How To Start a Nonprofit in North Carolina
You have a great idea for a nonprofit. You have a Board of Directors, statements of purpose, and a way to change the world for the better. And now you want to formalize the process and create a living, breathing nonprofit corporation with tax-exempt status in North Carolina.
Well, take a deep breath and get ready to follow a complicated process to create your dream.
The North Carolina statutes and rules governing nonprofits are very complex and require patience and great attention to detail, as well as professional advice and guidance.
This overview of North Carolina nonprofits will guide you through the various steps necessary to the formation of a nonprofit organization but are not a substitute for professional legal advice in this highly technical and complicated area of law.
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Types of North Carolina Nonprofits Corporations
There are no specific limitations to the types of nonprofit corporations that can be opened in North Carolina, other than that the corporation has to be eligible for nonprofit taxation status. That status is generally limited to charitable organizations, churches and religious organizations, private foundations, certain political organizations, educational organizations, social welfare organizations, some social clubs, civic leagues, labor organizations, and business leagues.
Costs to Start a Nonprofit Corporation
It will cost some money to start a nonprofit. There are state filing fees, which will be noted below. In addition, unless you have a volunteer lawyer, you will have legal fees to pay. If you are opening a storefront of some kind, you may be dealing with local business licenses.
Step I: Create and Name Your Nonprofit Business
Creating a legally proper name and then protecting it is one of the first actions that the nonprofit needs to undertake. This is a process that can be complex and time-consuming, but the nonprofit has to operate legally in North Carolina.
The first thing you have to do is create a great name (that's up to you). North Carolina law requires that the business name be unique and different from any other company's name, whether the other company is a nonprofit or not.
In addition, the North Carolina law requires that the name must contain a word or abbreviation that designates the organization as a corporation: “Inc.," “Corporation," etc.
Your first task will be to search the North Carolina business name database to make sure that the name that you have chosen is not in use by any other North Carolina company.
Once you have a name that meets state requirements, register that name with the Secretary of State.
Corporation names that exist in other states and do not exist in North Carolina are permissible. However, if you want to register nationally or with another state, you will have to follow those procedures.
Step II: Legally Own Your Organization's Name
Next, make sure that no one else can use it in business or on the internet. This means that you have to make sure that no one else is using that name. You do this by making sure that the Internet Domain Name is available. If it is available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally, or you want to operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. The nonprofit's name is still protected as a common law trademark while that application is pending.
Once you receive your federal trademark, register it with the North Carolina Trademark Division of the Secretary of State.
Now that name is yours, you can keep anyone else from using it, and it conforms to North Carolina law.
Step III: Establish a Board of Directors
Every North Carolina nonprofit must have a Board of Directors. North Carolina law only requires that Board be composed of one or more people. However, the IRS requires at least three unrelated individuals to be on the initial Board, and the North Carolina Center for Nonprofits recommends a Board of Directors composed of at least 5 to 7 people. Also, a minimum of two board members is necessary to form a committee.
The Board should be chosen for skills that they can bring to the organization, including fundraising, expertise in the nonprofit's field of endeavor, and organizational skills. Board members must be “natural" people. There is no residency requirement.
Step IV: Create the Organization's Bylaws
North Carolina requires the creation of bylaws for any corporation. Bylaws are the internal rules of the corporation and must be adopted by the Board before the corporation can legally function.
Step V: Hold the First Board Meeting
Once the Board is created, it should conduct its first organizational meeting as soon as possible. That meeting should discuss the role of the Board, adopt bylaws, appoint a registered agent for service of process, appoint corporate officers, begin the process of incorporation, and create statements of organizational purpose, at the very least.
Appoint a Registered Agent for Service of Process
North Carolina requires that every entity registered with the state appoint a registered agent to receive process (legal papers, etc.). This agent does not have to be a lawyer but is often the company attorney.
Incorporators are the people who sign the initial Articles of Incorporation. You only need one person to do this, but you can have more than one.
Step VI: Now You Can Incorporate Your Nonprofit
The new nonprofit must be incorporated with the North Carolina Secretary of State—Business Registration Division. Beware of the fact that incorporating a nonprofit in North Carolina follows completely different processes from incorporating a for-profit company.
You will use Form N-01, Articles of Incorporation for Nonprofit, to create this corporation. This form can be printed out and filed through the mail, or it can be filed online with the Secretary of State.
Under the North Carolina Nonprofit Corporation Act, a charitable or religious nonprofit requires a statement to that effect in the corporate filing. Most nonprofits include this statement when filing incorporation forms.
The fee for filing nonprofit incorporation forms is $60, or an additional $100-200 to expedite the process. Turnaround is generally 5-7 business days; expedited applications can be done in 24 hours.
Note: You May be Paying Taxes
Even though the new business is a nonprofit and therefore is not subject to business taxation, there are still numerous forms that you will have to fill out with the various federal and state tax agencies. Remember that the nonprofit is not taxed on business income but is still responsible for employment and most sales taxes.
Step VII: File for Your Federal and State Employee Identification Numbers (EIN)
You must file for an Employer Identification Number (EIN) on the IRS website. There is no fee for this.
You can then register your nonprofit online with the North Carolina Department of Revenue. You can also register by mail, using Form NC-BR.
Some nonprofit activities are exempt from North Carolina sales tax. To see if your nonprofit may be exempt from sales tax, fill out Form E585 on the North Carolina Department of Revenue website.
Step VIII: File to Register as a Nonprofit With the IRS and North Carolina to Receive Your Tax Exemptions
Federal Tax: Before you file for your 501(c)(3), you have to file a Form 1023 with the IRS. This registers your organization with the federal government as a nonprofit for your federal tax exemption. Smaller organizations (under $250,000 in total assets) may use Form 1023 EZ.
The filing fee for Form 1023 is $600.00. The filing fee for Form 1023-EZ is $275.
Form 1023 is detail-intensive and asks highly detailed questions about the nonprofit's organization, history, policies, finances, and everything else you can imagine. Take the time necessary to obtain all of the information to answer these questions completely and truthfully. Then, file the form.
If your nonprofit is granted 501(c)(3) status, you will receive a determination letter from the IRS within about a month (under normal circumstances). After you receive your IRS determination letter, you can then proceed to file for your nonprofit status with the State of North Carolina.
State: You need to apply to the state for your North Carolina state tax exemption from state corporate income tax. You do this by filing copies of the nonprofit's articles, bylaws, and the IRS determination letter with the North Carolina Department of Revenue. There is no fee for this. You will receive a tax questionnaire from the state automatically when you incorporate.
Note: You May Have Other Business Taxes and Fees
Under North Carolina law, you are required to file for worker's compensation insurance once you have three or more employees. You are required to pay unemployment taxes once you have four or more employees.
You may file for a local property tax exemption through your local county tax office. Even if you get this exemption, there will still be other annual filing obligations.
Step IX: Charities Have More to Do
If you are creating a charitable nonprofit corporation, you will need to register with the Charitable Solicitation Licensing Division of the Secretary of State before you begin any fundraising, depending on the size and type of your venture. This is in addition to any other legal papers you have to file to create the nonprofit corporation itself.
Note: Annual Obligations
You will need to renew your nonprofit tax status annually, as well as your charitable organization status.
Help Is Available
Any new business venture, including a nonprofit, will need legal help. 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.
You can also contact a North Carolina business organizations lawyer for help with starting your business.
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