ANSWERS: 2
  • Organizing a not-for-profit business is often a necessary part of supporting an issue of private or public interest where there is no intention to operate the business for any personal gain. A not-for-profit business is used for a variety of purposes, such as community services, religion, politics, or charities. All states have laws governing the formation of a not-for-profit business. Whether it is tax-exempt, or can solicit tax-deductible contributions, depends on approval from the taxing authorities.

    Business Plan

    Just like a for-profit business, your not-for-profit business requires careful planning before starting the process of filing any applications. This planning should include a written mission statement specifying your purpose; a list of activities that the business will engage in; a proposed budget with funding sources; and proposed list of board members. Much of the information you formulate in your plan will be needed to submit documents to the state for incorporation and to the IRS for a tax-exemption.

    State Organizational Filings

    Each state has its own laws on how not-for-profit businesses are formed and managed, which is typically handled through the Secretary of State's office. Many states maintain a website, such as California and Texas, that provide basic information on the state's laws governing a not-for-profit business and provide forms to assist in filing the business's organizational documents. Depending on your state's requirements and the type of business entity you choose to form (e.g., corporation, limited liability company, unincorporated association), you should consider obtaining legal advice from an attorney experienced with not-for-profit businesses to assist you with this part of the formation process.

    Tax-Exempt Status

    If you desire tax-exempt status and the ability to accept donations that can be tax-deductible, you need to first apply to the IRS for approval. (See Reference 3) You will have to file Form 1023 and include a proposed budget and fund raising plan with the form. The IRS will evaluate whether your not-for-profit business will meet the public support test before approving your application. Once you receive IRS approval, you can then apply to your state taxing authority for similar status.

    Organizational Assistance and Management

    Navigating the legal filings and conditions to set-up a not-for-profit business can be quite challenging. To assist in the process, from planning to yearly management, there are organizations established for the purpose of helping individuals with the information and technical assistance needed to start a not-for-profit business, such as the California Associations of Nonprofits. A good starting point in your planning stage would be to visit the website of such an organization and find out what reference materials and other information is available to you.

    Source:

    California Secretary of State: Organizing California Nonprofit, Nonstock Corporations

    Texas Secretary of State: Nonprofit Organizations

    IRS Publication 557: Section 501(c)(3) Organizations

    More Information:

    California Associations of Nonprofits

  • aka "a charity"

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