How To Start a Nonprofit in Michigan

Choosing a name for your corporation is essential to establish your nonprofit's identity. Your business name should be both distinct and memorable. Your name must be unique because Michigan will not register any corporation with a name conflicting with any other organization registered in the state.

Fortunately, the Michigan Department of Licensing and Regulatory Affairs (LARA) makes it easy to search registered names on its website. If your name is available but you aren't yet ready to register with the state, you can reserve it for six months. To do this, file an Application for Reservation of Name with LARA. There is a $10 filing fee for reserving a name.

Make sure you have adequately researched your nonprofit's name before registering it. This includes checking whether it's subject to a state or federal trademark. It's unlikely for a trademark holder to sue a nonprofit for monetary damages. But it could force you to change the name of your business if your nonprofit grows enough to cause brand confusion.

Your board of directors oversees the operations of your nonprofit corporation. It's responsible for establishing and maintaining your organization's mission, vision, and strategic planning.

Your board needs to consist of at least three unrelated directors to meet IRS requirements. Board members don't have to reside in Michigan. You can appoint one board member who is 16 or 17 years old if you have a board of three. If you have a larger board, the total number of board members who are 16 or 17 can't be more than half of the total number of directors.

Your board must include the following officers:

• President
• Secretary
• Treasurer

An individual officer may hold more than one of the roles above.

When recruiting your board members, consider the skills and contributions they would bring to your organization. Look for the following qualities in potential board members:

• Fundraising experience
• Grant writing background
• Networking skills and community connections
• Passion for your organization's mission
• Leadership skills
• Adaptability

Reference FindLaw's Nonprofit Organizations section for more resources and information for your nonprofit business venture.

Registered agents are responsible for receiving legal notices on behalf of a corporation. The agent must have a physical address in Michigan—courts can't serve legal papers to a post office box. The agent must also be available during business hours to receive legal documents.

Most new nonprofits name the incorporator, director, or another officer as their registered agent. This person often has a legal background, but it isn't required. If you can't find someone to serve as your registered agent, you can hire a registered agent service.

Your nonprofit corporation will become a separate legal entity when you file the articles of incorporation with the Corporations Division at LARA. To file, fill out, and submit Form CSCL/CD-502, Articles of Incorporation for use by Domestic Nonprofit Corporations. You will need to include the following information:

• Your corporation's name
• Whether your corporation is issuing stock (the state of Michigan is one of the few that allow nonprofit corporations to issue stock)
• If issuing stock, it must list the number of shares issued
• If your corporation isn't issuing stock, it will need to list the value of its assets and financing details
• Whether the nonprofit formation is on a membership or directorship basis (if it's a membership corporation, members can vote on corporate action; if it's a directorship corporation, the board of directors determines the organization's actions)
• Names and addresses of the incorporator(s)
• The specific purpose for your corporation's formation
• Name and address of the registered agent

The Internal Revenue Service (IRS) usually requires detailed information when considering an application for a federal exemption. This includes how the corporation will govern its internal affairs. It also includes information on how the corporation will distribute its assets in the event of dissolution, which refers to a business shutting down.

The IRS also requires language restricting the corporation's activities to one or more of the following purposes:

• Charitable
• Educational
• Religious
• Scientific
• Fostering amateur sports competition
• Preventing cruelty to children or animals
• Testing for public safety

There is a $20 filing fee.

The first organizational meeting of the board of directors is essential. This meeting must accomplish several key business objectives, including:

• Approving corporate bylaws
• Electing directors and appointing officers
• Adopting a conflict of interest policy
• Opening a bank account

The IRS will only accept your corporation's application for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code if board members have adopted corporate bylaws or a conflict of interest policy by the time you file the application.

A conflict of interest policy will help your organization avoid situations where the personal interests of any board member could compromise the nonprofit's mission.

