Robert H. Levin -Attorney at Law         

Ten Practical Tips To Forming a 501(c)(3) Organization

Disclaimer:  This information is provided for educational purposes only and is not to be relied upon as legal advice.  Readers are encouraged to retain the services of an attorney to help them with their specific situation.

Copyright 2003-2008, Robert H. Levin, Esq.

 (1)  Don’t Rush to Incorporate

            So you are brimming with enthusiasm and you have decided to form a nonprofit organization.  What’s the first thing you should do?  Turn around and re-examine your decision to incorporate.  One of the most common mistakes people make is to establish an organization without fully thinking through the consequences.  Forming and maintaining a nonprofit organization takes much time and effort.  For some, it might make more sense to consider alternatives, such as operating as an unincorporated association or teaming up with an already existing group.  See www.delawarenonprofit.org for some very useful information. 

(2)  Appoint Someone Responsible to Be In Charge of All Filings

            As already noted, incorporating a 501(c)(3) organization requires many documents and filings.  Most groups find it helpful to appoint one person to be responsible for keeping track of every state and federal filing requirement.  This person does not necessarily have to complete all of the work herself, but should make sure that all of the work is in fact completed. 

(3)  Form 1023 – Pay Attention to the Details

            The vast majority of problems that the IRS identifies on Form 1023 applications are minor errors such as a failure to answer a question or provide additional information.  It’s important to read the forms carefully and to make sure you complete all of the necessary parts.  Nevertheless, the Form can be very confusing for beginners, so hiring an attorney or other experienced professional can save much time and frustration.  More information is provided at www.form1023help.com.  If you are having difficulty with the form, you can call a toll-free IRS help line at (877-829-5500). 

(4) Articles of Incorporation and Bylaws – KIFF Method

            We have all heard of the KISS method – Keep it Simple, Stupid.  Well, for organizational documents, I suggest the KIFF method -- Keep it Flexible, Friend.  The Articles of Incorporation should be a bare bones document that includes the basic state and IRS requirements and not much else.  The details of an organization’s structure should be set forth in the bylaws.  Bylaws should be very clearly worded, as they will be important in resolving future disputes.  At the same time, do not make the mistake of adding in too many requirements or standards.  Your organization will likely evolve over time, and your bylaws should be flexible by anticipating such change.  Again, these documents can be very confusing for beginners, so professional help is recommended. 

(5) Click and Zoom – Using Online Resources

            You can save a lot of time and energy by tracking down online information.  Most of the forms you will need to incorporate can be downloaded for free from the internet.  IRS Form 1023 and accompanying instructions can be found at www.irs.gov.  (On the left-hand column, simply type in “Form 1023” under Search Forms and Publications.)  Maine forms can be downloaded at www.maine.gov/sos/cec/corp/nonprofit.html.   There are also websites that contain a wealth of useful information.  Two of the best are www.nonprofit-info.org and www.delawarenonprofit.org. 

(6)  Join Support Organizations and Attend Trainings

            There are a number of support and educational organizations that your nonprofit should consider joining.  The Maine Association of Nonprofits is a bargain, with dues of only $50 per year for organizations with budgets under $25,000 (www.nonprofitmaine.org).  The Institute For Civic Leadership is another wonderful group that offers periodic trainings for board members (www.civicleadership.org).  In addition, the IRS periodically offers free one-day workshops covering a range of topics regarding small and mid-sized nonprofit organizations.  To see a schedule and locations, visit www.irs.gov/charities/index.html and look for the “calendar of events” link. 

(7)  Form 990 – A Great PR Tool

            Depending on the size of your organization, you may or may not need to file a Form 990 or Form 990-EZ.  Nevertheless, it is generally recommended that you do so anyway, as these documents will be available online at www.guidestar.org and many foundations rely on them in making funding decisions.  As such, the Form 990 can be a wonderful public relations tool, a way for an organization to put its best foot forward. 

(8) Establish Separate Accounting Systems

            It is important to establish and maintain separate bank accounts for the corporation in order to avoid commingling with any individual’s personal accounts.  Organizations that begin with good bookkeeping practices tend to be much more successful in staying organized over the long term.   

(9)  Meeting the Public Support Test

            There are different categories of 501(c)(3) organizations, and some enjoy greater benefits than others.  If your organization is classified as a public charity (as opposed to a private foundation), donors will be able to deduct a greater percentage of their donations from their federal income taxes.  Certain organizations qualify as public charities by virtue of their activities (schools and churches, for example).  Others can qualify only by meeting a public support test, which generally requires at least one-third of the organization’s support to come from the general public.  Determining whether the organization meets this test can be a time-consuming process and complicated process, and some groups rely on professional assistance. 

(10) Keep Your Eyes on the Prize

            In a couple months, when you are sitting amidst of the piles of paper that are required to incorporate a 501(c)(3) organization, take a moment to remind yourself why you are making this effort.  In all likelihood, you are motivated by a beautiful idea or a noble cause.  I, for one, salute you for your spirit and hard work!

Robert H. Levin, Esq., 207-774-8026, rob@roblevin.net   

Legal Notice        Privacy Statement