Understanding Nonprofit Formation

Forming a nonprofit corporation is similar to, but somewhat distinct from, incorporating a for-profit corporation. This article outlines the process and most commonly required information for forming a nonprofit corporation.

Articles of Incorporation

As with a for-profit corporation, the formation document is called the Articles of Incorporation or Certificate of Incorporation. Each state has its own version of the Articles of Incorporation, but much of the requested information is consistent across the states.

Choosing a name

You’ll need to provide your desired organization name. Many states require a corporate identifier, such as “Corporation,” “Company,” “Incorporated,” “Limited,” or an abbreviation, such as “Corp.”  Perform a preliminary name availability search prior to filing, to see if your desired name is available. Keep in mind that the state holds final approval rights on the name, to ensure it is not already in use or “deceptively similar” to one already in use.

Defining your business purpose

The business purpose is an explanation of what your nonprofit corporation is formed to do or provide. Having a very detailed description is essential. If you plan to apply for tax-exempt status, the IRS will require a copy of your Articles of Incorporation and will pay particular attention to your business purpose and use it to classify your business:

  • The most common type of nonprofit is the 501(c)(3) nonprofit: a public charity or private foundation established for purposes that are religious, educational, charitable, scientific, literary, testing for public safety, fostering of national or international amateur sports, or prevention of cruelty to animals and children.
  • These nonprofits are called 501(c)(3) organizations because they are formed for the purposes outlined in Section 501(c)(3) of the Internal Revenue Code.
  • There are also 501(c)(4) through 501(c)(27) organizations.View the IRS Organization Reference Chart for a listing of nonprofit classifications.

Choosing a registered agent

All states require nonprofit corporations to have a registered agent in the state of formation. The registered agent is responsible for receiving legal and tax documents, must have a physical address (no P.O. boxes) in the state of incorporation and must be available during normal business hours. Remember that the registered agent address is a matter of public record. In states that do not require the nonprofit’s legal address in formation documents, the registered agent address is the only one on file for the organization.

Note that supplying the nonprofit’s legal or principal address is optional in many states, but some require it.

Choosing an incorporator, directors and officers

  • Incorporator. The incorporator is the person or company preparing and filing the incorporation documents with the state. Many states require the name and signature and address of the incorporator in the formation documents.
  • Directors. The directors are the individuals responsible for overseeing and directing the affairs of the nonprofit, including major decision-making. Many states require the names and addresses of the initial directors in formation documents.
  • Officers. The officers are responsible for the day-to-day activities of the nonprofit corporation. While inclusion of the officer information is optional in many states, a few states do require it. Common officer titles include president, vice president, secretary and treasurer.

Other considerations

While this is not a complete list of everything a state might require on its articles of incorporation for nonprofits, it outlines typically required items. Remember that filing nonprofit Articles of Incorporation does not equate to obtaining tax-exempt status for your nonprofit. In order to apply for tax-exempt status, Form 1023 must be completed and filed with the IRS. Some states also have state tax-exempt status procedures. To learn if your state is one of those, it is best to contact your state department of taxation.