Registration of Non-Profit Corporations in USA: A Complete Procedure

Sakshi Sharda

13 Sep, 2022

Incorporating a Non-Profit Corporation is somewhat different from incorporating a profit-making business. The Non-Profit Corporations are formed to accomplish the goals that do not include any kind of profit-making and also distributing such profits to the owners and employees of the Corporation. There are different categories of Non-Profit Corporations in USA. The process of Registration of Non-Profit Corporations in USA is provided by the authorities, and the person applying for registration is required to follow all the prescribed requirements. In this article, we will discuss the complete procedure of the Registration of Non-Profit Corporations in USA.

What is a Non-Profit Corporation?

Whenever a person wants to start a new company, he/she is required to provide all the required documents to get the company legally registered in a state. A Non-Profit Corporation provides for all the protections and formalities of a corporation. A Non-Profit Corporation does not have a profit motive and any tax issues associated with it.  

In a Non-Profit Corporation, the profit generated is not part of the income of the Corporation, and no part of such profit is distributed among the directors and officers of the Corporation. There are many kinds of Non-Profit Corporations that can be formed in USA.

The different types of Non-Profit Corporations are as follows:

• Public, Religious or CharitableOrganizations

These organizations come under Section 501(c) (3) of the Internal Revenue Code^[1] in the USA. Such organizations comprise of several educational, religious, charitable, or scientific organizations. Such organizations primarily focus on providing services to society. The services are provided free of cost or at a lower rate by the persons associated with such organizations. After the Registration of Non-profit Corporations in USA under this category, the funds are received by the general public.

The general public can provide the money to these organizations through donations privately or by government aid or fund received in a particular event by the organization. The Registration of Non-profit Corporations in USA under this category comprises of the largest number of non-profit organizations. Nearly around 1 million organizations are registered under this category in the state. These types of Public, Religious, or Charitable Organizations are exempted from paying any tax.

• Social Welfare Organizations

Under Section 501(c)(4) of the Internal Revenue Code, the provisions related to the Social Welfare Organisation is provided. These Social Welfare Organizations primarily work in the direction of generating awareness towards the general public at large on any kind of political or social issue. Furthermore, these organizations also involve themselves in certain fundraising programs or to create awareness in the society. The well-known organizations that come under this particular category are Greenpeace, NAACP, National Organisation for Women, and ACLU. The Funds in this organization are collected through private donations or several connections.

• Labour Unions

The Labour Unions are provided under Section 501(c)(5) of the Internal Revenue Code of USA. All the labours, including the horticultural and agricultural organizations, come under this category of Labour Unions. The main motive of these Labour Unions is to improve and educate the working circumstances by enhancing efficiency and quality. The Funds in this organization are collected through private donations or several connections.

• Professional or Trade Organizations

Under Section 501(c)(6) of the Internal Revenue Code of USA^[2], provides for the provisions for Professional or Trade Organisations.This type of Non-Profit Corporation includes numerous commerce chambers, business leagues, and a real estate board. These organizations are capable of engaging themselves in some political activities and are eligible to take donations.

• Business Foundations

The primary objective of the business foundations is to promote several awareness events and plans to educate people. Furthermore, these organizations offer a subsidy to other Non-Profit Corporations by contributing a portion of their income. These Business Foundations organizations are commonly established by well-to-dopeople or business persons who want to contribute a precise part of their revenue for the welfare of society. These business foundations are forbidden from engaging in any political activity. Some leading examples arethe Bill & Melinda Gates Foundation and Ford Foundation.

• Veterans Organizations

Section 501(c)(19) of the Internal Revenue Code of USA provides for the provisions related to Veteran Organisations. The Veteran Organisation is formed by ex-members or active members of the armed forces. Such members include 75% of the total number of members of the group. The funds collected by these organizations are primarily through donations. The main aim and focus of this organization are to assist and support the US armed forces.

What is the procedure of the Registration of Non-Profit Corporations in USA?

The procedure of registration of Non-Profit Corporations in USA is as follows:

• Appointment of Authorized or Registered Agent

The procedure of Registration of Non-profit Corporations in USA is difficult on comparison to other for-profit organizations. Though, only a registered or authorized agent or person can do the Registration of Non-Profit Corporations in the USA. So, it is mandatorily suggested to appoint a trained or qualified agent to start the new Non-Profit Corporation in USA.

The authorized or registered agent that is appointed will be responsible for the collection, documentation, and any additional submission of required documents with the authority in USA. Furthermore, the agent is accountable for receipt of any reports or communication from the respective authority in the same regard as mentioned above. The authorized or registered agent should comply with all the prescribed provisions in the rules and regulations of USA.

• Select name of Non-Profit Corporation

The next step is the most important in the process of Registration of Non-Profit Corporations in USA. Under this step, it is required to choose a unique name for the Non-Profit Corporation. It is always advisable and relevant to do proper research of the bye laws of different states regarding the name of the Corporation as different states in USA have different regulations and rules regarding naming a corporation.

