How to Start a Nonprofit in Michigan

Starting a Michigan nonprofit can be a rewarding way for you to use your skills and experience to help your community. However, the startup process can sometimes appear to be overly complex and intimidating if you have no prior experience with starting nonprofits. Fortunately, FindLaw has collected the information you need to start a Michigan nonprofit in one place.

While there is no requirement that you incorporate your nonprofit, most people choose to do so to keep their officers, directors, and members from being held personally liable for the organization's debts and obligations. If you structure your nonprofit as an unincorporated association you and those who are helping you run the organization may be held liable should it be sued.

Since it is usually recommended that the organizers of Michigan nonprofits set up their organizations as corporations, the steps that follow explain how to set up a nonprofit corporation that complies with both state and federal law.

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Name Your Nonprofit Corporation

Finding a name for your corporation is an important first step in its organization because it will help it establish the nonprofit's identity. The name should be both unique and memorable. It is critical that the name be unique because Michigan will not register any corporation that has a name which conflicts with that of any other organization registered in the state.

Fortunately, the Michigan Department of Licensing and Regulatory Affairs (LARA) makes it easy to conduct a search of names already been registered 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 by filing an application for reservation of name with LARA. There is a $10 filing fee for reserving a name.

Before settling on a name it is usually a good idea to make sure it is not subject to either a state or federal trademark. It is unlikely that a trademark holder would sue a startup nonprofit for monetary damages, but it could force you to change the name of your nonprofit organization if it gets popular enough that it causes brand confusion. You don't want to lose an identity or community goodwill that you have worked hard to build because your failed to properly research your nonprofit's name.

Name a Registered Agent

Registered agents are responsible for receiving legal notices on behalf of a registered corporation. The agent must have a physical address in Michigan because court papers can't be served to a post office box. While you can hire a service to act as your registered agent, most recently launched nonprofits name the incorporator, a director, or another officer as their registered agent.

File the Nonprofit's Michigan Articles of Incorporation

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

• The corporation's name
• Whether the corporation is issuing stock (the state of Michigan is one of the few that allow nonprofit corporations to issue stock)
• If it is issuing stock, it must list the number of shares issued
• If the corporation is not issuing stock, it will need to list the value of its assets and how it will be financed
• Whether it is being formed on a membership or directorship basis. If it is a membership corporation, the members can vote on corporate action. If it is a directorship corporation, the organization's actions will be determined by the board of directors.
• The name and address of the incorporator or names and addresses of the incorporators
• The specific purpose or purposes for which the corporation is being formed
• The name and address of the registered agent

The Internal Revenue Service (IRS) will usually require more detailed information on how the corporation will govern its internal affairs and details on how its assets will be distributed when it is dissolved when considering its application for a federal exemption. Additionally, the IRS will require language that restricts the corporation's activities to one or more of the following purposes:

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

There is a $20 filing fee.

Hold an Initial Meeting of the Board of Directors

The organizational meeting of the board of directors is important because it will vote on a number of key issues, including approving corporate bylaws, electing directors, appointing officers, adopting a conflict of interest policy, and whether it should open a bank account. The IRS is likely to reject your corporation's application for tax exempt status under Section 501(c)(3) of the Internal Revenue Code if the board has not adopted corporate bylaws or a conflict of interest policy by the time the application is filed.

Obtain an Employer Identification Number

Even if a nonprofit corporation has no plans to hire employees, it should still request a federal employer identification number (EIN) from the IRS as quickly as possible after the articles of incorporation have been filed. That's because the 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.

The IRS will issue you an EIN instantly and for free if you apply on its website. You can also request a free EIN by filing a Form SS-4 application for an EIN by mail or fax. While there are a number of online services that charge a fee to register businesses for an EIN, the application process is so simple that there is no need to use one.

Apply to the IRS for a 501(c)(3) Exemption

While you may have set up your organization to help others, it will not have federal tax-exempt status without the IRS's approval. Receiving the 501(c)3 designation from the IRS confers several important benefits on a nonprofit corporation, including:

1. An exemption from paying federal income taxes
2. Contributions made to the organization may be deducted from the donor's income on their federal income tax returns

Organizations request exempt status from the IRS by filing Form 1023 or Form 1023-EZ with 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, and meets certain additional qualifications. Other organizations will need to file using the standard Form 1023. The filing fee for a Form 1023-EZ is $275 and the fee for Form 1023 is $600.

When the IRS grants your nonprofit corporation exempt status it will be issued a determination letter showing that it is an exempt organization. Donors who are thinking of donating to your organization will be able to verify your exempt status through the IRS searchable of exempt organizations.

Unfortunately, your nonprofit's relationship with the IRS does not end with the issuance of the determination letter. It must file a Form 990 informational return each year. If your nonprofit has a gross receipts of less than $50,000 in a year, it can file with the IRS electronically using Form 990-N. Organizations that have less than $200,000 in gross receipts and have total assets of less than $500,000 can file using the streamlined Form 990-EZ. All other exempt organizations must file the standard Form 990. Exempt organizations that do not file a Form 990 for two years in a row will have their exemption revoked by the IRS.

Automatic State Tax Exemptions

Nonprofit corporations operating in Michigan are automatically exempt from the Michigan Corporate Income Tax (CIT). Since the exemption is automatic, nothing needs to be filed with the state.

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

Register to Solicit Donations in Michigan

Michigan law requires organizations that solicit charitable donations in the state must register with the Office of the Attorney General. However, organizations that received less than $25,000 in a 12-month period and do not employ anyone who's primary responsibility is fundraising are exempt from the registration requirement.

Other organizations that are 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 nobody is compensated
• Organizations to benefit veterans that have been chartered by Congress
• Private foundations that only receive contributions from individuals who are members, directors, or incorporators of the foundation and their family members
• Children and family services organizations that are licensed by the state

If your organization does not qualify for one of the above-listed exemptions, it will need to file an initial solicitation form with the Michigan Attorney General's Office. There is no fee for registering and applications are accepted by mail, email, or e-filing. To register, you will need to submit the following information:

• A complete financial statement (usually an IRS Form 990)
• The names of officers and directors
• The types of charitable solicitation being undertaken
• A statement of financial purpose explaining how the donations will be used

Those charities that receive more than $275,000 in contributions during the year will also need to provide financial statements that have been reviewed by a certified public accountant. Charities that receive more than $525,000 in contributions must provide audited financial statements.

Once an organization has submitted its initial filing, to the state it will need to file a renewal solicitation form each year.

Additional Questions? Contact an Attorney

Forming a new nonprofit corporation in Michigan that complies with all the state and federal rules for exempt organizations often seems like an overly complex process that may seem overwhelming to those without previous nonprofit experience.

Consider using a DIY nonprofit formation tool that will walk you through the registration process so that your nonprofit corporation is set up correctly and will be entitled to a federal tax exemption.

A skilled local attorney can also provide you with legal advice on how to navigate the nonprofit formation and registration process.