What Type of Attorney Is Needed When Starting Up a Nonprofit Organization?

By Etta Mills-MacDonald

Forming and operating a nonprofit organization is a complicated process that must comply with state and federal laws. Hiring a business or corporate attorney with experience in incorporation, taxes and human resources can help your organization avoid the many pitfalls of trying to do all the legal work on your own.

Planning

You should hire your attorney early in the planning phase for your organization so it has the best possible chance of qualifying for nonprofit status. Nonprofit formation is a specialized field of law. Look for a lawyer that advertises as a business attorney, corporate attorney, or nonprofit attorney. It’s a real plus if your attorney has specific experience in the field where your nonprofit will operate, such as political action, church groups, or the arts.

Incorporation

Each state has its own requirements for creating a nonprofit, but all of them require your group to form a corporation as a first step. Your attorney should be an expert in the corporate laws of your state. He will fill out your state incorporation forms, help you choose your board of directors, write your corporate bylaws and check for potential conflicts of interest.

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IRS Recognition

After incorporating, the next step is applying for a tax exemption with the Internal Revenue Service. Although the IRS instructions for Form 1023 seem straightforward, your application can be delayed or rejected because of a simple misstep or missing information. The federal tax code has several categories for nonprofits, with different requirements for each one. An attorney with a specialty in nonprofit formation will choose the category that provides the best fit for your organization’s purpose and goals.

Compliance

After you receive tax exemption from the IRS, your organization needs to follow the many federal and state laws that govern nonprofits. Fundraising is one area where nonprofits can run afoul of the law by straying outside their tax-exempt purposes, especially if you plan to provide goods or services. Your attorney should also understand human resources issues and how they apply to nonprofits in case your organization grows enough to hire employees.

Nonprofit Attorneys

If you don’t know an attorney who specializes in nonprofit law, you can ask for referrals from nonprofit organizations in your community. Your state bar association also may be helpful. If you use a phone book or online directory, avoid listings for specialties like criminal law or family law. Find a law office that specializes in business, nonprofit, or corporate law.

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References

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Pennsylvania Nonprofit Corporation Act

Getting your charitable organization off the ground in Pennsylvania requires following state law. If you decide that creating a nonprofit corporation best suits your business goals, you need to be aware of the Pennsylvania Nonprofit Corporation Act. This set of laws applies to all corporations that are organized in the state for a purpose other than generating profit and governs the business formation process. Understanding these requirements will help avoid delays in obtaining nonprofit status for your business.

What Is a 501(c)(3) Determination Letter?

The Internal Revenue Service sets down the tax rules for nonprofit corporations, including the charitable organizations formed under state law and in accordance with Section 501(c)(3) of the federal tax code. A 501(c)(3) should operate in the public interest or for charitable purposes and not for the profit of any individual or group. If the 501(c)(3) conforms with these requirements, it is tax-exempt. The IRS is the final arbiter on tax status, using determination letters to hand down its decisions.

How to Form a Mutual Benefit Corporation in California

California law provides for several types of nonprofit corporations, one of which is called a mutual benefit corporation. The primary aspect of a mutual benefit corporation is that it is formed and operated solely for the benefit of its members, rather than making a profit. A mutual benefit corporation can be formed for any nonprofit purpose except a charity. To form a mutual benefit corporation in California, you file articles of incorporation with the Secretary of State’s office. You can download a sample form of articles from the secretary's website.

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