The IRS wants to make sure that anyone setting up a tax-exempt organization is not just trying to get out of paying taxes. But, they also want to make sure there is a legitimate charitable purpose.

Completing the application, and gathering the supporting documentation required by the IRS can take an extended period of time, especially if you are new to the process. Making even a small mistake in the paperwork can set your application back months.

The process of setting up a nonprofit is not designed to be simple or easy. You will need patience as you jump through the metaphorical hoops necessary to get your new charitable organization off the ground.

Get Qualified Professional HelpHow to Setup a Nonprofit - 501c3 Charity

Our lawyers can help you with setting up the nonprofit, securing 501c tax-exempt status and navigating complex state and federal tax rules.

Just reading through all of the different requirements for starting a nonprofit, 501c3 charity, can be overwhelming.

With the help of a capable business lawyer, or lawyers specializing in nonprofit organizations, the process can be successfully managed by breaking it up into discrete steps.

Having experts on your team who have successfully guided many nonprofits through these steps ensures that your nonprofit has a strong legal foundation and helps you avoid any unnecessary delays.

Our team works with you on important strategic considerations.

We offer advice about the best way to structure your board, advise on directors, and the best policies and bylaws to make sure your nonprofit stays complaint and on mission.

Legal Steps To Setting Up A Nonprofit Or 501c3 Charity

There are primarily four different types of clients; each usually needs slightly different legal services.

You will want to make sure each of the following steps are completed correctly the first time. Making even a small mistake in the paperwork can set your application back months. Some organizations have found that having to make corrections to their application has led to delays as long as 20 months.

Step 1 – Incorporate Non-profit Business Entity

The first few steps in starting a nonprofit organization are very similar to forming a for-profit company. The standard legal formalities apply to both types of organizations. The only difference between the two is; the paperwork is different, and language specific to nonprofits must be in the articles of incorporation. For brevity, we’ve summarized the formation process into a single step.

Choose Founding Directors: Florida law requires nonprofits to have a minimum of 3 directors. They will sign the initial corporate documentation, make up the governing body of the organization, pass bylaws, elect officers etc.

Name Your Nonprofit: You will need a formal name for your organization. Legally, your name needs to be distinct from the name of other businesses and organizations. You will want to make sure your proposed name is available and not subject to any trademark restrictions. At a bare minimum you will want to do a record search at the Florida Department of State Division of Corporations website ( Corporate Search by Name ) to make sure your desired name has not already been taken. To avoid potential future trademark issues you should also consider doing a more in-depth national name and trademark search.

Prepare and File Nonprofit Articles of Incorporation: Florida requires any organization that wants tax exempt status to file nonprofit articles of incorporation. They must be signed by both the incorporator, the person who is taking responsibility for the accuracy of the information,  and the registered agent, the person acting as the agent of consent to act as agent for service of process.

The Florida Department of State does provide a generic non-profit articles of incorporation (Form CR2E006: Florida Nonprofit Corporation). But, it meets only the minimum requirements for starting a non-profit. It does not include any of the language required by the IRS.

For a strong legal foundation, you should have a nonprofit attorney draft customized documentation specific to your organization and to make sure they meet both IRS and Florida requirements.

Obtain Employer Identification Number (EIN): Despite the name, every business entity whether they are for-profit or not must have an EIN. Even if they don’t have employees. The EIN is a nine-digit number assigned by the IRS to identify the business. It will be used to file for 501c3 status, all other required IRS forms, and to open a bank account. IRS Form SS-4 is used to apply for an EIN.

Prepare Bylaws, Governing Documents, and Policies for Your Nonprofit Corporation: The articles of incorporation establish your nonprofit organization as a legal entity, the bylaws establish the internal structured and the processes and procedures for making decisions, changing leaders, and conducting business.

Florida law requires that your bylaws contain certain specific information such as the time and procedures of annual meetings and how officers and directors are elected. You will also want to establish key policies required by the IRS relating to conflicts of interest and dissolution of the nonprofit. While you will not be required to file your bylaws, or policies with the State of Florida, you will need to demonstrate to the IRS that the board has approved and adopted the bylaws, a conflict of interest policy and dissolution policy before you will be granted 501(c) status.

These documents will become the operating manual for your nonprofit. You shouldn’t simply adopt something you find on the internet. Your bylaws and policies will have a profound influence on the way your organization is run. You will want to have a qualified nonprofit lawyer prepare governing documents and policies customized to your vision and mission.

File to Pay Florida Corporate Income Tax: All Florida corporations are required to file with the Florida Department of Revenue (DR-1: Florida Business Tax Application). Even if you will later seek tax exempt status, you will still need to apply for a Florida State Tax Identification Number.

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:

  1. Approve the bylaws and order their adoption
  2. Appoint officers in compliance with the bylaws
  3. Select an accounting period and tax year
  4. 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.

Step 4 — Apply for State Tax Exemption

After you’ve gone through the process of starting a nonprofit and your 501c tax-exempt status has been approved, you will then need to apply for tax exempt status from the State of Florida. If your organization fails to take this step, you will only be exempt from federal income tax, and will still be subject to a variety of Florida taxes.

The Florida Department of Revenue requires nonprofits to complete Form DR-5: Florida Application for Consumer’s Certificate of Exemption to apply for tax exemption.

You will want to wait until you have received your letter of decision from the IRS about your federal tax status before filing with Florida. Depending on the sources of income for your nonprofit and its activities, your nonprofit may be eligible for exemptions from income, property, sales, and other taxes.

Step 5 — Register for Charitable Solicitation (Fundraising)

The last step will be to register for charitable solicitation. Certain nonprofits must register with the Florida Department of Agriculture and Consumer Services for solicitation of contributions before engaging in most types of fundraising.

Failure to register can result in substantial penalties. Your nonprofit must re-register every year.

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When you hire Walsh Banks Law, you gain access to trusted, lawyers that have experience starting and operating nonprofit business organizations and charities. To learn more about how we can help you start a nonprofit or charity, give us a call at (407) 259-2426 or click the button below to schedule a free consult.

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