How To Start a Nonprofit in Maryland
Nonprofit organizations can do a great deal to help a community, but starting one in Maryland can seem like an overwhelming task if you have no prior experience. Fortunately, FindLaw is here to help. The following steps explain the process for starting a nonprofit that will get you on your way to helping others and improving your community.
Most Maryland nonprofits are organized as corporations, and it is generally recommended that you do the same. While it may take more time, effort, and money to organize as a corporation, the personal liability protection it provides for those working with your nonprofit far outweighs the costs. If your nonprofit is not classified as a corporation, its organizers, officers, and members may be held personally liable for its unpaid debts and obligations. Those obligations may include any lawsuits that may be filed against it.
Since it is strongly recommended that startup nonprofits be organized as corporations, the following sections explain how to establish your own Maryland nonprofit corporation. The steps outlined below should help you establish a tax-exempt nonprofit that will also shield those involved from personal liability.
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Find a Name for Your Nonprofit
The first step in organizing your nonprofit corporation should be finding a name that best represents your organization. If you plan to incorporate your nonprofit in Maryland, that name also must be unique and meet other state requirements.
You will not be allowed to register your nonprofit corporation in Maryland if another registered organization has already claimed the name. The best way to find out if a name is available is to search the Maryland State Department of Assessments and Taxation website.
Additionally, the corporation's name must include one of these words (or its abbreviation): corporation, company, incorporated, or limited. Finally, any words that could cause people to confuse your corporation with a government agency, such as the Federal Bureau of Investigation, Secret Service, or Treasury Department, are prohibited.
Appoint Your Registered Agent
Every Maryland corporation needs to name a registered agent to receive legal notices on its behalf. Anyone you name as a registered agent must be located in the state and maintain an office that is open during regular business hours to accept service of process. While you can hire a service to act as your registered agent, most new nonprofits name the organizer or one of the directors.
Write and File Articles of Incorporation With the State
Your nonprofit's articles of incorporation will help the state of Maryland document when and where it was formed and other important information about the corporation. Essentially, once the articles of incorporation have been filed with the state Department of Assessments and Taxation, the organization is officially a nonprofit corporation that exists on its own.
When you form a nonprofit corporation in Maryland, you have three structures to choose from:
- Religious corporation for religious congregations
- Tax-exempt nonstock corporation for organizations applying for a federal tax exemption
- Nonstock corporation to run a nonprofit business
The state of Maryland requires you to provide the following information in your articles of incorporation:
- The nonprofit's name
- A description of its activities
- The name and address of the person incorporating the nonprofit (the “incorporator")
- The nonprofit's business address
- The name and address of its registered agent
- The names of the initial corporate directors
IRS Will Need Additional Information
If you are planning on seeking tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, the Internal Revenue Service (IRS) will require you to include additional information in your articles of incorporation. Specifically, it will look at the articles to ensure that your corporation has been organized and operates exclusively for exempt purposes. That means the IRS will be looking for language that restricts the corporation's activities to one or more of the following purposes:
- Prevention of cruelty to children or animals
- Fostering amateur sports competition
- Testing for public safety
Additionally, the IRS will be looking for the following statements:
- No part of the nonprofit corporation's earnings will be used for the personal benefit of any trustee, director, or officer and will not be distributed to one or more of them when the corporation is dissolved
- The corporation will not carry on any activities other than those conducted for exempt purposes
- When the corporation is dissolved, the directors will first pay all of its liabilities before distributing its remaining assets in accordance with its exempt purpose or to the federal, state, or local government
- The names of the initial corporate directors
Hold an Organizational Meeting of the Directors
The first meeting of your nonprofit's board of directors is a significant event for the corporation because it will address several key issues. Those generally include approving the corporate bylaws and adopting the organization's conflict of interest policy. The board members must take those actions before the nonprofit applies to the IRS for exempt status. It usually rejects applications from corporations that have not adopted bylaws or a conflict of interest policy.
Get an Employer Identification Number (EIN) From the IRS
While your nonprofit may have no plans to hire employees, it is still crucial to get a federal employer identification number (EIN) from the IRS as soon as possible. The EIN serves as a unique nine-digit number that the IRS uses to identify its tax accounts. Tax accounts include those for exempt organizations, so your nonprofit will need one to apply for 501(c)3 status with the IRS. An EIN will also be required to open a corporate bank account.
The IRS will issue a free EIN instantly to any organization that signs up using the IRS website. Your organization can also request a free EIN by filing an IRS Form SS-4 application for an EIN with the IRS by mail or fax. When you sign up for an EIN, be sure to do so on the IRS website at IRS.gov. Some search engines will link you to a website that will charge a fee to sign up for an EIN when the IRS issues them for free.
Apply for a 501(c)(3) Tax Exemption From the IRS
Even if you have formed your nonprofit with the express purpose of pursuing charitable goals, it will still need IRS approval to qualify as a tax-exempt organization. Being designated by the IRS as an organization that is exempt under Section 501(c)(3) confers several benefits on a nonprofit, including:
- 1.An exemption from paying federal income taxes
- 2.Contributors to your nonprofit can claim a deduction for charitable contributions on their federal income tax returns
Organizations seeking exempt status from the IRS must apply using Form 1023 or Form 1023-EZ. Most startup nonprofits can use the simplified Form 1023-EZ. To use the simplified form, a nonprofit must have had gross receipts of no more than $50,000 in any of the previous three years, expect to have less than $50,000 in receipts for the next three years, have assets valued at less than $250,000, and meet other qualifications. The fee for filing Form 1023-EZ is $275, but the filing fee increases to $600 for the standard Form 1023.
If the IRS approves your application to have your nonprofit's exemption recognized, it will issue the organization a determination letter and include its name on the searchable list of exempt organizations the IRS maintains on its website.
While your organization may be exempt from paying the federal income tax after the IRS has approved its application, nonprofits still must file a Form 990 informational return each year. Failure to file a Form 990 for two years in a row may result in the IRS revoking the organization's exempt status.
Apply for a State Income Tax Exemption
Once you have received your determination letter from the IRS, your nonprofit corporation can apply for its Maryland state income tax exemption. To request a state exemption, your nonprofit organization should file the following information with the Revenue and Administration Division:
- A request for an exemption from the Maryland income tax
- A description of the organization and its purpose
- A copy of the IRS 501(c)(3) determination letter
- A copy of the organization's latest financial statement
- A copy of the organization's bylaws
If the Revenue and Administration Division grants your nonprofit's request for a state tax exemption, it will not need to file income tax returns with the state.
Most nonprofits conducting charitable, educational, and religious activities are also eligible for an exemption from the Maryland property tax. The exemption application form is available upon request from the state Department of Assessments and Taxation office that serves the county where the property is located.
Register as a Charitable Organization With the Secretary of State
Most charitable organizations soliciting contributions of more than $25,000 in Maryland must register with the Office of the Secretary of State's Charitable Organizations Division. Registration is required before an organization begins fundraising in the state. The forms to register for charitable solicitation are available on the Secretary of State's website.
Use a Simple Process To Form Your Nonprofit
Want to take the guesswork out of forming your nonprofit? Consider using our trusted, simple-to-use online business formation tool. We'll walk you through the steps of creating your nonprofit and help you meet the legal requirements.
Have Any Questions? Contact a Local Attorney
If you don't have any experience with nonprofit organizations, the state and federal rules that must be followed to ensure it is exempt from tax can seem overwhelming. That is why many people who are starting a nonprofit seek the advice of an experienced local attorney. A lawyer can walk you through the state and federal registration process to ensure that your nonprofit fully complies with all applicable rules and laws.
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