Should You Incorporate? Forming a Nonprofit Organization The Bylaws Your Primary Governing Document Potential advantages: Step 1 — Get organized! ■ Protection of limited liability. Incorporation Obtain from the IRS a copy of Publication 557, Tax Bylaws are your organization’s primary governing protects both board and staff from legal liabilities Exempt Status for Your Organization, and Package document. They establish the organizational “rules” incurred by the organization – the corporation holds 1023, Application for Recognition of Exemption. by which the organization will conduct itself. It is the debts and liabilities, not the individuals and Review the requirements and develop a plan. important these be documented, approved and officers who work for the organization. followed by the organization. Amendments can be ■ Done thoughtfully, the process of incorporation can Establish a board of directors (or trustees) with at least made as the organization evolves. be strengthening for an organization. It requires three members. Decide on the statement of purpose (mission) of the organization. Develop and adopt Good organization bylaws should have a lot in thinking through what you are about, and how you Articles of Incorporation. Publication 557 includes common with the Constitution of the United States. are going to do your work. samples of recommended language for Articles. The Constitution covers all the big questions, yet it is ■ It readies an organization for application of federal Robert’s Rules of Order, Newly Revised has samples a relatively brief document, unburdened with needless tax-exempt status. However, nonprofits choosing to and provides additional information on procedures and detail. It is clear about who is responsible for what, remain unincorporated may still file for tax-exempt parliamentary rules for organizations. Other and who can get to be leaders, and how. It states status. organizations may allow you to review their Articles guiding principles. ■ It helps to formalize decision making and ownership among the principals involved. of Incorporation and Bylaws for examples. A cautionary note, many organizations have attorneys ■ It reinforces legitimacy of the organization. This is a good time to establish some long range goals develop their bylaws which often makes them more for the organization and to do some detailed planning wordy and harder to understand and use. It is Potential disadvantages: recommended that you use examples from other that includes a budget. The IRS requires budget ■ It takes time and money to accomplish. information, which is supporting documentation for organizations and that they are developed by the ■ It entails playing by the state and federal your goals and objectives. directors. You may wish to have an attorney review government rules. You must be knowledgeable the completed bylaws and give an opinion before they about the laws related to charitable organizations. Step 2 — File with your State or Local are adopted. ■ There may be some risk of over-structuring or Government Some general thoughts: under-structuring the organization. ■ There is some risk of people involved thinking Laws and regulations vary in each state. Contact is ■ Decisions to amend the bylaws should require incorporation will accomplish something magical. generally made through the Secretary of State or considerable effort and serious thought. Attorney General. There is most often a fee for ■ If you have provisions for getting people into office incorporation and a requirement for copies of Articles or membership, you should have provisions for Faith-Based Organizations of Incorporation and Bylaws. getting them out. A large number of churches are setting up nonprofit ■ A brief description of the committees’ organizations in order to operate community Step 3 — Apply to the IRS for recognition of responsibilities is sufficient. assistance programs. A new guidebook from the tax-exempt status. ■ Policies, job descriptions for the board, committees Alban Institute helps congregations answer some and other necessary documents can be developed Information on how to apply is found in Publication important questions about establishing a nonprofit. later in the life of the organization by the board. 557 and Package 1023. If you wish to be a status “Starting a Nonprofit at Your Church” explains that other than 501(c)(3), consult Publication 557 for the Items commonly covered in bylaws: the nonprofit structure allows for new funding sources process and forms to use. Secure from the IRS a Form SS-4, for an Employer Identification Number, ■ The name of the organization. and collaboration partners and volunteers. It also ■ The mission or purpose of the organization. explains some of the risks involved with a nonprofit. and file it with your application. The IRS charges a processing fee for tax-exempt applications. For ■ The geographic area served by the organization. It includes step-by-step procedures for setting up a ■ Membership 501(c)(3) organization, and offers plenty of examples 501(c)(3) organizations with anticipated annual revenues of less than $10,000, the fee is $150. For • Membership classes; qualifications for each of churches that have already started programs. The class; and the benefits, rights, and guide is available at www.alban.org. The Alban larger revenue 501(c)(3)s and other types of tax- exempt organizations, the fee is $500. These fees responsibilities of each class. Institute is an ecumenical, interfaith organization that • Dues (Should indicate clearly how and by whom supports congregations through consulting services, must accompany the application. The approval process may take up to 120 days after the application dues are established, and what period of time research, book publishing and educational seminars. they cover). and all required forms are filed. Forming a • Annual Meeting (i.e. “shall be held each year in • Limitation or qualifications for custodians of October, or such other time as the board of funds and books. directors may designate”). ■ Indemnification of officers and directors • Called or special meetings (by whom and ■ Procedures for Amending the Bylaws how?). • Quorum. • Voting procedures. • Initiation of proposed amendments. • Voting procedures, including notice requirements. Nonprofit • Notice requirements. • Provision for waiving notice requirements. • Provision for expulsion or suspension of • Margin by which amendments must be approved. • Procedures for dissolution of corporation. Organization members. ■ Board of Directors Directors Additional Resources: • Number of directors. Length of terms. Staggering terms. How to Form a Nonprofit Corporation, Fifth • Limitation of the number of terms to which a Edition, by Anthony Mancuso. Published by Nolo director can be elected. Press, 950 Parker St, Berkeley, CA 94710. Visit • Qualifications. www.amazon.com. • Nominating and election procedure. Legal Guide to Starting and Managing A Nonprofit • Conditions and procedures for removal of Organization, by Bruce R. Hopkins directors from office. Visit www.amazon.com. ® • Procedures for filling vacancies. • Statement about compensation and Robert’s Rules of Order, Newly Revised, available at reimbursement of directors. most major book stores or visit www.amazon.com. Officers • Description of each office and its duties. Drucker Foundation Self-Assessment Tool Process NATIONAL Guide, Contact: Jossey-Bass Publishers, 415-433- • Nominating and election procedure. • Conditions and procedures for removal from 1740 or visit www.joseybass.com/WileyCDA/. COALITION office. • Procedures for filling vacancies. Strategic Planning for Nonprofit Organizations, Contact: National Trust for Historic Preservation, for ■ Meetings • Frequency. 202-588-6296 or visit www.nthp.org. HOMELESS • Manner of calling a meeting, including notices. • Provision for waiving notice requirements. How to Form a Nonprofit Corporation, by Mark Warda. Visit www.amazon.com VETERANS ■ Committees • Description of each standing committee and its Managing a Nonprofit Organization in the Twenty- duties. First Century, by Thomas Wolf and Barbara Carter. • Limitations of committee actions and powers. Visit www.amazon.com. • Provision for the creation of other committees, 333 ½ Pennsylvania Ave., SE Strategic Planning for Public and Nonprofit including appointment procedures. Organizations, Contact: Jossey-Bass Publishers, Washington, DC 20003 • Quorum requirements. 415-433-1740 or visit Phone: 202-546-1969/Fax: 202-546-2063 • Requirements for committee composition. www.josseybass.com/WileyCDA/. Toll Free: 800-VET-HELP/Fax: 888-233-8582 • Reporting requirements. ■ Rules of Order The Nonprofit Handbook by Gary M. Grobman. Email: firstname.lastname@example.org ■ Fiscal Year of the Corporation Visit www.amazon.com. Website: http://www.nchv.org ■ Books and Depositories • Description of principles of financial record Internal Revenue Service, visit www.irs.gov, or call keeping and reporting. the IRS tax exemption information line at 1-877-829- • Procedure for designating institutions in which 5500. funds will be deposited.