Nonprofit organizations are formed when someone identifies an unfulfilled need in the community. While the process of starting a nonprofit organization may seem daunting at first, it will take you anywhere between two weeks to three months to get your organization up and running.
This is provided you complete the relevant paperwork and comply with the relevant state and federal laws.
There are more than 120,000 nonprofit organizations in the state of North Carolina. Some of the most popular organizations in the nonprofit sector making their mark on the community include Snowbird Outfitters Inc, CDH International, and The Summer Science Program.
Nonprofit organizations enjoy many financial benefits such as tax-exempt status, credibility with the IRS, and limited liability protection for board members.
The following step-by-step guide will show you how to start a nonprofit in North Carolina.
1. Select a name for your organization
An initial and essential step in starting a successful nonprofit organization in the state of North Carolina is choosing a name for your nonprofit. The nonprofit’s name is ultimately its brand and defines its image; therefore, careful consideration should go into this part of the process.
The nonprofit name should also comply with North Carolina naming requirements, and you should opt for a name that is easily searchable by potential sponsors and donors. North Carolina has the following naming guidelines for nonprofit organizations:
- The name used must be easily distinguishable when compared to other business entities listed by the Secretary of State
- The name of the nonprofit should not imply that it is formed for any other purpose or reason other than what is stated in the nonprofit’s formation documents
- The nonprofit’s name does not need to include an organizational designation such as Inc., Company, Inc., or limited
- The nonprofit name should not be offensive to an individual or group
Conducting a name such on the North Carolina state website will come in handy when it comes to checking the availability of a nonprofit name.
Additionally, if you ever plan on creating a website for your nonprofit organization, you’ll also need to check that the web domain is available.
2. Nominate a North Carolina registered agent
Every nonprofit organization in the state of North Carolina must have an agent for service of process. The individual must agree to accept legal documentation on the nonprofit’s behalf in the event that it is sued.
You may elect anyone as your nonprofit’s service of process agent; however, the individual needs to meet the requirements below:
- The agent must have a physical street address in North Carolina [the should not be a PO Box address]
- The agent must consent to the appointment
- The agent must be at least 18 years of age
- The agent must maintain regular business hours
Most nonprofits choose to elect a director or officer to serve as the nonprofit’s service of process agent, however, you may also nominate yourself as your nonprofit’s registered agent.
3. Recruit your board members
Your North Carolina nonprofit organization will need to have Incorporators and directors. The incorporator is the individual responsible for filing the Articles of Incorporation with the state, while the directors serve an integral role on the nonprofit’s board and are essential for obtaining tax exemption eligibility.
Every North Carolina nonprofit will need to include one incorporator; however, you may have more. When it comes to recruiting the board of directors, it’s crucial that you choose the right people as they will establish your nonprofit’s bylaws and vote on key issues and decisions pertaining to your nonprofit’s purpose.
Therefore, the Board of Directors needs to reflect the community it is serving and also share your vision for the nonprofit organization.
Requirements for selecting directors include:
- Nominating at least three directors
- The incorporator may also serve the role of director
- Directors must act in the best interest of the nonprofit at all times
- Directors must be named in your nonprofit’s Articles of Incorporation
- Directors should also understand that they may be held personally liable for any damages as a result of their disregard or neglect of their obligations
- Directors should have a passion, expertise, and motivation to serve the nonprofit to the best of their ability
Additionally, your nonprofit needs officers to fulfill the roles of president and secretary.
4. Consent to bylaws and conflict of interest policy
Nonprofit organizations need to have essential governing documents, which are required by law. The first essential document is known as the bylaws, and it’s ultimately a set of rules that oversee how the organization will function.
While the state and the IRS website have guidelines on how the nonprofit should be governed, there are some things left up to the nonprofit board of directors. These things should be included in your nonprofit’s bylaws.
However, the bylaws should at no point in time conflict with your Articles of Incorporation. When it comes to creating your bylaws, there are a few tips that can help make the process easier:
- Avoid making bylaws that are so flexible that it lacks structure and routine
- Ensure that you use the word “shall” sparingly as it implies that your nonprofit ‘must’ do something. Instead, opt for more flexible language such as “will consider” or “may”
- The bylaws should include the schedule or frequency of board meetings. This is completely up to the discretion of the nonprofit board of directors
- Ensure that your bylaws are clear of information that may be outdated, either a few months or years from the time of its preparation and adoption
- The bylaws should always include provisions for selecting new directors and nominating officers
Another essential document required by all North Carolina nonprofits is a Conflict of interest policy. Essentially, this policy is put in place to ensure that none of the board members prioritize their professional or personal interests above the best interest of the nonprofit corporation.
