Most nonprofits are 501(c)(3) organizations, which means they are formed for religious, charitable, scientific, literary, or educational purposes and are eligible for federal and state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you need to form a North Carolina nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of North Carolina. Here are the details.
Form Your North Carolina Nonprofit Corporation
First, you need to form a nonprofit corporation under North Carolina state law (Chapter 55A, the Nonprofit Corporation Act (“NPA”)).
1. Choose the initial directors and officers for your nonprofit
In North Carolina, your nonprofit corporation must have at least one director. Directors must be at least 18 years old, except in certain organizations involved in youth activities where some directors can be 16 years old.
2. Choose a name for your North Carolina nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any other nonprofit corporations, business corporations, limited liability companies, limited partnerships and limited liability partnerships operating in North Carolina. In addition, your name must contain the word "corporation," "incorporated," "company," or "limited, or the abbreviation "corp.," "inc.," "co.,"or "ltd." See North Carolina General Statutes 55D-20 and 55D-21 for more on name restrictions.
To see if your proposed name is available, call the Secretary of State’s office or search the North Carolina business name database.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the North Carolina Secretary of State. Your articles of organization must include basic information such as:
- your nonprofit’s name
- a statement that your nonprofit is charitable or religious
- the street address, and mailing address if different, of the nonprofit's initial registered office, the county where the office is located, and the name of the initial registered agent at that address
- the name and address of each incorporator
- whether or not the corporation will have members
- provisions regarding the distribution of assets on dissolution, and
- the street address, and the mailing address if different, of the principal office, and the county where it is located.
The Secretary of State has a fillinable nonprofit articles of incorporation form on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided. There is also a helpful guide on the Secretary of State’s website, Incorporating Your Nonprofit in North Carolina.
The articles form from the state has the minimal information necessary to create a nonprofit in North Carolina. It does not include language required by the IRS to obtain 501(c)(3) tax-exempt status. To receive tax-exempt status from the IRS, you'll need certain additional specific language in your articles, including:
- a statement of purpose that meets IRS requirements
- statements that your non-profit will not engage in prohibited political or legislative activity, and
- a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
For more information on IRS requirements for tax exemption, including sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your North Carolina nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with North Carolina law. Your bylaws contain the rules and procedures your corporation will follow for holding meetings, electing officers and directors, and taking care of other corporate formalities required in North Carolina. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
5. Hold a meeting of your board of directors
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
- approving the bylaws
- appointing officers
- setting an accounting period and tax year, and
- approving initial transactions of the corporation, such as the opening of a corporate bank account.
If you did not name initial directors in your articles of incorporation, you will want to elect directors at the organizational meeting. After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board.
6. Set up a corporate records binder
You should set up a corporate records binder for your nonprofit to hold important documents such as articles of incorporation, bylaws, and minutes of meetings. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
Obtain Your Federal and State Tax Exemptions
Now that you have created your nonprofit corporation, you can obtain your federal and North Carolina state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
1. File your Form 1023 federal tax exemption application.
To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.
See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.
2. Obtain your North Carolina state tax exemptions.
For information and filing requirements for exemptions from income, property, sales, and other state taxes, go to the Department of Revenue's website and also refer to its publication, State Taxation and Nonprofit Organizations.
3. Other state reporting and registration requirements.
Depending on your activities and the size of your organization, you may need to register with the North Carolina Attorney General before doing any fundraising activities. Check the Attorney General’s website for information and rules about fundraising and registration requirements for nonprofits.