Basic Steps and
Sequences of Nonprofit Formation
1. Establish
the purpose and mission of the organization
A nonprofit organization’s purpose is not to
make a profit and must include a statement to
the effect that the earnings of the nonprofit
are expressly dedicated and exclusively devoted
to the support of the benevolent purpose or
goals as stated in the Articles of
Incorporation. It is advisable that the
statement describing the specific nature of the
organization's activities and goals should be
preceded by a pro forma statement indicating
that this purpose and these activities fall
within the provision of the IRS Code, Section
501 (c) (3).
2. Private Operating Foundation or Public
Charity?
Public Charity:
an organization that normally receives a
substantial portion of its total income directly
or indirectly from the general public or from
the government (1/3 or more of total support
from government. and/or general public).
Private Operating Foundation: Lacks broad
general public support of the public charity yet
it devotes most of its earnings and assets
directly to its tax-exempt purposes.
3. Establish
your Board of Directors
According to
Alabama law, there must be a minimum of three
people on a nonprofit organization Board of
Directors. In many cases, the original
incorporators named in the Articles of
Incorporation make up the initial Board of
Directors.
Even
all-volunteer organizations, those with few or
no staff, are required by Alabama law to have a
minimum of three board members. The board is
ultimately responsible for setting the direction
of the organization, ensuring that the
organization has appropriate and adequate
resources; and providing oversight.
4. Reserve the
organization's name
Reserve the
corporate name of the organization by contacting
the Secretary of State.
5. File
Articles of Incorporation
To file the
Articles of Incorporation, call the Judge of
Probate in the county in which the organization
will be incorporated. Check on the required
attachments and filing fee (they may vary from
county to county). Usually an original and two
copies are required, and there will be a fee
(approximately $25) for the Probate Court.
Within 10 days of filing, the Probate Office
will send a copy of the Certificate of
Incorporation together with the Articles,
attachment and an additional fee (approximately
$20) to the Secretary of State in Montgomery.
6. Apply for
the Federal Employer Identification Number
Order Internal
Revenue Service (I.R.S.) Application SS-4,
"Applying for the Employer ID Number." This
number is similar to a social security number
for the organization.
7. Prepare
organization bylaws
Bylaws are an
organization’s rulebook. They state the
organization’s purpose, how it is organized, and
where authority resides. They determine how the
organization is structured. They also determine
who has rights to participate in programs and
services. They state rights of the various
stakeholders and constituencies, for example,
members. They govern most of the internal
affairs, they determine who has power and how
that power works, they give structure to an
organization, and they set the parameters for
fiscal management. Bylaws outline how the Board
of Directors will operate, specifying the size
of the board, the selection and tenure of
members, the number of board meetings, the
officers and committees, the financial and legal
procedures, and the purpose of the organization.
8. Conduct an
initial meeting of the board of directors
and prepare minutes for the meeting
Replace the
nominee directors with elected directors,
appoint officers, ratify Articles of
Incorporation, adopt bylaws, discuss opening a
bank account and indemnify directors.
9. Apply for
Federal Tax-Exempt Status
Order I.R.S.
forms and apply within 15 months of the date you
filed your articles of incorporation. To apply
for Federal Tax-exempt Status with the IRS, call
(800-829-3676) and request copies of IRS
publication #557 "Tax Exempt Status For Your
Organization", IRS Form #1023 "Application for
Tax Exempt Status", and Form #8718 - User Fee
for Tax Exempt Organization Determination
Letter.
* No.
557-"Tax-Exempt Status for Your Organization"
* No. 1023 (for
501(c)(3)'s)-"Application for Recognition of
Exemption"
* No. 1024 (for
501(c)(4) or (6)'s)-"Application for Recognition
of Exemption"
* No.
8718-"User Fee Application"
Contact the
I.R.S. Forms Distribution Center at 800-829-3676
or at http://www.irs.ustreas.gov/. The
application fee is $150 (if organization
anticipates annual Gross receipts of less than
$10,000 each year for the first 4 years) or $500
(if the organization anticipates annual gross
receipts of more than $10,000 in the first
year).
The I.R.S.
estimates 70 hours to complete form 1023 or
1024, and 120 days for the application to be
processed. Process time begins when no
additional questions are requested of the
applicant by the I.R.S.
If an
organization has a question regarding: the
application for recognition of exempt status;
the advanced ruling period; completing an exempt
organization tax return; or the status of the
exempt organization, contact the I.R.S.'s toll
free Tax-Exempt helpline at 877-829-5500.
10. State
Charitable Registration
Alabama's
Charity Registration Law
All 501 (c) (3)
organizations that solicit contributions in or
from the state of Alabama are required to
register with the Office of the Attorney
General. This legislation, The Alabama Charity
Registration law, was passed and signed into law
by Gov. Fob James in May of 1996.
The exemptions
to the law requiring nonprofits to register are:
* Educational
institutions and their related foundations
* Religious
organizations
* Political
organization
* Fraternal,
social, education, alumni, health care
foundation, historical and civil rights
organizations
* Any
charitable organization that does not intend to
solicit and receive and does not actually
receive contributions in excess of $25,000
during the fiscal year, provided all of its
fundraising functions are carried out by
volunteers
* Veterans
organizations - provided all fundraising
activities are carried out by volunteers
There is an
initial and annual fee of $25 for registering.
Make checks payable to the "Office of the
Attorney General." Registration is good
indefinitely, but financial reports must be
filed annually, due within 90 days of the close
of the organization's fiscal year. Also any
information that changes from the initial
information must be updated within 10 days of
the change. Both the initial Charitable
Registration form and the annual renewal form
can be obtained from the Attorney General's
Office.
Information
provided by the Nonprofit Resource Center of
Alabama,
www.nrca.info
Approved by Lydia Pickett of
the NRCA
434 N.McDonough St.
Montgomery, AL. 36104
334-263-6225