The name of the Corporation is required to be unique, so before proceeding any further, a proper name availability search is required to be done. After the approval of the name of the Corporation, it is advisable and relevant that the owners of the Non-Profit Corporation in USA should register the name and logo of the Corporation with the respective authority.

Our Recommendation: How to register a Trademark in USA?

• Specify the type of Non-Profit Corporation

The next most important step to be taken is to decide the kind of organization or body for a Non-Profit Corporation in USA. As discussed above, there are various kinds of Non-Profit Corporations in USA. The choice is of the person who is going for Registration of Non-Profit Corporations in USA. The person can go for registering as an association, trust, or Corporation.

• Collecting and Submitting the required Documents

The registered or authorized agent appointed is responsible for collecting all the required records of all the critical officials or members of the Non-Profit Corporations. The authorized or registered agent is additionally required to draft certain bye-laws and should submit an application regarding it with the respective authority for the appointment.

• Preparation of Articles of Incorporation

As per the regulations and rules prescribed by individual states of the USA, the Articles of Incorporation should be prepared. As each individual state in the USA has different rules with respect to the formation of Non-Profit Corporations, so it is always advisable and required to carry out due diligence before going for Registration of Non-Profit Corporations in USA.

It is always advisable and relevant to make the addition of some specific clauses related to tax exemption in the Article of Incorporation. In some individual states in the USA, certain additional approvals and requirements are required to be taken. For example, in the city of New York, for the Registration of Non-Profit Corporations in USA consent of several state agencies is needed.

• Purpose of Business

The next step is to define the purpose in a detailed form of the business of the organization. One of the most common types of a Registration of  Non-Profit Corporations in USA is the religious and charitable trusts as formed under Section 503(c)(3) of the IRC Code of USA. These Corporations include various educational, charitable, religious, or scientific organizations that primarily focus on providing services to a specific part of the society at a much lower rate or free of cost.

• Application for Tax Exemption

After the incorporation of the Non-Profit Corporations in the USA, the most vital step is filing an application of tax-exemption with the state authority of income tax. Specific provisions and guidelines have been provided by IRS that need to be followed to get tax exemption.

• Filing for Federal Tax ID Number

The next step is to file in Form SS-4^[3] the Federal Tax Identification Number for the Corporation.

• Apply for other Permits and Licenses

According to their kind of category, every newly set up business is required to apply for the mandatory permits and licenses as prescribed by particular states in the USA. Heavy penalties will be imposed on the Corporations in case there is a failure to comply with the rules prescribed for permits and licenses by the Non-Profit Corporations.

What is the procedure to obtain 501C3 Status after the Registration of Non-Profit Corporations in USA?

After the Registration of Non-Profit Corporations in USA, the organization is eligible to apply for the Status of tax exemptions. Tax exemptions can be applied by applying for the 501C3 Status with the IRS in the USA. Though for applying for 501C3 Status, certain conditions are required to be followed.

The conditions which are required to be followed are as follows:

• All the assets of the organization are required to be dedicated to other charities, especially the statement of dissolution of corporate.
• The Board of Directors (BOD) of the organization should be individual persons and not companies or firms as per the prescribed rules in the USA by numerous states.
• As per the guidelines provided by the various states and the IRS, Non-Profit Corporations are required to generate a statement of a purpose statement. The scopes of work of all different Non-Profit Corporations are different. The Non-Profit Corporations in the USA are required to mention the scope of work related to the category of Non-Profit Corporations in the statement of purpose.  

What are the advantages of the Registration of Non-Profit Corporations in USA?

A Registration of Non-Profit Corporations in USA provides the Corporations with the same protection of limited liability as it is provided in case of for-profit corporations. The provision of limited liability in the Non-Profit Corporation in the USA means that the trustees, directors, members, and officers arenot personally accountable for the liabilities and debts of the organization.

The other key benefits of Registration of Non-Profit Corporations in USA include:

• In a Non-Profit Corporation, the retirement plans can be easily set up.
• A life of Non-Profit Corporation is not dependent on its officers and members. A Non-Profit Corporation owns the feature of infinite life. If the owner of the organization wishes to sell his/her interest, the Non-Profit Corporation will continue to remain in existence and do the required business.

Conclusion  

A Non-Profit Corporation is a distinct type of Corporation that is created explicitly to provide certain additional benefits for businesses that aim to function with a charitable purpose. A Non-Profit Corporation shares all the ordinary benefits that come along with the incorporation. A Non-Profit Corporation also allows a business to apply for tax exemption to the IRS in the USA.With the purpose of qualifying for this tax exemption, the formation of a business should be for the benefit of a public or specific group of people. 

Also, read: Company Registration in USA: Step by Step Procedure