501's - 101: Forming a Non-Profit Organization

If your passion is to inspire, make a difference and give back to the world, then starting a non-profit corporation is an exciting entrepreneurial proposition. Before you start, however, there are a few things to consider.

Starting a non-profit is similar to starting any other corporation, but with some key difference and additional steps. To begin, it’s important to determine what sort of non-profit your corporation is going to be. The Internal Revenue Service recognizes a variety of non-profit organizations, all of which are exempt from income tax. These organizations include, but are not limited to, the following:

501(c)(3) – This is the most common type of nonprofit. It includes organizations that are religious, educational, charitable, scientific, and literary; groups that test for public safety, that foster national or international amateur sports competition; or organizations engaged in the prevention of cruelty to children or animals. Generally, almost all donations made to 501(c)(3) organizations are tax-deductible.

501(c)(4) – These are civic leagues, social welfare organizations, and local associations of employees. They promote community welfare, charitable, educational or recreational goals. These nonprofits are often less restricted in lobbying than 501(c)(3)’s.

501(c)(5) – Labor, agricultural, and horticultural organizations fit under this classification. They are educational or instructive, with the goal of improving conditions of work and to improve products and efficiency.

501(c)(6) – These organizations are business leagues, chambers of commerce, real estate boards, etc. They seek to improve business conditions.

501(c)(7) – Social and recreational clubs fall into this category. They promote pleasure, recreation, and social activities.

The purpose of your organization will determine what type of nonprofit applies to you. Upon determining the appropriate category as provided by the IRS, the next step is to draft and file your Articles of Incorporation with the Louisiana Secretary of State. These Articles contain basic structural information, such as the nonprofit’s name, its registered agent, the initial board of directors and the office address. Once you have received a copy of your Articles of Incorporation from the Secretary of State, you are then ready to obtain an employer identification number and begin completing the application to the IRS for your federal non-profit status as a 501(c) organization. If forming a 501(c)(3) organization, the IRS application is known as Form 1023. Form 1023 provides a thorough inquiry relating to the officers, directors, and trustees of the organization; any compensation arrangements; specific activities that may be engaged by the organization; and the financial data of the organization. After completing and submitting Form 1023 for IRS approval, the final step in forming a non-profit organization is the creation of its bylaws.

Bylaws are the rules and methods that the organization follows to ensure legality and productivity. This is the document that specifies the election process and responsibilities of directors, your meeting manners, the requirements for membership and/or committees, financial duties, and other legal provisions that help define the organization’s structure and mission.

As you can see, the excitement of forming a non-profit is equally matched by the necessity of proper planning and execution in order to achieve the organization’s desired goals. If you would like more information on this matter or would like to discuss any non-profit issues you may have, please feel free to contact Ryan P. Monsour at your convenience by calling (504) 833-5600 or emailing rpm@chehardy.com.

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