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 South Carolina nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of South Carolina. Here are the details.
Form Your South Carolina Nonprofit Corporation
First, you need to form a nonprofit corporation under South Carolina state law (Title 33-31 of the South Carolina Code (“SCC”)).
1. Choose the initial directors for your nonprofit
You must have at least three directors on your board in South Carolina. Your initial directors are named in your articles and need not be residents of South Carolina. Your articles can authorize a person or persons to exercise some or all of the powers which would otherwise be exercised by a board.
2. Choose a name for your South Carolina nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any other nonprofit or business corporation, professional corporation, or limited partnership formed or authorized to do business in South Carolina, or a name reserved, registered, or otherwise filed upon the records of the Secretary of State.
To see if your proposed name is available, you can search South Carolina’s online business name database or you can call the Secretary of State.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the South Carolina Secretary of State. Your articles of organization include basic information such as:
- a name that satisfies the requirements of Section 33-31-401
- a statement that the nonprofit is a public benefit, mutual benefit, or religious corporation
- the street address of the nonporfit's initial registered office with zip code and the name of its initial registered agent at that office
- the name, address, and zip code of each incorporator
- whether or not the corporation will have members
- provisions regarding distribution of assets on dissolution, and
- the address, including zip code, of the proposed principal office which can be within or outside South Carolina.
See SCC §33-31-202 for additional information about your articles.
The Secretary of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. There is a separate “501(c)(3) Attachment” on the website which you must complete and file with your articles in order to obtain 501(c)(3) tax-exempt status from the IRS.
For more information on IRS requirements for tax exemption, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website.
Complete and file your articles and the 501(c)(3) Attachment following the instructions provided.
4. Prepare bylaws for your South Carolina nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with South 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 South 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:
- electing directors (if not named in the articles)
- 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.
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 document 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 South 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 South Carolina state tax exemptions
Once you obtain your 501(c)(3) tax-exempt status from the IRS, you should be exempt from corporate income tax in South Carolina. Check with the South Carolina Department of Revenue for information on and filing requirements for exemptions from other state taxes, including sales and use and property taxes.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. Check with the Division of Public Charities, Secretary of State, for information and forms about registration requirements for nonprofits in South Carolina.