In the United States, no business license is required for nonprofits at the federal government level; however, many states, counties, and cities require non-profit organizations to register for a business license, also referred to as a Business Occupational Tax Certificate.
Therefore, it is very important for nonprofits to consult their local government to ensure they are in alignment with the necessary requirements. Note that nonprofits that don’t have a valid business license when one is needed may be prone to citations, penalties, and fines.
In the United States, every state has different laws and licenses expected from charities operating in the state. Presently, forty states are known to mandate charitable solicitation registration and some have adopted the Model Act Concerning the Solicitation of Funds for Charitable Purposes.
The general rule is that a non-profit conducting charitable solicitation within the borders of a state will have to register before soliciting funds from residents of that state. Note that the registration process tends to involve application fees, certain vital documents, renewal deadlines, and annual financial reports requirements.
In addition, the organization will also steadily provide a copy of its 990 tax return. Although a good number of states leverage the uniform registration statement, each jurisdiction is somehow different. In most cases, the charity will also have to register the business entity with the Secretary of State, and if it will be operating or have a physical location in a city or town, it may be subject to local business license requirements.
Some states also offer sales tax exemption to some types of charities and nonprofits. However, to qualify, the charity will have to register with the state department of taxation or revenue.
Note that nonprofits can leverage sales tax exemption certificates to source goods and services peculiar to the organization’s function. Charities are a valuable and important part of our society. But regardless of how noble the cause is, each charity is still expected to be properly formed before operating, and this requires time and planning.
Have it in mind that running a non-profit organization can be a wonderful way to raise money to help out your community or a cause you support. However, to be noted as a non-profit, your organization will have to be properly established to serve the public by fulfilling a specific mission or community need.
Always remember that nonprofits function just like traditional corporations, receiving the same legal and asset protection, but mainly without a good number of the tax burdens for-profit businesses have to bear.
Other Requirements Needed to Start a Nonprofit
To start a non-profit organization in the United States requires solid planning and strong fund-raising channels. There are certain requirements you have to be aware of, and they include;
Nonprofits operating without the proper registrations and licensure may be prone to penalties and closure. Owing to that, the very first step to starting a non-profit is to create a business entity. Have it in mind that this involves establishing a non-profit trust, association, or corporation with the Secretary of State (or equivalent state agency). This may also involve establishing and appointing a board of directors.
Aside from registering your business entity, you will also be expected to register the name of your non-profit so that no one else can use your company or corporation’s business name. To successfully register an assumed name that will be used by your organization, the name must not in any way be in use by any other entity, irrespective of whether that entity is for-profit or not.
In the United States, there is a fee associated with registering the assumed name for your organization – a very crucial step to take so that no one else can exploit the branding and name of your non-profit to solicit money or business. Also know that it will safeguard both you and anyone who intends to donate money to your non-profit, as benefactors will be assured of exactly who you and your business are.
Whether your non-profit is incorporated or not, you will be expected to apply for 501©3 tax-exempt status as granted by the Internal Revenue Service. Have it in mind that this tax status lets your organization be exempt from paying federal income tax.
Note that you can easily do this by filling out IRS Form 1023. However, there is a general filing fee linked with this application.
As a tax-exempt organization, note that you will still be expected to file an annual return with the IRS, to let them know of your organization’s revenue and expenses. This is more or less an information return and no taxes are paid, however, filing the form is mandatory to maintain your tax-exempt status.
Note that the particular form to use will depend on your organization’s annual revenue amount, and some religion-related, government or political organizations may not be expected to file.
Articles of Incorporation
When starting a non-profit in the United States, you will also have to choose whether or not you want to incorporate. Have it in mind that not all non-profit organizations exist as corporations or are expected to file with their state’s Secretary of State.
However, corporations are known to get their non-profit status only by filling out the necessary forms and applying to the Secretary of State’s office in the chosen state.
Note that there is a fee associated with filing articles of incorporation in most states. It is also very pertinent that you follow the guidelines designed by your state in terms of annual requirements for holding meetings, maintaining records, and filing applicable taxes or annual revenue reports.
Federal Employer Identification Number
To meet federal requirements, all non-profit organizations are expected to obtain a federal tax number, also referred to as an Employer Identification Number, as soon as possible.
Note that this is a number the federal government and many state and local government agencies use for records rather than one person’s social security number. You can obtain an EIN (employer identification number) from the Internal Revenue Service (IRS).
However, when applying for the EIN, ensure that the option “church or church-controlled organization or other non-profit organization” is selected as the type of entity.
Note that almost every organization can find itself accused of causing harm to someone, whether it is intentional or unintentional.
In addition, there is also the question of whether the non-profit can afford to settle a high-priced claim out of its funds, while also seeing to the exorbitant legal defense costs. Regrettably, non-profit organizations can and most times find themselves entangled in this situation.
Also note that donors, grantors, former employees, current team members, third parties, and board members can present a liability risk to your non-profit organization.
Liability claims from any of these parties can easily cost your non-profit thousands of dollars, not including any court costs or associated attorney fees. Owing to that and many more, liability insurance is a must for a non-profit organization.
The only requirement for the formation of a non-profit is that they exist primarily for the public good rather than to make money. Owing to that, it is very crucial to make sure you comply with all state and federal regulations.