How to Open a Bank Account for a Nonprofit Association

By Jane Haskins, Esq.

How to Open a Bank Account for a Nonprofit Association

By Jane Haskins, Esq.

A nonprofit association is an informal charitable group, usually organized for a short-term purpose. Your state's laws may require a nonprofit association to register with the state. You will also need a federal tax ID number in order to open a bank account.

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Nonprofit associations can work well when you have a short-term goal, such as raising money for a community event. But if you have a longer-term charitable purpose, it may make more sense to create a nonprofit corporation instead.

What is a nonprofit association?

Most large nonprofits are organized as corporations. But community groups come together all the time to raise money for a cause, without ever forming a formal business organization. These groups are known as nonprofit associations, and their rights and responsibilities can vary, depending on the state where they're located.

For example, your state's laws may require an association to register with the Secretary of State or to maintain a registered agent to receive official correspondence in the association's name. You can find the state requirements for nonprofit associations in the nonprofit section of the website of the state agency responsible for business filings.

What are the advantages and disadvantages of a nonprofit association?

The informality of a nonprofit association makes it ideal for short-term projects involving relatively small amounts of money. Under Internal Revenue Service guidelines, a nonprofit association with less than $5,000 in annual revenues is automatically tax-exempt, without having to meet the strict qualifications for tax-exempt status.

However, if your nonprofit has a larger, longer-term charitable purpose, there are advantages to forming a nonprofit corporation. Although a nonprofit association may be able to conduct business and own assets, its members can be held fully liable if the nonprofit is sued or is unable to pay its debts. This can make it harder to attract people to serve in leadership roles in the organization.

In addition, nonprofit associations may have trouble attracting donations if they don't have the credibility that goes with being a corporation. And, when an association brings in more than $5,000 in annual revenue, it will need to apply for tax-exempt status from the IRS. This means it will need a constitution and other governing documents, and at that point it may make more sense to become a nonprofit corporation.

How do I open a nonprofit association bank account?

There are four basic steps to opening a bank account for your nonprofit association:

Step 1: File required paperwork with your state.

If you are forming a nonprofit corporation, you will file articles of incorporation. If you decide to be a nonprofit association instead of forming a corporation, you will not file articles of incorporation, but your state may still require you to file certain documents.

Step 2: Obtain a federal tax ID number.

A federal tax ID number, also known as an employer ID number, or EIN, is the number that will identify your nonprofit with the Internal Revenue Service—similar to your personal Social Security number. You can apply for a tax ID number on the IRS website, or you can hire a service to take care of it for you.

Step 3: Research banks and their requirements.

Different banks may have different policies for nonprofit accounts, so it pays to shop around. Find out what documents you need to bring to the bank to open your account, and who needs to be present to sign signature cards. At a minimum, you will need your certificate of formation (if you formed a corporation) and your tax ID number.

Step 4: Go to the bank and open your account.

Be sure to keep your nonprofit finances separate from your own and to keep good records of all money that comes in or goes out. Setting up a bank account helps you manage your nonprofit association's finances.

Remember that opening a bank account does not guarantee you nonprofit tax status. If you have questions about taxes and your nonprofit, schedule a consultation with an accountant.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.