You must request a federal employer identification number (EIN) from the IRS after you file your nonprofit's articles of incorporation. An EIN is a unique identifying number that operates like your corporation's Social Security number. You will need an EIN to apply for 501(c)3 tax-exempt status from the IRS and to open a corporate bank account.

You can apply for an EIN for free on the IRS website. Watch out for commercial sites charging for an EIN. Some of these sites look like the official IRS website.

You can also request a free EIN by filing a Form SS-4 by mail or fax.

Your new nonprofit isn't automatically exempt from federal income tax. You need to apply for this through the IRS.

Receiving 501(c)3 designation from the IRS grants several important benefits for a nonprofit corporation, including:

• Your nonprofit has exemption from paying federal income taxes
• Donors may deduct contributions to the organization on their federal income tax returns

File Form 1023 or Form 1023-EZ to complete your Application for Recognition of Exemption from the IRS. Your organization can file using the streamlined Form 1023-EZ if it:

• Has projected gross receipts of less than $50,000 for the next three years
• Has not earned $50,000 in any of the previous three years
• Does not have assets valued at more than $250,000
• Meets certain additional qualifications

Other organizations need to file using the standard Form 1023. The filing fee is $275 for IRS Form 1023-EZ and $600 for Form 1023.

The IRS will issue a determination letter once it grants your nonprofit corporation exempt status. Donors considering donating to your organization can verify your exempt status through the Tax Exempt Organization Search Tool on the IRS website.

Your nonprofit's relationship with the IRS doesn't end with the issuance of the determination letter. You must file a 990 Series Form informational return each year for your organization. There are a few different templates of this form:

• Nonprofits with gross receipts of less than $50,000 annually can file with the IRS electronically using Form 990-N.
• Organizations with less than $200,000 in gross receipts and less than $500,000 in assets can file using the streamlined Form 990-EZ.
• All other exempt organizations must file the standard Form 990.

Exempt organizations that don't file a Form 990 for two consecutive years will lose their federal tax-exempt status.

Nonprofit corporations operating in Michigan are automatically exempt from the Michigan Corporate Income Tax (CIT). Since this state income tax exemption is automatic, you don't need to file with the state.

Michigan nonprofit corporations no longer need to apply for an exemption to the state's sales and use tax. Any organization granted a federal tax exemption under section 501(c)(3) or 501(c)(4) and those previously issued an exemption letter by the Michigan Department of Treasury are eligible for the exemption. But you must file Form 3372, Michigan Sales and Use Tax Certificate of Exemption.

Michigan law requires organizations soliciting charitable donations in the state to register with the Office of the Attorney General. But your organization may be exempt from the registration requirement if both of the following are true:

1. Your organization received less than $25,000 in a 12-month period
2. Your organization doesn't employ anyone whose primary responsibility is fundraising

Other organizations exempt from the registration requirement include:

• Churches and religious organizations
• Michigan educational institutions
• Licensed Michigan hospitals and associated organizations
• Governmental entities
• Solicitations only for the benefit of a named individual, so long as there is compensation
• Organizations that Congress has chartered to benefit veterans
• Private foundations only receiving contributions from individuals who are members, directors, or incorporators of the foundation and their family members
• Children and family services organizations licensed by the state

If your organization doesn't qualify for one of the exemptions above, you will need to file an initial solicitation form with the Michigan Attorney General's Office. There is no registration fee, and you can submit your application by mail, email, or e-filing. To register, submit the following information:

• A complete financial statement (usually an IRS Form 990)
• Names of officers and directors
• Types of charitable solicitation
• A financial purpose statement explaining how your organization uses the donations

Charities receiving more than $275,000 annually in contributions must also provide financial statements that a certified public accountant has reviewed. Charities receiving more than $525,000 in contributions must provide audited financial statements.

Once your organization has submitted its initial filing to the state, you must file a renewal solicitation form each year.

Most nonprofit organizations soliciting donations are also required to register with the Charitable Trust Section. This service allows potential donors to find information on charities, nonprofits, and fundraisers they wish to support financially.