The most appropriate time to compile the bylaws and Conflict of interest policy is when the board holds its first organizational meeting.
5. Select a North Carolina nonprofit startup corporation structure
The following organizational structures or types of nonprofits are available in the state of North Carolina:
- Trade and Professional Associations: These types of nonprofits are considered 501(c)6 organizations under the Internal Revenue Code. They are usually business alliances and the likes. Some of the Trade and Professional Associations organizations are retail Chambers of commerce, merchants associations, real estate boards.
- Social and Recreational Clubs: Under the Internal Revenue Code, these types of nonprofits are described as 501(c)7 organizations. They encompass country clubs, garden and variety clubs, hobby clubs, as well as amateur hunting, fishing, and sports clubs.
- Charitable Organizations or Charities: These nonprofits are regarded as 501(c)3 under the Internal Revenue Code and are exempt from taxes. These nonprofits are created for one or more of the following purposes:
- Religious, charitable, educational, literary, scientific
- Fostering national or international amateur sports competition
- Testing for public safety
- Prevention of cruelty to animals or children
Some examples of charitable organizations include food banks, low-income housing organizations, daycare centers, mental health organizations, and environmental groups.
- Civic Needs and Social Welfare Organizations: These types of nonprofits are regarded as 501(c)4 under the Internal Revenue Code. They are formed to improve the overall good and welfare of people in the community.
Some examples of civic leagues and social welfare organizations include downtown improvement associations, healthcare, housing, civic groups, and social action organizations.
6. Prepare and file nonprofit Articles of Incorporation
A nonprofit’s Articles of Incorporation is basically a legal document filed with the Secretary of State to create or register your nonprofit. The process is referred to as incorporating, and in some states, the Articles of Incorporation are referred to as a Corporate Charter or Certificate of Incorporation.
The Articles are corporate formation documents. However, when preparing and filing the articles, it needs to include specific language in the statement of purpose in order for your organization to be eligible for 501(c)(3) tax exemption.
Therefore, your articles must include the following information:
- Purpose:
You need to clearly state the reason for your organization’s existence. Think of this as the organization’s mission statement
- Dissolution:
All nonprofit organizations have assets, resources, or possessions. These assets need to be used to further the nonprofit organization‘s cause.
Therefore, the articles need to state how the assets are being used and exactly what will become of the assets in the event of dissolution. In most cases, nonprofit organizations choose to leave their assets to existing charitable organizations in the event of dissolution.
Additionally, when filing the Certificate of Incorporation with the North Carolina Secretary of State, include other nonprofit information such as:
- The name of the corporation
- The category your nonprofit falls under [charitable or religious]
- Whether your nonprofit has members or not
- The names and addresses of the registered agent, and incorporator
- The address and mailing address (if different ) of the nonprofit’s initial registered office, as well as the county where it is located
You need to complete Form N-01 and then file it online with the North Carolina Secretary Of State Business Registration Division.
7. File an initial report
There’s no need to file an initial report in the state of North Carolina.
8. Secure an EIN (Employer Identification Number)
Employer Identification Numbers are required by all North Carolina nonprofits, not just those who intend to hire employees. Essentially, an Employer Identification Number or [EIN] is a nine-digit number unique to each nonprofit organization.
This number is used to identify business entities by the IRS. It also allows you to perform essential tasks such as opening a business bank account, applying for tax exemption, and submitting annual 990 returns to the Internal Revenue Service.
In order to obtain an EIN, you need to fill out IRS Form SS-4 and submit it to the IRS. You may complete your application free of charge and receive your EIN immediately when filing online.
Other options for obtaining an EIN include submitting the application via mail or fax; however, the online option is the quickest method.
9. Apply for federal tax exemption
When an organization has obtained 501(c)(3) tax exemption, it means that the nonprofit is exempt from paying federal corporate tax on any income generated from activities meant to benefit the organization.
In other words, the organization is exempt from paying federal income tax when income generated is used for the purpose of the organization or the purpose that it was granted its tax-exempt status for.
