How To Start a Nonprofit in New York
Using your skills and experience to start a nonprofit organization can be personally rewarding and help your community. However, in New York state, nonprofits are subject to several rules that are often intimidating to those with no experience running charitable organizations. The following sections will help you with the essential steps necessary to start a nonprofit that meets state requirements.
While you can run your nonprofit as an unincorporated nonprofit association in New York, it is usually recommended that a nonprofit incorporates. That is because the officers, directors, and members of an unincorporated association are personally liable for any debts or liabilities resulting from the association's authorized activities. An incorporated nonprofit will shield those involved from personal liability.
Unincorporated nonprofit associations are not required to comply with any New York state laws. Therefore, the steps that follow outline how to form a nonprofit corporation to comply with state and federal law.
Find a Name for Your Nonprofit
The first step in forming any nonprofit is usually coming up with a memorable name and letting people know what your organization does. When you are naming a New York nonprofit, you will need to follow the state's guidelines, which stipulate that the name must:
- Include an organizational designation, like “Incorporated" or “Inc."
- Be distinguishable from other business names being used in the state (you can search for registered names on the New York Department of State website)
- Not be deceptive or imply the organization was formed for any purpose other than those included in its certificate of incorporation
- Not have any words that suggest that the organization is acting as an agent of the United States or New York governments
- Not include words that are considered obscene, ridicule any person or group, or imply it is engaged in unlawful activities
Additionally, New York has a long list of words that you can't use in naming your nonprofit without approval. Those terms include:
- “Doctor" or “lawyer"
- “School," “preschool," “education," “elementary," “secondary," “kindergarten," “prekindergarten," or “nursery school"
- “College" or “university"
- "Museum," "library," "historical society," "history," "historical," or "arboretum"
- “Labor," “union," “industrial organization," or “council"
- “Blind" or “handicapped"
The complete list of prohibited words is included in the statute, posted to the New York State Senate website.
Choose a Corporate Structure
If you form your nonprofit as a New York corporation, you will organize as either a religious corporation or a non-religious corporation. Religious corporations are organized under the Religious Corporations Law to enable members to meet for worship or other religious observances.
All non-religious corporations must be organized as one of the following types:
- Type A: These are organized for non-business purposes and include corporations that fall into the following categories: Civic, political, social, athletic, fraternal, agricultural, horticultural, or patriotic. Also included are associations organized for the following purposes: Professional, industrial, commercial, trade, or service.
- Type B: These include corporations organized for the following non-business purposes: charitable, educational, cultural, religious, literary, scientific, or to prevent cruelty to children or animals.
- Type C: Applies to nonprofits organized for public or quasi-public purposes, often those that a for-profit corporation usually performs. This includes Type A and Type B activities conducted by an organization that would otherwise be classified as Type C.
- Type D: These are nonprofit corporations organized for any other purpose.
If the activities of your nonprofit could be classified as both Type A and Type B, it should incorporate as a Type B nonprofit.
Decide Whether to Appoint a Registered Agent
New York is one of the few states where you do not need to appoint a registered agent to receive legal documents on behalf of your organization. The New York Secretary of State serves as the default statutory agent for service of process and forwards any documents it receives to the organization.
However, when you register your nonprofit corporation with the state, you will be given the option of naming a registered agent to receive legal documents on behalf of the organization. As the organizer, you can call yourself or anyone else involved with the nonprofit as the registered agent. The registered agent must be someone living in New York or a registered agent service authorized to transact business within the state. The registered agent must also be available to accept service of process during regular operating hours.
Recruit Directors and Elect Officers
The board of directors serves as a corporation's governing body. Until recently, New York law allowed not-for-profit corporations to have a single member elect its board. But in December 2018, the state enacted a new law to increase the number of required voting members from one to three. The change was made to keep nonprofit corporations from furthering the private interests of a single person.
New York law requires that you name at least three directors to your nonprofit corporation. Each director must be at least 18 years old (with younger directors allowed for organizations involved in youth activities). Still, there is no requirement that the director be a state resident or a member of the organization. Terms for directors must be between one and five years. Additionally, New York requires that you name a president, at least one vice-president, a secretary, and a treasurer to serve a one-year term.
Secure Any Necessary State Agency Approval
Depending on your nonprofit's purpose, you may need to get the written approval of a state agency to incorporate legally. Some common types of nonprofit corporations that must secure agency approval (and the agency which must provide its approval) include:
- Educational or organizations founded to promote knowledge (Department of Education Office of Counsel)
- Facilities that offer adult daycare (Department of Health Division of Legal Affairs)
- Hospitals or health services (Department of Health Division of Legal Affairs)
- Organizations for the care of children, victims of domestic violence, or destitute mothers (Office of Children and Family Services)
- Programs for substance abuse (Office of Alcoholism and Substance Abuse Services Bureau of Certification)
- Trade or business associations (Office of the Attorney General's Antitrust Bureau)
Prepare and File Your Articles of Incorporation
To register your nonprofit corporation, you will need to file a certificate of incorporation with the New York Department of State, Division of Corporations. This certificate serves as the organization's articles of incorporation. This step is critical if you plan on filing for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.
