1. Nonprofit Basics

2. What do we mean by a nonprofit?
An entity (nonstock corporation)
Not organized for profit purposes
Compare stock corporations/partnerships/LLCs
Can have “members,” or not
Must have a nonprofit purpose
Must provide for dedication of assets to nonprofit purposes
Benefits cannot “inure” to private individuals
Not all are 501(c)(3)
(c)(4): civic leagues
(c)(6): business leagues, chambers of commerce
(c)(7): social and recreational clubs
(c)(8): fraternal organizations
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3. What’s the difference between a nonprofit and a benefit corporation?
Usually, we think of corporations as having a purpose to benefit their own shareholders
Directors usually have a fiduciary duty to maximize profits
What if a corporation wants to do good stuff and make money?
B (“benefit”) corporations:
An elected status
Language in corporate documents
Allows for a “benefit” purpose
No special tax status
State may require “benefit reports”
Third-party certification available
Otherwise same as a regular corporation
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4. Is it hard to form a nonprofit?
Massachusetts articles of organization
Can be filed online
Managed by board of directors (named in original filing)
Annual report(s) required
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5. When can we start accepting donations?
Three aspects:
When does Massachusetts let you solicit “donations”?
What can you tell the donor about tax deductibility?
What about other states?
Massachusetts:
Must register as a public charity with state Attorney General
Can’t solicit without a certificate
Tax status: must file a Form 1023 to be qualified as a tax-exempt (501(c)(3)) organization
Every state has its own registration and solicitation requirements
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6. What does Massachusetts expect from a nonprofit?
Public charity registration (AG)
Annual Report must be filed by November 1
Annual Financial report
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7. How do we get tax-exempt status?
IRS filings
Form 1023
Detailed financial information for current year and next two years
Compensation information
Average processing time of 2-12 months
Expedited review is possible
Form 1023EZ
Eligibility: Gross receipts in each of the past three years and projected next three years below $50,000
Eligibility checklist
Annual returns (Form 990)
Publicly available
Notice Filings for small nonprofits (Form 990N – postcard)
Tax-exempt entities cannot engage in lobbying/political activity
Limitations on business income (“UBTI”)
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8. How much does it cost? Articles of Organization: $35
Annual report: $15
Public charity registration: $100
Annual Financial Report: varies by annual support/revenue: $35-$2,000
Form 1023 $600/Form 1023-EZ $275
Accountants?
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9. What documents do we need?
Articles of Organization
Bylaws
Process oriented
Policies:
Why?
Good governance
Minimizes risk of abuse and nonexempt activities
IRS can’t require
But check boxes on Form 990
What?
Conflict of Interest
Whistleblower
Travel/expense
Gift acceptance
Chapter-related documents?
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10. What should our Board look like?
Must have at least three (different than for-profit)
Board members have fiduciary duties
Interrelationships an issue
Boards usually self-perpetuating
What talent sets do you need?
How do you find good board members?
Why independence is important
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11. Closing down a nonprofit
Where does the money go?
Articles specify?
Usually any charitable purpose
What’s the process?
Public charity: court petition required, possible Attorney General involvement
Other nonprofits: court filing also required
Revocation for not filing a report for two years
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12. Questions?
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