In order for your North Carolina nonprofit to obtain federal income tax exemption, you’ll need to complete Form 1023 or apply for tax-exempt status, under the Internal Revenue Code. If you plan on running a small business organization, then feel free to file Form 1023-EZ.
The latter template or form is a much shorter and simpler application that doesn’t require as much information as the first one. However, only nonprofits that plan on earning less than $25,000 per year may file this form.
Once you’ve completed the relevant form, you should go ahead and file it with the Internal Revenue Service. After receiving and vetting your application and if it’s excepted, you’ll receive a determination letter from the IRS stating that your nonprofit is one of the existing organizations that are exempt from federal income taxes.
Tax-exempt organizations enjoy many benefits such as limited liability, discounts on US postal services, access to sponsors, tax-deductible donations, and grants from both the government and private foundations.
Consequently, they are held in high esteem by the government and therefore required to comply with the relevant federal and state laws moving forward.
10. Apply for North Carolina state tax exemption
Once you’ve received your IRS determination letter making you exempt from federal income taxes, it’s time to obtain state income tax exemption. You need to apply with the North Carolina Department of Revenue.
There is no need to obtain sales and use tax exemption as North Carolina doesn’t offer an exemption from sales tax.
11. Other applicable permits and licenses
Nonprofits in the state of North Carolina are not required to obtain a general state business license. However, depending on the types of activity the nonprofit is going to engage in, you may need to obtain other licenses or permits.
Review the North Carolina Secretary of State‘s guide to business licensing for further information regarding North Carolina licenses and permits for nonprofits.
Additional state registration and reporting requirements
All North Carolina organizations must register for charitable solicitation licenses. Some of the exceptions include churches, schools, and charities that plan on bringing in less than $25,000 per year.
Additionally, charitable organizations that don’t compensate employees or members are also exempt from this obligation.
So depending on the fundraising activities and charitable solicitation your nonprofit is going to be involved in, you may apply for the charitable solicitation license via the North Carolina Department of the Secretary of State.
12. Submit an annual report
All nonprofits in North Carolina must file an annual report with the North Carolina Secretary of State. The annual report must include the nonprofit’s name and address, the nonprofit’s email address, and the names and addresses of its principal officers. Additionally, you should include a brief description of the nonprofit’s activities.
Costs of starting a new nonprofit in North Carolina
The following filing fees are applicable to all nonprofits in the state of North Carolina:
- North Carolina charitable registration: $0-$200 depending on gross contributions ($0 if exempt)
- Certificate of Incorporation: $60 + optional $100-200 expedite fee
- Application for federal tax exemption or 501(c) tax-exempt status: $275 or $600 IRS fee
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
A nonprofit is eligible for tax exemption by the IRS due to the fact that its purpose and mission are to further a social cause and ultimately benefit the public. For-profit organizations have one goal, and that is to make money. They serve their customers by offering a service or selling a product. The business owner earns an income from the for-profit and pays stakeholders and investors from the profits.
Public charities are tax-exempt nonprofit organizations. They are recognized under the Internal Revenue Service Code and receive funding from the public at large. Financial support for public charities is available in the form of donations from individuals as well as grants and funding from the government and private foundations. Public charities are held in high esteem by the government and therefore must demonstrate adequate public support in order to remain in favor and keep their tax exemption privileges. Some examples of public charities include schools, hospitals, and churches.
There is no right or wrong figure when it comes to an acceptable amount for the nonprofit executive director to be paid. Nonprofits work for the greater good of the community, and therefore its leaders should have the appropriate skills and expertise to accomplish the nonprofit’s mission. Therefore, competitive wages are encouraged to retain quality employees. Ultimately, the Board of Directors has a responsibility to set appropriate compensation for executive directors of the organization.
Nonprofit organizations are required to keep good records. This means recording minutes of meetings and also setting up a separate business bank account for the nonprofit organization. All money or donations received towards the nonprofit’s cause must be used to further the organization’s mission and not be distributed to any members for any reason. A valuable resource to help the nonprofit stay compliant is the IRS compliance guide.
Business plans are highly recommended for nonprofit organizations. This is especially in the event that you plan on securing community support of any kind, be it support from volunteers or donations and sponsorships. The business plan helps you to convey your organization’s goals and purpose.
