The state of Colorado has approximately 23,148 nonprofit organizations. 18,166 of those are public charities, 1,020 are private, and public foundations and 3,962 of those are 501(c) nonprofit Colorado organizations. Some of the most well-known Colorado charitable organizations include The Wild Animal Sanctuary, Women’s Global Empowerment Fund, Coloradogives.org based in Denver, CO, and Invisible Disabilities Association.
Colorado nonprofit organizations exist for various reasons. However, the common ground is that they are not formed to generate profits but instead to provide advanced solutions to society’s problems, be they on a community or global level.
One of the benefits of starting a nonprofit organization in Colorado is receiving tax-exempt status on net income. Nonprofit corporations don’t pay taxes, and all proceeds cycle back into the organization to improve it. They are also allowed to accept donations and promote fundraising to further the nonprofit‘s cause.
1. Select a name for your organization
The first step in starting a nonprofit organization after deciding on the cause is naming the Colorado nonprofit association. The name you choose should comply with Colorado naming requirements and should be easy for potential members and donors to find.
While this is not a Colorado requirement, your organization’s name may include an organizational designation, such as Company, Incorporated, Ltd, and Inc.
The organization name should also be available in the state and should not be used by any of the existing nonprofits or business entities.
2. Nominate a Colorado registered agent
Next, you need to choose a registered agent in Colorado. The Colorado agent you choose for your nonprofit will be responsible for receiving important legal documents on behalf of your nonprofit corporation.
You may elect any individual within the company, including yourself; however, the individual must meet the following requirements:
- Physically located in Colorado: The registered agent, also known as the statutory or resident agent, must be over the age of 18 and reside in the state.
- Must have a physical address: The agent must have an office or street address (not a P.O. box) in Colorado.
- Remain available during working hours: The resident agent must avail themselves during office hours to receive all legal and official documents on the nonprofit‘s behalf.
3. Recruit your board members
The Board of Directors is tasked with overseeing the nonprofit‘s operations. Ultimately, they all come together to form a Board of Directors.
The Colorado nonprofit board or directors have individual responsibilities, specifically the president, secretary, and treasurer.
When choosing an organizational structure for the nonprofit, it must include at least three directors not related to each other who will fulfill individual roles.
4. Consent to bylaws and conflict of interest policy
In order to obtain 501(c)(3) status, your organization must have the following documents:
- Bylaws
- Conflict of interest policy
The bylaws are the nonprofit governing documents. They function in much the same way as a company’s operating manual and should be in line with the Articles of Incorporation as well as Colorado law.
The bylaws can be reviewed and adjusted during the board of directors‘ first meeting as this will set the standard for governance moving forward.
Additionally, the Conflict of Interest Policy ensures that all members of the nonprofit, including the board of directors, maintain the nonprofit‘s purpose above personal interests.
Ultimately, the policy ensures that personal agendas are put aside and that the nonprofit‘s interests are protected and promoted at all times.
It is not necessary to file bylaws with the Colorado Secretary of State and it’s purely for the nonprofit‘s internal records.
5. Select a Colorado nonprofit startup corporation structure
There are various types of corporate structures for nonprofits in Colorado are as follows:
- Mutual benefit corporations: These corporations may or may not opt for state and IRS tax-exemptions.
- Public benefit corporations: Public benefit NPOs are created for charity purposes and act as a civic league or social welfare organization.
- Mutual benefit common interest development corporations: These are the nonprofits created under the Davis Stirling Common Interest Development Act to oversee common interest development, such as a homeowner’s association.
- Religious organizations/corporations: These nonprofits are solely for religious purposes, such as a church.
6. Prepare and file nonprofit Articles of Incorporation
To complete the registration of the nonprofit, you need to file the articles of incorporation for the state of Colorado.
These documents will be used to submit your 501(c)(3) tax exemption application and therefore need to state the following:
1. Purpose
For your Colorado nonprofit to attain tax-exempt status, the Articles of Incorporation must be limited to one of the below categories:
- Testing for public safety
- Charitable
- Scientific
- Religious
- Educational
- Fostering national/international amateur sports competition
- Literary
- Preventing cruelty to animals/children
2. Dissolution
The state needs to know what the proceeds from the nonprofit will be used towards. They also need to know what happens to the assets if the corporation is dissolved.
- Organizations name
- Organizations structure
- Resident agent’s name, street, and mailing address
Additionally, the organization’s assets may only be used for approved purposes under section 501(c)(3).
To learn more about the provisions needed for 501c3 eligibility, refer to the sample IRS document.
The Articles of Incorporation must be filed with the Colorado Secretary of State.
You may file them online with the Colorado Secretary of State. Even though it’s being filed electronically, you should download a copy for the nonprofit‘s records and use it during the course of business, such as when you’re opening a bank account.
7. File an initial report
Initial reports for nonprofits in Colorado are not required.
8. Secure an EIN (Employer Identification Number)
An Employer Identification Number is also a Federal Tax Identification Number used by the government to identify a business entity. Essentially it’s a Social Security number for the nonprofit corporation.
Obtaining an EIN in Colorado is useful for various purposes such as:
- Hiring employees
- For state and federal tax purposes
- Opening a business account for the nonprofit
EINs are obtained from the Internal Revenue Service at no charge. The nonprofit founder may apply for this number after the nonprofit formation. Use IRS Form SS-4 to apply.
