The sixth in a series of articles for Entrepreneurs
by Bukre Ayan
A not-for-profit corporation (“NFP”), sometimes called non-profit, is a legal entity that is not ‘owned’ by anyone. It may or may not have ‘members,’ but they are not the equivalent of shareholders. Unlike corporations or LLCs, NFPs do not have the purpose to earn profits for their owners. They may be formed for charitable, religious, educational, or scientific purposes. NFPs are usually eligible for federal and New York State tax exemptions.
Certificate of Incorporation
In NY, NFPs are corporations that are formed upon the filing of their Certificate of Incorporation with the NY Department of State (NY “DOS”). NY State requires NFPs to have initially at least three directors. The names and addresses of these initial directors are listed in the Certificate of Incorporation. You should also provide a purpose statement(s) in the Certificate of Incorporation for which the corporation is formed. After providing your purpose, you should decide whether you need to get approval from an agency before filing the Certificate of Incorporation with the DOS. The purpose of an NFP may require getting the approval of a particular agency before filing with the DOS. Or sometimes the purpose requires giving a notice to a particular agency after the formation. NFPs should also register with the Attorney General’s Charity Bureau if they wish to raise operating revenues through grants or contributions. (Please consult with an attorney to see if your NFP requires prior approval, notice, or registration after formation filing.) Finally, to become eligible for federal tax exemption, the Certificate of Incorporation should include a specific statement that the IRS requires.
You should also remember that a filed Certificate of Incorporation may be amended. For example, when and if you decide to change, add, or limit the purposes, or change the name of the NFP, you need to amend the Certificate of Incorporation and file it with the DOS.
After formation, NFPs need to hold an organizational meeting at which the directors approve the bylaws and elect the officers who are responsible for making daily decisions and implementing the board’s business policies. Bylaws govern how the NFP acts, and usually include operational guidelines; rights, responsibilities and powers of members (if any) and directors and officers; procedures to appoint and remove directors and officers; holding meetings and voting requirements. Another obligation after the formation is to obtain an Employer Identification Number (EIN) through an application with the IRS.
Once an NFP is formed, the next step is obtaining federal and state tax exemptions. The federal income tax exemption is obtained through a filing with the IRS. You need to complete IRS Form 1023, answering many detailed questions about the NFP, including its purposes, activities, and financial projections. NFPs expecting only low levels of revenue may be eligible to file an abbreviated version, called Form 1023EZ. After the IRS approves your tax-exempt status, you can apply to the NY State Tax Department to qualify for sales tax exemption. The application is called Application for an Exempt Organization Certificate, and you need to attach to your application the IRS’s letter that approves your 501(c)(3) status.
(Our next article in the October edition will be on Meetings of LLCs and Corporations. To see the previous articles, please visit our website at https://www.reedbusinesslaw.com.)
Please be advised that this article is not intended to provide you with any legal advice, and prior results do not guarantee a similar outcome.
Bukre Ayan is an international associate with the firm of Reed CNY Business Law, admitted to practice law in New York and Turkiye, specializing in business, immigration, and real estate law. Spanish translations of this series are provided by Ms. Sylvia Espinosa, our firm’s legal intern from Mexico. Reed CNY Business Law represents individuals and businesses throughout Central New York and around the world. Contact us at email@example.com or sespinosa@ReedBusinessLaw.com.
Photo of a woman-writing-in-paper by RF._.Studio and photo of a woman-in-black-long-sleeve-shirt by Cottonbro from pexels.com