Creating a nonprofit in Massachusetts
Want to starting a Non-Profit and not sure what to do? Here are some guidelines that you may find to be helpful.
Steps to becoming a nonprofit
Starting a new nonprofit may not be an easy task. Staying legal through the process can be difficult if you are not prepared. Below is an outline of the major basic steps necessary to start a nonprofit. Please keep in mind that these steps are meant to be used as a general guide and may not apply to all situations. In some more complex situations, legal assistance may be necessary.
- Determine if you really need to start a nonprofit.
Is starting a new nonprofit organization really the best way to accomplish the goals you have set forth? Perhaps the best way to really clarify to yourself what you intend to accomplish by starting a new nonprofit is to write a basic mission statement for your organization - Formulate a mission statement.
The purpose of a charitable nonprofit must be for the public interest and common good. As a non-profit organization, you exist to accomplish your mission, which should be crafted based upon your purpose, services and values. The mission statement is a concise expression that covers in one or two sentences who the organization is, what it does, for whom and where. It should also be compelling, as it will be used in all published materials, funding requests and public relations. It should also portray how your organization is distinct from - Form a Board of Directors.
Forming a board requires careful thought and extensive recruitment efforts. Each state has regulations that determine the minimum size of the board, typically three, but the optimum number of people who sit on the board should be determined by the needs of the organization. The initial board of directors will assume much of the responsibility in starting a new nonprofit. - File Articles of Incorporation.
The founders of the organization should write its articles of incorporation. This document formally names the entity, its location, and its purpose. This document is the legal record of how the organization is to be managed. Articles of Incorporation are filed with the appropriate state agency. The specific requirements governing how to incorporate are determined by each state. It is necessary to write and file the articles of incorporation prior to applying for tax-exempt status from the Internal Revenue Service. The IRS requires specific language to be used describing the charitable purpose of the organization, and the requirements it must follow for exemption. - Draft bylaws.
Bylaws are simply the "rules" of how the organization operates. Although Bylaws are not required to file for 501(c)(3) status, they will help you in governing your organization. Bylaws should be drafted with the help of an attorney and approved by the board early in the organization's development. - Incorporate as a nonprofit organization.
The main purpose of incorporating an organization is that of risk management. - Create a business plan with a budget:
A plan should include what the organization’s goals are, what programs it will operate, where it will get funding, will it conduct events, will the organization have staff, volunteers, and more. It should also include a budget plan. Where will funding come from? Will programs rely on grants, individual donations, state or federal contracts? What expenses will the organization incur? A business plan and budget are but they are required as part of the narrative section of IRS Form 1023, Application for Tax-Exempt Status. - Apply for Federal ID Number (EIN).
Organizations must receive their EIN before filing Form 1023. Use IRS Form SS-4 — Application for Employer Identification Number (EIN). Organizations must be incorporated prior to applying for an EIN. - Obtain income tax exempt status from the IRS.
Once the organization's articles of incorporation have been filed and the bylaws have been approved by the initial board of directors, the next step for a new nonprofit is applying for federal tax exemption from the Internal Revenue Service. A common myth is that all nonprofits are automatically tax- exempt.
File for 501(c)(3) status. To apply for recognition of tax-exempt, public charity status, the organization must obtain Form 1023 (application) and Publication 557 (detailed instructions). The filing fee depends upon the size of the organization’s budget. The application is an important legal document, so it may be advisable to seek professional help when preparing it - Fulfill charitable solicitation law requirements.
If the organization intends to solicit funds from the public, it (generally) must first obtain a “Certificate for Solicitation” from the Attorney Generals Office in the specific state, unless exempted from this requirement by statute. Other state and federal agencies and taxing authorities such as the IRS may require additional filings from charitable organizations. - Filing of the appropriate Form 990 with the IRS.
Massachusetts State Requirements:
All public charities doing business in the Commonwealth of Massachusetts must file annual financial reports with the Non-Profit Organizations/Public Charities Division. Any charities that wish to solicit funds must also obtain a “Certificate for Solicitation” before engaging in fundraising activities.
Before filing with the Division, however, each charity must send initial registration materials so the Division can enter the charity into our system and assign it an Attorney General’s Account Number (AG number). This process begins when we make a determination that the organization is, indeed, a public charity. We require these items to make that determination:
- A copy of the organization's charter, articles of organization, agreement of association, instrument of trust, or written statement of purpose, whichever is applicable;
- A list of the current officers/directors and their addresses;
- A copy of the organization's by-laws; and
- A copy of the IRS letter designating the organization’s 501(c)(3) status, if the organization has received one.
Filing of Form PC:
The Short Form PC: If the organization has not yet completed its first fiscal year, and it would like to solicit funds, the four required items may be accompanied by a Short Form PC. This form gives us an idea of the types of activities the organization will undertake to raise funds as it gets started. It covers the current fiscal year, beginning on the date the organization was created (date of incorporation) and ending on the date of the upcoming fiscal year end. The filing fee is $50, made payable to the Commonwealth of Massachusetts
The Form PC: If the organization has already passed its first fiscal year end, it may not file the “Short Form PC” even if it did not have any financial activity. For our purposes, once the organization has completed a fiscal year, the organization must report that year's financial data. The organization must use the Form PC for this purpose; the “Short Form PC” is not designed to convey financial information.
Required Financial Statements for Public Charities
Requirements for the submission of audits or reviews are based on the gross support and revenue of the organization for the fiscal year covered by the filing (Line 5B, Form PC ).
The provisions of M.G.L. c. 12, s. 8F require organizations that have gross support and revenue of more than $200,000 in a fiscal year to submit financial statements audited or reviewed by an independent certified public accountant (CPA). Whether the financial statements must be audited or reviewed depends on whether the organization's gross support and revenue exceeded $500,000 in that year.
The organizations currently exempted from the audit (and review) requirement by regulation are:
- Private foundations that file 990PF with the IRS;
- Trusts filing probate accounts with the Division; and (Certain trusts audited by state and federal agencies).