9. Apply for federal tax exemption
Applying for federal tax-exempt status in Colorado has its benefits. However, there are requirements that your Colorado nonprofit needs to meet in order to be eligible for federal tax exemption as follows:
- Have an EIN
- File Articles of Incorporation
- Compile bylaws and conflict of interest policy
- Nominate three directors, not related to each other
The benefits of being a tax-exempt organization in Colorado are:
- Credibility and recognition for your nonprofit
- Exemption from various taxes such as sales, federal, income, property, and payroll taxes
- Discounts on postage rates
- Eligibility for grants
- Being able to give tax deductions to donors
- Possible free announcements and discounts for press releases
Apply for federal tax-exempt status using Form 1023 or Form 1023-EZ if it’s a smaller organization.
File the application on the IRS website. Please note that the filing fee is $850 or $400 if the nonprofit‘s revenue is under $10,000 per year.
10. Apply for Colorado state tax exemption
After receiving the determination letter sent by the Internal Revenue Service, the nonprofit is exempt from Colorado corporate tax, automatically.
But, in order to obtain an exemption from state sales taxes, the nonprofit must apply with the Colorado DOR.
Use Form DR 0715 to apply for sales tax exemption in Colorado. If approved, you’ll receive a Certificate of Exemption.
11. Other applicable permits and licenses
Legally operating a nonprofit organization also means securing the relevant licenses and permits. However, the range of federal, state, and local requirements is extensive.
Therefore, you should use the small business administration business license and permit lookup tool to search your type of nonprofit and locality and find out more about the relevant business licenses and permits required for the Colorado nonprofit.
Additional state registration and reporting requirements
When starting a nonprofit in Colorado, you may be required to file with the Colorado Attorney General prior to participating in any charitable fundraising activities.
However, this depends on the organization’s size and the activities you plan on conducting. Refer to the Colorado Secretary of State‘s charities and fundraisers site with regards to forms and further information.
12. Submit an annual report
Colorado nonprofits are required to file annual reports to stay in good standing with the Secretary of State. Due dates and fees will vary from state to state and the type of entity.
Colorado periodic reports filed using the periodic report. Also, look up your nonprofit and public records. Additionally, ensure that you locate the nonprofits filing authority in the state of Colorado and conduct a Colorado Secretary of state business search.
The annual report due dates is based on the date the nonprofit is formed or filed with the state. It is usually due by the end of the month of initial registration.
Anyone can file an annual report for the Colorado nonprofit, provided they have the authority to prepare and submit business filings with the state. The annual report may be filed online.
If the report is not filed by the due date, the nonprofit will have an extra two months after the Periodic Report month to file a late Periodic Report.
Costs of starting a new nonprofit in Colorado
- Articles of Incorporation: $50
- 501(c) tax exemption application: $275 or $600 IRS fee
- Colorado charitable license: $8
- Colorado charitable registration: $10
Next steps
After you’ve started your nonprofit, there are a few necessary steps that you should take to keep your organization running smoothly. Let’s take a closer look at them below:
Open a business bank account
- Maintain accounting and tax filing
- Ensure that your personal assets are kept separate from your nonprofits‘ assets
To open a bank account, you will need to provide:
- Your EIN
- A copy of your articles of incorporation
- A copy of your organization’s bylaws.
Hire a business accountant
- Simplify payroll and bookkeeping
- Prevent your nonprofit from avoiding penalties and tax errors
- Manage your nonprofit‘s funding
Obtain insurance
- Focus on growing your nonprofit
- Manage risks
You may opt for General liability, Personal liability, or Worker’s compensation insurance.
Build a website
As we mentioned earlier, you may want to create a website for your organization to legitimize your business or give it more credibility. A dedicated website is also one of the best ways to share your nonprofit‘s vision, mission, and story with supporters. Consequently, it’s also a great way to announce upcoming events and goals.
Sign legal documents
One aspect that tends to get overlooked is signing legal documents in your personal capacity instead of as an authorized representative of your nonprofit.
If you’ve appointed yourself as a registered agent of the nonprofit, then the following tips will help avoid personal liability:
- State the registered name of your nonprofit
- Use your name and signature
- State your position/role in the organization as its authorized representative
When signing legal documents on behalf of the nonprofit, it is important that you do so in your capacity as the registered agent, as opposed to your capacity as an individual.
Example: Instead of signing your name only, state the name of the nonprofit and then your name and position within the organization before signing.
FAQs
In order to start a 501c3, you’ll need to apply for a federal tax exemption. To be eligible for tax exemption, you need to have an EIN number, nominate directors and officers for your nonprofit, file Articles of Incorporation and compile your bylaws. You will be tax-exempt once you receive your determination letter from the IRS.
The state of Colorado has thousands of nonprofit organizations. Some of the most popular ones include Global Orphan Prevention, Laboratory to Combat Human Trafficking, Domino Service Dogs, and Animal Rescue and Adoption Society.
A 501c3 is a nonprofit organization, nonprofit association, or trust that is exempt from federal, state, income, and sales taxes. To be eligible for 501c3 status, the nonprofit organization needs to fall into one of the following groups: religious, scientific, public safety, literary, educational, charitable, amateur sports, or prevention of cruelty to humans and animals.
While both these terms are used interchangeably, they do not mean the same thing. A nonprofit is an entity or corporation which serves a nonprofit purpose. On the other hand, a 501c3 is a nonprofit organization that the Internal Revenue Service acknowledges as being tax-exempt by virtue or principles of its charitable programs.
Tax-exempt status refers to an organization that is exempt from paying taxes, be it federal corporate income tax or sales tax. This means that non of the generated income from the nonprofit‘s activities are liable for tax, as long as they are related to the purposes for which the nonprofit was formed and granted its tax-exempt status.
