Forming A Nonprofit Organization
In most cases attorneys will advise a client to incorporate, though it’s not necessary and other forms may be eligible for tax exemption under Section 501(c)(3), including LLC’s, trusts, and unincorporated associations assuming they meet certain requirements. Generally, incorporating can provide additional protections that other forms may, or may not, provide depending on state law.
Nonprofit 101: Forming a Nonprofit & Applying for Tax Exemption with Erin Bradrick
Erin Bradrick is Senior Counsel at NEO Law Group and a contributor to the Nonprofit Law Blog. Erin’s practice focuses on corporate, governance, charitable trust, and tax matters solely for nonprofit and exempt organizations.
In this CLE class clip, Erin discusses Forming A Nonprofit Organization.
You can watch the complete Nonprofit Law CLE class here:
Nonprofit Law CLE
A corporation is generally formed by filing articles of incorporation with the Secretary of State, or other appropriate body in the respective states. Under the Model Nonprofit Act, it sets forth certain provisions that must be included in the articles of incorporation if you want to be tax exempt as a matter of federal law, and certain provisions that can be included.
Under the Model Act, articles of incorporation have to include the organization’s name. That may seem straightforward enough, but there are limitations on names that nonprofits can use. For instance, the name can’t imply a purpose that’s inconsistent with permissible nonprofit purposes, and has to be distinguishable from other entities that are already on file with the Secretary of State. Some states have rules regarding specific words that can’t be used in a nonprofits name in order to avoid confusion, such as doctor, lawyer, state police, bank, mortgage, and other things of that nature. Accompanying the name, a physical address may be required.
An agent for service of process must also be selected, this is generally someone who is able to receive legal service on behalf of the organization. Often, the agent of service is a founder, director, or another senior officer of the organization. Most states require the agent of service to be over 18 years old, and have a physical address in the state of filing. Some states also allow an organization to hire a corporation to serve as a corporate agent for service of process. New York also requires organizations to name the secretary of state as an agent for service of process.
Finally, the Model of Nonprofit Act requires the names of initial directors, whether it will have voting members, and a statement of specific purpose. The organization also needs to include, a dedication and dissolution clause. In order to be eligible for exemption under Section 501c3, the dedication and dissolution clause states the organization’s assets are dedicated for use in furtherance of its exempt purposes, and upon dissolution, the assets will continue to be used for the purposes of the organization. This usually happens by transferring assets to another exempt organization.