If you are passionate about making a change by helping others or serving your community, you may have thought of forming a non-profit organization. However, starting one may not be as easy as you think. It requires you to complete a process that can be time-consuming.
Generally, creating a non-profit is like starting a business. You will have to collect resources that can range from time and effort to financial support. While the purpose and mission of the organization is a crucial element, you also need to focus on forming a business plan and ensuring compliance with various obligations.
Forming A Non-Profit Organization
In Maryland, there are thousands of non-profit organizations. Each of them aims to help their communities thrive. They advocate to further a cause, but they are not focused on generating profit.
If you think that what you have to offer can help solve certain problems in the community, you can form a non-profit. However, like starting a business, you will have to go through a registration process that the state has set.
One of the things you have to understand is the Internal Revenue Code 501(c)(3). It is for non-profits that can qualify as public charities. Organizations under this category are eligible for federal corporate income tax exemption. It will also allow your organization to accept donations and apply for grants. At the same time, this status will limit the liability of the officers and directors of your organization.
To apply for the 501(c)(3) status, you have to form your organization first. Then, you can submit a completed Form 1023 or 1023-EZ to the Internal Revenue Service (IRS). This allows for a streamlined application process. The filing fee is $600 for Form 1023 and $275 for Form 1023-EZ.
What To Do
Forming a non-profit organization requires hard work, effort, time, and perseverance. That is why it is necessary for you to be passionate about and dedicated to your goals.
You also need to know the laws of the state. If you are thinking of creating your non-profit in Maryland, here are the steps you need to follow:
- Naming The Organization – Once you determine the needs of the community and the things you have to do to address them, you need to come up with a name for the organization. Make sure that it represents what your corporation stands for and what it wants to accomplish. You also need to make sure that it is distinguishable. You can do a name search with the Department of Assessments and Taxation (SDAT) to find out if another entity is already using it. You should also include any of the words “company,” “corporation,” “incorporated,” “limited,” or any of their abbreviations.
- Choosing A Structure – The state has 3 types of non-profits. Make sure you choose the one that best describes your organization.
- Religious – If you are planning to incorporate a religious group or congregation that plans on requesting a tax-exempt status, then choose this type.
- Tax-Exempt Non-Stock – If one or more individuals plan on engaging in a non-profit enterprise and intend on applying for 501(c)(3), then form a tax-exempt non-stock corporation.
- Non-Stock – The last option is the non-stock corporation. It is an appropriate choice if one or more persons are engaged in a non-profit enterprise.
- Recruiting Incorporators And Directors – Your organization needs an incorporator, who will be signing the formal paperwork. You can appoint one or more individuals. Meanwhile, the directors are the members of the governing body of your organization. They will also be the stakeholders in the purpose and success of the corporation. You will need at least 3 directors who are not related to each other to form a non-profit in the state. There are no strict qualifications. It does not have to be a resident of the state. The term of a director will end at the next annual meeting or until a qualified successor gets elected. Meanwhile, initial officers should include a president, secretary, and treasurer. Their terms will end after a year or until a qualified successor is elected. An individual can hold two or more offices, except for the offices of the president and vice president, if your organization’s bylaws allow it. However, if a document requires the signature of two officers, it has to be signed by two different individuals.
- Registered Agent – Forming a non-profit requires you to nominate a registered agent. They will be responsible for the receipt of legal correspondence and notices on behalf of the organization. It can be an individual resident who has a physical street address in the state or a third-party organization like DoMyLLC that is authorized to transact in the state.
- Articles Of Incorporation – To register a non-profit, you will have to file a completed Articles of Incorporation with the SDAT. It comes with a $100 filing fee, a $20 capitalization and organization fee, and a $50 assessment fee. The normal processing time can be up to10 weeks. But if you choose expedited processing and pay an additional $50, you can expect the department to finish online or faxed filings in 7 business days and in-person submissions on the same day. To complete the form, you will have to include the following information:
- Name And Address Of The Incorporator
- Name Of The Non-Profit Organization
- A Description Of The Business
- The Complete Street Address Of The Principal Place Of Business
- Name And Address Of The Registered Agent
- The Number Of Initial Directors And Their Names
- Statements For State And Federal Tax-Exempt Purposes Regarding The Use Of Funds, Distribution Of Assets In Case Of Dissolution, And Restricted Activities.
If you plan on applying for 501(c)(3), you will have to include a certain language that follows the guidelines of the IRS. The assets of the corporation should only be used for purposes that section 501(c)(3) approves. You also have to state that the purpose of your corporation is limited to the following:
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- Charitable
- Religious
- Scientific
- Educational
- Literary
- Fostering National Or International Amateur Sports Competitions
- Preventing Cruelty To Animals Or Children
- Testing For Public Safety
- Creating Bylaws – Preparing the bylaws of your corporation is crucial because it will contain the rules and procedures that will govern the activities of your non-profit. You do not have to file this with the state.
- Holding A Board Meeting – The first board meeting of your non-profit, which is known as the organizational meeting, is necessary to approve bylaws, appoint officers, set an accounting period and tax year, and approve the initial transaction. Do not forget to record the minutes of all board meetings.
- Getting An Employer Identification Number (EIN) – All non-profit organizations have to obtain an EIN from the IRS. It is necessary for tax filings and tax exemption applications. You will also need it to open a bank account under the name of your organization.
- Obtaining A State Tax Identification Number – The state automatically enrolls newly formed organizations for property tax. However, you will have to register for tax accounts and licenses by filing Form CRA: Maryland Combined Registration Application with the State Comptroller. The registration is free of charge. For local taxes, contact local taxing agencies.
- Applying For Tax Exemptions – Once you form your corporation, you can apply for tax exemption with the IRS. The agency will return a Determination Letter if it approves your application. You can also apply for state income tax exemption by submitting a request to the Comptroller that explains the nature, scope, and purpose of your non-profit as well as its bylaws and latest financial statement. You also need to attach the IRS Determination Letter.
- Getting Licenses And Permits – Depending on your activities, you may have to obtain business licenses and permits. Check this with state and local government agencies.
- Submitting The Annual Report – The state requires all non-profits to submit an annual report by April 15 to update their contact and organizational information.
Get Help
You have to go through multiple steps to successfully establish your organization. If you need help in completing the process, contact DoMyLLC.