Five-minute lawyer: How to form a nonprofit

I regularly find people asking this question: How do I form a nonprofit? What most people mean and want is a charitable organization that satisfies the requirements of IRC 501(c)(3), which gives donors assurance that their donations will be tax-deductible.

To set up a charitable organization, you generally run through the following steps:

1. Determine whether you need an organization at all. The primary reason for the tactical step of forming a nonprofit is to collect donations from other people that (a) will not be taxable to the entity as income and (b) will be deductible by the donor. If your plan matches up with these desires, keep reading.

2. Determine whether your activities will constitute a “charitable purpose.” There are nonprofits that fall into different categories of charity that all for (a) but not (b) above.

3. Form an appropriate entity under state law (note: you don’t technically have to even form an entity in some states and can operate as an unincorporated association). Some states have a nonprofit corporation entity; in others you form a regular corporation and impose special rules in its articles or certificate of incorporation, sometimes referred to as its charter.

4. Make the appropriate IRS and state filings to secure your charitable status.

I have formed a number of nonprofits under various state laws. While having experience is useful when it comes to the corporate governance issues (the actual detailed language in the articles, bylaws, and corporate resolutions, most of the rest of Form 1023 is straightforward. You can probably do much of the work yourself if you like (see this Nolo resource article and the books they provide).


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