How to Start a 501c3: Everything You Need to Know
Learning how to start a 501c3 begins with understanding what kind of entity and It is non-profit designation utilized by entities is a 501c3 organization. 4 min read
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Learning how to start a 501c3 begins with understanding what kind of entity it is. Under state law, a very commonnon-profit designation utilized by entities is a 501c3 organization. While formed or incorporated under state law, these organizations are granted, by the Internal Revenue Service (IRS), tax-exempt status, which is found with the Internal Revenue Code section 501c3, hence the name 501c3 organization.
Qualification for exemption from federal income tax under IRC section 501c3
As you can imagine, tax-exempt states under the IRS code is highly desirable. As such, the IRS requires that an organization or ministry operate exclusively for education, religious, scientific or other designated charitable purposes as a pre-requisite for qualification for an exemption from federal taxation.
What is a Ministry?
Ministries are traditionally defined as charitable missions that are based in faith and generally operating with sponsorship from a church.
If a church is trying to determine whether it should avail itself of the IRS tax-exemption, the ministry should contact a lawyer about conversion to an incorporated entity under its state law.
In terms ofaffiliations, an important decision to be made by church leadership is to determine whether the church will exert control over the newly incorporated organization of if the church will run independently from the non-profit entity.
How are You Going to Do It?
Fortunately for those interested in forming a 501c3, there is a charity test available to the public that allows for an initial determination of whether the proposed entity would possess the qualification for the tax-exempt status.
Determine what type of nonprofit organization to be created
You must determine an interest that is relevant to a non-profit initiative that is also a public matter, such as charities, education, religion or the arts.
Establish a Non-Profit Corporation
Choose a Name for the Organization
Under state law, you will be required to select a name for your non-profit entity. The name selected must not be a name that is already on file as a corporation in your state. In roughly half of the states, you will be required to choose a name the ends with a corporate designation, like Corp., Inc., or Ltd. The state further restricts entities from choosing a name that has already been reserved for the state.
Apply for the Name that You Have Chosen
Now that you have selected the name for your non-profit, you should contact your state’s corporations filing office to determine whether you name is available or is already in use. If the name you have selected is still available for usage, you will generally be asked to pay a small fee that will serve to as a placeholder for the name until you have filed the article of incorporation with the state.
Formulate the Mission Statement
Covering, at most a couple of sentences, you must craft your mission statement that will include the entity’s name, the role it intends to play as well as services expected to be performed. The mission statement should be persuasive and decisive considering it will likely be reproduced in all published materials, handouts and requests for funding.
Hire a Certified Public Accountant
Hiring professionals to help with the tasks involved in the incorporation process and filing paperwork for 501c3 status is a smart idea given its complexity. One of those professionals could be a certified public accountant as it will be important for the entity to develop a budget as well as meet its obligations with respect to recordkeeping and reporting.
Hire an Attorney
Another professional that may be of assistance would be a qualified attorney. An attorney would certainly be able assist with drafting the articles of incorporation and the necessary non-profitby-laws. The attorney can also help with completing the state incorporation documents as well as the paperwork for tax exempt status.
Obtain 501c3 Status
The form that is required to be filed with the IRS to request 501c3 status is the IRS Form 1023, which will allow the corporation to file for tax-exempt recognition.
Assemble the Non-ProfitBoard of Directors
Like all corporations, a board of directors should be form for the non-profit entity. The board’s composure should be limited to fewer than 12 members but should have a minimum of four members. It is not advisable to add your relatives as board members.
Prepare the Non-Profit Corporate By-Laws
Corporate by-laws should be drafted for the non-profit to help the entity create the necessary rules and methodology of the organization for legal and production reasons. Effectiveby-laws will be well-structured.
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