Before any legal documents can be filed, the founder or founders need to select a name that is not already registered in the state where the organization will incorporate or in any states where the organization will operate. For example, in New York, the website of the Secretary of State has a searchable database of corporate names currently in use. It is also possible to lay claim to a name prior to incorporation by filing an application for a reservation of name with the Secretary of State. In addition to naming the nonprofit, the organization will also need a mission statement that sets forth the scope of the organization's activities.
In order to set up a bank account, to sign a lease or even to obtain grants, the organization must become a legal entity by filing articles of incorporation with the appropriate state authority. The articles of incorporation must be consistent with state law. For example, some states, such as Delaware and Nevada, require only one founder, while many others, such as New York and Illinois, require a nonprofit's initial board of directors to consist of at least three people. Moreover, the articles of incorporation need to be consistent with the standards set by federal law governing tax exemption. As the Internal Revenue Service indicates in its model articles of incorporation, the document will typically include such information as the organization's name, principal office, purposes, and limits on activity inconsistent with its exempt status.
Some jurisdictions require organizations that will work with youth to obtain special approvals or licenses. As Professor James Fishman explains, the rules in New York State are among the most restrictive in the United States. An organization with educational purposes must obtain a consent or waiver from the state's Department of Education, while a social service organization must obtain approval from the Department of Social Services and an organization helping neglected or dependent children requires approval from the Office of Children and Family Services.
Working with children can expose an organization to significant financial liability. Accordingly, obtaining insurance for the organization and its leadership is essential. In addition, as The Points of Light Foundation notes, an organization should also develop a risk management program that includes such preventive measures as risk assessment, personnel training, supervision, waivers and program monitoring.
Most states require organizations that engage in fundraising to register with the state attorney general's office. For example, in New York, this involves registering and submitting annual reports to the Attorney General's Charities Bureau. Organizations raising funds in multiple states might be able to streamline the process by using the Unified Registration Statement, which is accepted by most of the states that require nonprofits to register. A joint initiative of the National State Charities Officials and the National Association of Attorneys General -- the Unified Registration Statement -- contains a form that can be submitted to each state that has agreed to accept it. Besides the Unified Registration Statement, the nonprofit may have to submit additional supporting documents or data required under state law.
Federal Tax Exemption
Besides incorporating as a nonprofit, the organization should also obtain recognition of federal tax-exempt status under Section 501(c)(3) of the tax code. This requires filing Form 1023 with the Internal Revenue Service. If the filing is approved, the organization will receive a determination letter certifying its exempt status, which many grant-makers require in order to provide funding.