501(c)(3) Incorporation Laws

By Terry Masters

Nonprofit organizations that can claim federal income tax exemption under section 501(c)(3) of the Internal revenue Code comply with two sets of laws. The nonprofit is formed under the incorporation statute of a particular state. Each state has its own nonprofit incorporation statute, but they are all substantially similar. The incorporated nonprofit can then apply with the Internal Revenue Service for 501(c)(3) status for recognition as a tax-exempt entity.

Nonprofit organizations that can claim federal income tax exemption under section 501(c)(3) of the Internal revenue Code comply with two sets of laws. The nonprofit is formed under the incorporation statute of a particular state. Each state has its own nonprofit incorporation statute, but they are all substantially similar. The incorporated nonprofit can then apply with the Internal Revenue Service for 501(c)(3) status for recognition as a tax-exempt entity.

Charitable Purpose

Unlike a for-profit corporation that can typically be formed under state law for any legal purpose, a nonprofit corporation must be formed for a charitable or other tax-exempt purpose as outlined by the state nonprofit incorporation statute. The statute qualifies a broad range of charitable activity for nonprofit purposes but for the nonprofit to also qualify as a 501(c)(3) entity under the tax code, it must fall under the tax code definition, which includes "religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition, or prevention of cruelty to children or animals organizations." The broadest classification is "charitable," which includes most nonprofit activity that benefits society.

Ready to incorporate your business? Get Started Now

Filing Requirements

A state nonprofit incorporation statute indicates the steps a new organization must take to incorporate in the state. In some states, the statute requires a nonprofit to choose a name that is distinguishable from other businesses operating in the state, recruit at least three initial board members and select a registered agent for service of process. Generally, at least one person must complete and sign the articles of incorporation for the nonprofit. The articles must be filed with the proper state government entity, along with the appropriate filing fee.

Special Approvals

A state incorporation statute typically puts restrictions on certain types of nonprofit activity. Any nonprofit that wants to work in these restricted areas must obtain an approval from the regulating state agency before the state will accept the organization's articles of incorporation. For example, many states would require a nonprofit organization that wants to provide drug counseling to first register its qualifications with the health department. Another example is a nonprofit that wants to provide childcare for children under 5 years old. States typically would require the organization to first obtain clearances from the state child welfare agency.

Requirements for Federal Tax Exemption

A nonprofit's state incorporation must also conform to the requirements of the federal tax code to qualify it for tax-exempt status under 501(c)(3). Many state incorporation statutes do not require some of the provisions that the tax code requires in the nonprofit's articles of incorporation. For example, the tax code requires a nonprofit to explicitly state in its articles that the income generated by the organization will not benefit any individual person. The tax code also requires a nonprofit to include in its articles a statement that it will distribute its assets to another tax-exempt entity if the nonprofit closes down, as well as a statement that it will not engage in lobbying activities. If a nonprofit did not include this information when it originally filed its articles of incorporation with the state, it will have to amend its filing before applying for tax-exempt status with the IRS.

Ready to incorporate your business? Get Started Now
How to Incorporate a Non-Profit Ministry

References

Resources

Related articles

How to Start a Nonprofit Foundation

If you want to improve your community or meet a social need that no other local organization is pursuing, you might consider starting a nonprofit foundation. But make sure your foundation meets the requirements set forth by the IRS first. Rather than operating for profit, your organization's purpose should be for a social good.

Washington State Rules for Nonprofit Organizations

Rules for nonprofit organizations in Washington state are similar to rules for other business organizations. Nonprofits are required to register with the Department of Revenue and comply with certain tax rules. Tax exemptions are available in some circumstances from the Department of Revenue. Nonprofits that intend to solicit charitable donations must register with the Charities Program of the Secretary of State. Nonprofits that incorporate must comply with the Washington Nonprofit Corporation Act.

What Is Required to Create a Not for Profit LLC?

Whether you've already formed a not-for-profit limited liability company, or LLC, or thinking about starting one, obtaining tax-exempt status for the entity allows you to take advantage of substantial tax benefits. If approved by the Internal Revenue Service, your not-for-profit LLC won't pay any income tax and can start accepting tax deductible donations. Becoming tax-exempt, however, means the LLC must satisfy all requirements under Section 501(c)(3) of the Internal Revenue Code.

LLCs, Corporations, Patents, Attorney Help

Related articles

The Requirements to Start a Non-Profit Business in South Carolina

Nonprofit businesses provide important services for communities, such as giving support to low-income families or ...

The Duties and Responsibilities of a Board in Dissolving a 501(c)(3)

The larger issues of a 501(c)(3) organization, such as whether to dissolve, are generally decided by the nonprofit ...

How to Start a 501C3 Nonprofit Ministry

Charity work is often part of a church's activities -- and some churches may choose to expand their charitable work by ...

How to Start a Non-Profit Organization for At-Risk Youth

Starting a nonprofit for at-risk youth can be as complex as starting a for-profit enterprise. Although it may be ...

Browse by category