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Do I Need a Lawyer to Form a Nonprofit?

By Tim Kelly, J.D. | Last updated on
Entrepreneurs are natural self-starters who believe they can do it all themselves, including the incorporation work necessary to start a small business. (And with some of the resources available on the internet, sometimes they might be right.) But incorporation can be a tricky thing to get right. And if you're starting a nonprofit to do good, make sure you do it well. That may mean hiring an attorney to help you with starting your nonprofit. If you haven't started your business yet, you can complete business formation documents from home with simple, DIY options customized for your state.

Starting From Scratch

Even choosing a name for your nonprofit organization can get legally complicated. While you want the name to state your mission, there are limitations. For example, a nonprofit name can't conflict with the name of another business or nonprofit, can't infringe on an existing trademark, and must steer clear of certain terms (like "bank," "federal," or "insurance"). Checking state agencies for naming rules and existing business names can often be done more quickly and easily by an attorney. Just as a for-profit corporation writes a business plan, so should a nonprofit organization. Unlike a business for profit, a nonprofit's business plan should focus on its charitable purpose. This is another area where a business attorney's experience can be helpful. They can help you formulate a business plan describing how you will use your everyday operations, like fundraising, to work toward your mission. This makes the business plan an important roadmap for the success of your organization. A lawyer will have experience paying the filing fees and filing the incorporating paperwork in order to comply with local, state, and federal law. You'll need to file articles of incorporation along with your application, which some states call a certificate of incorporation or certificate of formation. Most states require general information about the purpose of the corporation, the name, address, and the names of your board of directors.

Moving Forward

But drafting incorporation documents may not be just a one-time activity. You can always make changes later if needed, but that's easier said than done. Changing a nonprofit corporation's bylaws, structure, or articles of incorporation means filing those modifications with the state. And then there's the tax issue. One of the biggest reasons to incorporate as a nonprofit is to qualify for tax-exempt status with the Internal Revenue Service (IRS) and state governments. In addition, if a nonprofit is a 501(c)(3) charitable organization, donors can receive tax deductions for their contributions. You will need to file the appropriate exemption application (Form 1023-EZ) with the IRS and state agencies to seek federal tax-exempt status and income tax exemptions. This is another issue an experienced lawyer will be able to tackle efficiently. But not every nonprofit corporation can qualify for 501(c)(3) status. Only nonprofits that operate for the public benefit with a religious, charitable, scientific, educational, or literary purpose qualify as exempt organizations. To maintain their nonprofit status, they must follow certain formalities and record-keeping procedures. Making sure your organization qualifies for and complies with tax laws regarding nonprofits is the job of an experienced attorney. They can also help you determine if organizing as a public benefit corporation is a better option. State laws vary, but there may be a requirement to file a periodic report about your nonprofit to a state agency. For example, California nonprofits are regulated by the California attorney general’s Registry of Charitable Trusts, which requires annual reporting of certain financial information. An attorney can help you file IRS forms and annual returns so your organization stays in compliance and out of trouble.

Using a Lawyer Could Help Avoid Problems

As discussed above, you could incorporate without legal advice. But if things go wrong, it can be hard to undo the problems you've created for yourself, and you may end up having to start over with a local attorney anyway. That's a waste of time and money that you could save by getting professional legal services to begin with.

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