Form a Nonprofit in Eight Steps

1. Choose a name.

The name of your nonprofit corporation cannot be the same as the name of another corporation on file with your state's corporations office (usually the Secretary of State's office). It must end with a corporate designator, such as "Corporation," "Incorporated," or "Limited," or an abbreviation of any of those words.

Your state's corporations office can tell you how to find out whether your proposed name is available for your use. For a small fee, you can usually reserve the name for a short period of time until you file your articles of incorporation. For more information, contact your state's corporations office.

2. File articles of incorporation.

You must file "articles of incorporation" with the state's corporate filing office. In this document, you fill out some basic information such as your nonprofit's name and office address. Although preparing this document isn't difficult, you do need to include specific language to ensure that you'll receive tax-exempt status. Your state's nonprofit formation packet, if available, may include the required information. For more information, see Nolo's article on Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes.

3. Apply for your IRS tax exemption.

Submit a federal 501(c)(3) tax exemption application to the IRS (along with a copy of your filed articles with your application). To apply, you must complete IRS Package 1023, Application for Recognition of Exemption. For help with this fairly complicated process, see Nolo's article How to Obrain 501(c)(3) Tax-Exempt Status for Your Nonprofit.

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 shorter, simpler application form that you complete online. Check the IRS website and instructions to the form which include an Eligibility Worksheet you must complete to determine if your nonprofit meets the requirements for using the shorter streamlined form.

4. Apply for a state tax exemption.

This step does not apply to nonprofits in all states. In a few states, you must complete a separate application to get a state tax exemption. In most states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3) tax-exempt status, your state tax exemption will be automatically granted. In still others, to get your state exemption you must send in a copy of the IRS determination letter that granted your federal exemption. Contact your state tax agency to find out what steps you must take.

5. Draft bylaws.

A nonprofit's bylaws are the internal governing rules that contain rules and procedures for holding meetings, voting on issues, and electing directors and officers.Typically, the bylaws are adopted by the corporation's directors at their first board meeting. For help creating bylaws, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).

6. Appoint directors.

A nonprofit's directors make the major policy and financial decisions for the nonprofit. Many states allow nonprofits to have just one director, but other states require at least three.

7. Hold a meeting of the board.

At the first meeting of the board of directors, the directors take care of formalities such as adopting the bylaws, electing officers, and recording the receipt of federal and state tax exemptions. After the meeting is completed, minutes of the meeting should be created and filed in the nonprofit's records binder. For more information, see Nolo's article Protecting Your Nonprofit Corporation's Tax-Exempt Status.

8. Obtain licenses and permits.

Check with your state department of consumer affairs (or similar state licensing agency) for information concerning state licensing requirements for your type of organization. For instance, if you sell anything to consumers, you'll need a sales tax permit, and your activities may require a zoning permit.