Forming a 501(c)(3) is the most common method of registering a nonprofit corporation in the United States. 501(c)(3) nonprofits are eligible for federal and state tax exemptions and have been created for one or more of the following purposes:
- Religious advocacy or worship
- Charitable work
- Scientific research, discussion or recognition
- In support of the arts
When forming a 501(c)(3) tax-exempt organization, the founder must first create a Florida corporation on Sunbiz.org. Once created, the entity can apply for tax-exempt status with the State of Florida as well as the IRS.
While this process can be described with a few simple steps, the details are much more involved. There are a number of intermediary steps that can be done optimally with the assistance of a business attorney, licensed in Florida, with experience in setting up and managing the legal aspects of non-profit organizations.
Choosing the Nonprofit Organization’s Directors
When forming a 501(c)(3) in Florida, founders are required to have a board of at least three directors. Typically, those serving on the board of directors are selected by the person or people who are incorporating the non-profit organization. In some cases, directors are nominated by a committee or the public. Either way, it is recommended that directors are chosen as much for what they can contribute as for their support of the non-profit organization’s mission.
Many non-profit organizations choose three initial directors, then expand their boards to include more directors as time goes on. One important legal requirement that applies when selecting the initial three board members is that they must not be “related” to one another to avoid conflicts of interest.
Choosing a Name for the Nonprofit Organization
After establishing a board of directors, those incorporating the organization and the newly appointed directors need to choose a name. In Florida, non-profits operate as corporations. This means that the words “Corporation” or “Incorporated”, or some variation thereof, must be part of the organization’s name.
A non-profit’s name must be unique. The Florida Department of State, Division of Corporations will reject a name if it is the same as another non-profit organization already registered within the state.
… it is recommended that directors are chosen as much for what they can contribute as for their support of the non-profit organization’s mission.
Selecting a Registered Agent
An individual, law firm or other entity must be appointed as the registered agent for the non-profit corporation. The agent is the recipient of any service of process. That means that the agent agrees to receive legal papers on the corporation’s behalf should it ever be sued.
Preparing and Filing your Articles of Incorporation
Non-profit founders in Florida must draft and file articles of incorporation with the state. This document is required to include the nonprofit’s name and street address, the non-profit’s purpose and how the directors are elected and appointed.
The articles of incorporation also include the names, titles and addresses of the founding officers and directors of the non-profit as well as those of the registered agent and the incorporator(s) of the non-profit.
Obtaining IRS and State Tax Exempt Statuses
Certain language in the Articles of Incorporation ensures that the non-profit being created will receive tax-exempt status at both the state and federal levels.
This includes a statement of purpose that mentions specific activities and goals rather than a generalized purpose. The specificity of the statement of purpose is important as it will determine the activities that make the non-profit tax-exempt in the eyes of the IRS. In fact, additional statements can be added to outline that the non-profit will not engage in unrelated activities. In addition to activities unrelated to the non-profit’s stated exempt activities, the IRS explicitly prohibits “political or legislative activity”. It may be wise to explicitly point out that the organization does not participate in political lobbying or advocacy of any kind.
The IRS is also interested in seeing a clause that sets a beneficiary (usually another charitable organization or a government subdivision) that receives funds in the case of dissolution.
Note that many newly-founded 501(c)(3) organizations use Articles of Incorporation templates that do not include IRS-approved language that ensures their tax-exempt status. If ever challenged, these organizations may encounter difficulty and lose their tax-exempt status. One way to make sure that the IRS-approved language appears as required in the Articles of Incorporation is to have the document drafted or reviewed by an experienced business attorney with a background in incorporating non-profits in Florida.
Once IRS-friendly language has been added to a non-profit Articles of Incorporation, the organization needs to acquire an employer identification number (EIN) from the IRS website.
Usually, an EIN number is granted quickly, with a notification sent by email. After the EIN has been obtained, larger non-profits will have to complete and file IRS Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code).
Smaller nonprofits, defined as having less gross annual receipts than $50,000 and total assets of less than $250,000, can fill Form 1023-EZ instead of Form 1023. This is a much more streamlined version of the more complex Form 1023 and it can be filed online.
After receipt of the 501(c)(3) determination letter from the IRS, a non-profit organization is automatically exempt from Florida corporate tax. However, the organization needs to file an application with the Florida Department of Revenue and obtain an exemption from state sales taxes.
Creating Bylaws for the Organization
Once Articles of Incorporation are drafted, the founders and directors of a non-profit are required to put together a set of “bylaws” or rules and operating procedures for running the organization. While these are usually not filed with the State of Florida, they can be incorporated by reference in the Articles of Incorporation (which are officially filed with the state).
Typical bylaws will include such matters as how officers are appointed and when the organization’s fiscal year ends.
South Florida Law
Setting up any business involves many moving parts. However, the details of setting up a 501(c)(3) in Florida can be particularly complex. Be sure not to “go it alone”. South Florida Law, PLLC is your legal partner, prepared to protect the best interest of your non-profit entity. We provide a variety of resources and solutions to equip your non-profit with the protections necessary to operate freely. South Florida Law also assists in the formation and organization of your nonprofit entity, handling contractor matters, reviewing agreements and representing your organization in payment disputes. Are you running or planning to run a nonprofit entity in the State of Florida? If so, call us on (954) 900-8885 or use our contact form for a free consultation.