Nonprofit Corporation Formation: A Step-by-Step Guide
Forming a nonprofit can be an exciting time as you prepare to work toward a cause in which you strongly believe. However, you have to take the proper steps from the beginning to ensure you’re operating legally. Reaching out to Colorado nonprofit corporation attorneys is a smart idea for receiving the legal advice required.
Before asking attorneys for help, learn more about incorporating a nonprofit with this step-by-step guide.
Determine Your Purpose
To operate as a nonprofit, you must have a purpose that fits the definition for a nonprofit under federal tax law. It isn’t difficult to meet these purposes, but you must have an idea for the organization that fits one of them. If your organization doesn’t meet one of the approved purposes, you cannot receive tax-exempt status.
Your primary purpose must be to provide a benefit to the public in some way. Starting a religious organization, a group focused on literary pursuits, a nonprofit to prevent animal cruelty, or a group with a similar purpose will fit the definition.
If you have a broad purpose in mind, like helping unhoused individuals or victims of domestic violence, you may want to narrow it to something more specific, like providing shelter or resources.
Select Your Nonprofit’s Name
Creating a name is a key step in forming a nonprofit. Your name should indicate your purpose and be memorable and distinct.
In Colorado, you do not have to include some form of the word “corporation” or “incorporated” into your nonprofit’s name.
The Colorado Secretary of State maintains a list of all nonprofit corporations in the state. You can check the list for free to see whether your desired name or something similar is already in use. You must have a name that is not too similar to others.
Choose Your Leaders
A nonprofit corporation must have a few people who serve as the leaders of the organization. You must specify these people in the paperwork you file at the state level and federally.
Colorado law only requires you to have two different people involved in the organization. Federal law, however, requires three unrelated people. Because you are forming a nonprofit primarily to avoid paying federal taxes, you will want to follow federal law in this area.
Some of the organization’s leaders should include:
- A director who oversees the vision of the organization
- An incorporator who manages the articles of incorporation
- A registered agent who is available during business hours to receive correspondence
- Board of governance members like a president, treasurer, secretary, and other officers
One person or entity can fill more than one of these roles if desired.
File the Paperwork
You must complete a few documents and file them with the Colorado Secretary of State’s office when forming a nonprofit.
Articles of Incorporation
The articles of incorporation spell out the contact information of the nonprofit, the registered agent, and any board members. They also specify the name of the group and the date the articles should go into effect.
Purpose Statement
The IRS requires documentation beyond Colorado’s requirements, including a purpose statement. This document, which can be part of the articles of incorporation, states the focus of the organization. It spells out what happens to the assets of the nonprofit when it dissolves.
Business Plan and Bylaws
When forming a nonprofit, many organizations will add a business plan and create bylaws for operation. These items explain how you plan to raise money and your goals for using that money to meet your purpose statement.
Hold a meeting of your leadership to put together these items. You do not have to file these items with your articles of incorporation, although you can.
Apply for Tax-Exempt Status
To apply for tax-exempt status with the IRS, you must complete Form 1023. This is a detailed form that requires quite a bit of time. Filing Form 1023 includes a $600 filing fee. Small nonprofits may be able to work with Form 1023-EZ, which is far shorter and carries a $275 filing fee.
You may want the help of a nonprofit formation attorney to complete these forms properly. An attorney can advise you on which Form 1023 you should follow.
Some organizations that award grants to nonprofits might not consider you if you filed Form 1023-EZ, for example.
Either way, it’s important to file either version of Form 1023 properly the first time when forming a nonprofit. It can take anywhere from three to six months for the IRS to respond to your filing of Form 1023. If you have errors or incomplete information, you’ll have further delays in approval of your tax-exempt status. An attorney can help you complete the work correctly the first time.
You may need to request an Employer Identification Number (EIN) from the IRS before you can file Form 1023. Receiving an EIN is free.
Complete Your Final Required Documents
Once you receive tax-exempt status from the IRS, you’re ready to take the final steps required for forming a nonprofit.
- State taxes: You can file with Colorado to receive tax-exempt status regarding state income taxes. Because you can submit the same form you filed with the IRS, it should be easier to complete this step at the state level.
- Licenses and permits: Before you can start raising money, you may need to apply for various licenses and permits at the state or local level. You may need a business license, a solicitor’s license, a sales tax license, a state tax identification number, and more. An attorney can help you figure out which licenses you need at the state or local level.
Let TNS Associates, P.C. Help You With Forming a Nonprofit
At TNS Associates, P.C., we have the experience you can trust to help with the steps required to create a nonprofit corporation. In addition to helping people who are forming a nonprofit, we help with estate planning, creating irrevocable trusts, and similar legal items. Reach out today at (303) 759-5937 for a consultation.