Specifically, to be eligible for a federal tax exemption, the certificate of incorporation must include language stating that the organization's activities will be limited to one or more of the following purposes:
- Fostering amateur sports competition
- Prevention of cruelty to children or animals
- Testing for public safety
The Internal Revenue Service (IRS) also requires that the certificate state what the organization's assets will be used for and what happens to those assets when the organization is dissolved. While not necessarily required by the IRS, New York also requires that the certificate include:
- The corporation's name
- The county where the corporate offices are located
- The names and addresses of the initial directors
- If no registered agent is named, the address to which the secretary of state should mail a copy of any service of process it has received on your organization's behalf
- Provisions regarding how the corporation will govern its internal affairs
The Department of State website has a fillable form you can use to file your certificate of incorporation.
Hold an Initial Meeting of the Board of Directors
The initial organizational meeting of your board of directors is crucial because it is required to approve the nonprofit corporation's bylaws, elect directors, appoint officers, adopt a conflict of interest policy, and approve such things as the opening of a corporate bank account. Any decisions made during this meeting must be recorded in the meeting's minutes so they can be referenced in the future.
Corporate bylaws are the documents that govern your nonprofit and should be consistent with the information provided on your certificate of incorporation and New York law. The IRS is likely to reject your request for a 501(c)(3) exemption if the board has not adopted corporate bylaws and a conflict of interest policy by the time the application is filed.
Obtain an Employer Identification Number
Your nonprofit corporation must obtain an employer identification number (EIN) from the IRS. An EIN is a unique identifying number that operates like a Social Security Number for your corporation. You will need your EIN when your nonprofit applies to the IRS for tax-exempt status, opens a bank account, and plans to hire employees.
You can get an EIN instantly and at no cost by simply applying for one on the IRS website. You can also get a free EIN by filing an IRS Form SS-4 application for an EIN by fax or mail.
Apply to the IRS for 501(c)3 Status
Even though you are running your corporation as a nonprofit or charitable organization, it will not have tax-exempt status until it has been approved as a 501(c)(3) organization by the IRS. Indeed, many have found the process of applying for a 501(c)(3) exemption to be the most intimidating part of establishing a nonprofit organization.
Receiving the 501(c)(3) designation confers many benefits on an organization, but the two most important are:
- An exemption from the payment of the federal income tax
- Contributions made to the organization may be deducted from the donor's income on their federal income tax returns
To apply for exempt status, your organization will need to file Form 1023 or Form 1023-EZ with the IRS. If your nonprofit has projected annual gross receipts of less than $50,000 for the next three years, has not earned $50,000 in the prior three years, does not have assets valued at more than $250,000, and meets certain other qualifications, it can file the streamlined Form 1023-EZ. All other nonprofits must file the standard Form 1023. There is a $275 filing fee for Form 1023-EZ and a $600 fee for filing Form 1023.
If the IRS approves your application for exempt status, you will receive a determination letter that recognizes your exemption. Your organization will then be added to its list of exempt organizations. Also, donors will be able to find your name through the IRS tax-exempt organization search tool.
Finally, if your organization meets IRS requirements and your tax-exempt status gets approved, you will need to file a Form 990 informational return each year. If your corporation has $50,000 or less in gross receipts, it can file using Form 990-N electronically with the IRS. Those organizations with gross receipts of less than $200,000 and total assets of $500,000 or less can use Form 990-EZ. All other exempt organizations will need to file the complete Form 990. Failure to file a Form 990 for two consecutive years will result in the IRS automatically revoking an organization's exemption.
Apply for New York State Tax Exemptions
After receiving your IRS 503(c)3 determination letter, you can apply for an exemption from New York's corporate franchise tax using a Form CT-247. The corporation can also obtain a state sales tax exemption by filing Form ST-119.2. If you seek a property tax exemption, you will need to file with the Office of Real Property Tax Service using the correct form for the type of property you want to exempt.
Additionally, if you are planning on soliciting donations in the state, you will need to register with the New York Attorney General unless the organization qualifies for an exemption. This registration is necessary if your organization plans on fundraising by soliciting contributions from individuals, corporations, foundations, or government agencies located in New York. Once registered, your organization will appear in the searchable database maintained by the New York Attorney General's Charities Bureau.
Additional Questions? Contact an Attorney
Forming a tax-exempt nonprofit corporation in New York state can be a complex process, and it is not uncommon for people to turn to an attorney for legal advice on how to proceed. A skilled local business attorney will have a solid understanding of the state and federal rules you will need to comply with to ensure that your organization is tax-exempt and that donors can claim deductions for their donations.
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