How To Start a Nonprofit in Ohio
Using your skills and experience to start a nonprofit organization can be personally rewarding and help your community. While many nonprofits are organized as corporations, starting a nonprofit is a very different experience than starting a for-profit company.
Most Ohio nonprofits are organized as corporations to keep their officers, directors, and members from being personally liable for the organization's debts and obligations. There is no requirement that you incorporate your nonprofit. Still, if you choose to run it as an unincorporated association, you are opening those involved to being held personally liable should the organization be sued due to its activities.
Because it is usually recommended that Ohio nonprofits form as corporations to protect those involved from personal liability, the following steps outline how to start a nonprofit corporation that complies with state and federal law.
Find a Name for Your Nonprofit
The first step in forming a new nonprofit is usually coming up with a memorable name that lets people know what your organization does. To register your corporation with the state, it must have a name that is "distinguishable upon the records" from any other corporation, limited liability company (LLC), limited partnership, limited liability partnership, or trade name that has been registered or reserved in the state.
Fortunately, it is easy to conduct a name search on the Ohio Secretary of State website to see which ones have been claimed or reserved. If you find that a corporate name is available, but you are not ready to register with the state, you can reserve the name so it can't be registered before you do. Filing a Form 534B, Name Reservation, with a $39 filing fee, will secure the name for six months.
In addition to making sure you can register your preferred name with the state, you may want to make sure another organization has not already filed for a federal or state trademark on it. It is unlikely that a trademark holder would sue a small nonprofit for monetary damages. Still, it could force you to change your organization's name if it ever becomes large enough to cause confusion.
Appoint a Registered Agent
When you file your articles of incorporation with the state, you will need to appoint a registered agent, often referred to as a statutory agent in Ohio. The registered agent must have an address for receiving legal documents and should be available to receive them during regular business hours. You have the option of either choosing a person who resides in Ohio or a business entity that has a business address in the state.
Register Your Nonprofit Corporation With the State
For your nonprofit corporation to be legally recognized, it must file its articles of incorporation with the Secretary of State using Form 532B, Initial Articles of Incorporation (Nonprofit, Domestic Corporation), and paying the $99 filing fee. The best place to start the registration process is using the Ohio Business Gateway, which has much of the information you need.
You will be required to provide the following information in your articles of incorporation:
- The corporation's name
- A statement of the corporation's purpose
- The address of the corporate office
- The person who starts the corporation, known as the incorporator, must sign the initial articles of incorporation
The statement of purpose must include any activities your nonprofit corporation expects to pursue because those are the only activities your corporation will be allowed to undertake. Additionally, the Internal Revenue Service (IRS) will review the statement of purpose when deciding whether it should declare you a tax-exempt organization under Section 501(c) of the Internal Revenue Code.
While not required by the state, the IRS usually requires that the following information be included in the articles of incorporation filed with the state before it will find the corporation tax-exempt:
- Provisions on how the corporation will govern its internal affairs
- The rights and privileges enjoyed by members among themselves or in the property of the corporation
- How the corporate assets will be distributed when the corporation is dissolved
- The names and addresses of the initial directors
- The county where the corporate offices are located
The IRS also requires that the articles of incorporation include language that restricts the corporation's activities to one or more of the following purposes:
- Fostering amateur sports competition
- Prevention of cruelty to children or animals
- Testing for public safety
It is not required by the state or the IRS, but the organization may want to include a statement as to whether it will be subject to the authority of any national association or entity.
Hold an Initial Meeting of the Board of Directors
The initial organizational meeting of your nonprofit corporation's board of directors is crucial because that is where the board approves its bylaws, elects directors, appoints officers, adopts a conflict of interest policy, and approves such things as opening a corporate bank account. The IRS is likely to reject your application for 501(c)(3) status 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
Your nonprofit corporation should obtain an employer identification number (EIN) from the IRS as soon as possible. An EIN is a unique identifying number that operates like your corporation's Social Security Number. You will need an EIN when the nonprofit applies to the IRS for tax-exempt status, opens a bank account, or hires employees.
You can get an EIN instantly and at no cost by applying 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. Be careful, many online services will charge you a fee to register you for an EIN, but the process of applying for one online is simple enough that there is no reason that you should use one.
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 federal tax-exempt status until 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 a nonprofit organization, but the two most important are:
- An exemption from the payment of federal income taxes
- 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 any of 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 recognizing your exemption. Your organization will then be added to its list of exempt organizations. Donors will be able to confirm that your organization is exempt through the IRS tax-exempt organization search tool.
Finally, if your organization meets IRS requirements and your tax-exempt status is 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 electronically using Form 990-N. 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.
Register to Solicit Donations in Ohio
A 501(c)(3) corporation that plans on soliciting charitable contributions in Ohio is required to register with the Ohio Attorney General's office and file annual financial reports. Your nonprofit will need to register within six months of being created using the Attorney General's charitable registration page. The Ohio Revised Code allows the Attorney General to charge a registration fee based on the contributions an organization has received.
Apply for Ohio State Tax Exemptions
Nearly all nonprofits that receive the 501(c)(3) designation from the IRS are exempt from the Ohio commercial activity tax, which is the state's business income tax. Additionally, your nonprofit can apply for an exemption from the state's sales tax by filing a Form STEC B, Sales and Use Tax Blanket Exemption Certificate, with the Ohio Department of Taxation. Finally, if your nonprofit owns property used for charitable purposes, it should apply for a property tax exemption from the Department of Taxation.
File a Statement of Continued Existence Every Five Years
Ohio requires nonprofit corporations operating in the state to file a Form 522, Statement of Continued Existence, with the Secretary of State's office every five years. The office will notify your corporation's statutory agent that Form 522 is due roughly four months before the filing deadline. If the statement is not filed, the Secretary of State will cancel the corporation's registration or charter.
Additional Questions? Contact an Attorney
The process for forming a charitable organization in Ohio and ensuring that it will qualify for a tax exemption can seem complex, and it's not unusual for people to turn to an attorney for legal advice on how to proceed. A skilled local attorney will have a solid understanding of the state and federal rules you will need to comply with to ensure that your organization qualifies as exempt and that donors can claim deductions for their donations.