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 nonprofit corporation under Delaware state law. Then you apply for tax-exempt status from the IRS. Here are the details.
To form a nonprofit in Delaware, first you need to form a nonprofit corporation under Delaware state law. Unlike most states, there is no separate statute governing nonprofit corporations. Instead, Delaware's General Corporation Law (DGCL) applies to both for profit and nonprofit entities. Under the DGCL, nonprofit corporations are organized as a nonstock corporation, called an “exempt corporation.”
In Delaware, you must have at least one director on your board.
Your nonprofit corporation name must include one of following: "Association," "Company," "Corporation," "Club," "Foundation," "Fund," "Incorporated," "Institute," "Society," "Union," "Syndicate," "Limited"; or "Co.," "Corp.," "Inc.," "Ltd."
In addition, the name cannot be the same as the name of another business entity on file with the Delaware Department of State. To see if your proposed name is available, you can search Delaware's online name database. You can reserve a name online through the Delaware Division of Corporations website.
Every Delaware nonprofit corporation must have an agent for service of process in the state. This is an individual or corporation that agrees to accept legal papers on the corporation's behalf if it is sued.
The agent must have a physical street address in Delaware, not a post office box. Small nonprofit corporations typically name a director or officer to serve as the initial agent. However, if your corporation is physically located in Delaware, it may act as its own registered agent. The agent must consent to the appointment.
You create your nonprofit entity by filing a Certificate of Incorporation for an Exempt Corporation with the Delaware Department of State. Your certificate of incorporation must include:
To receive tax-exempt status from the IRS and the state of Delaware, you must add certain specific language to your certificate, including:
The Delaware Department of State has a fillable certificate form for an Exempt Corporation (non-profit) on its website that can be used to form a nonprofit corporation. (The form is called Certificate of Incorporation, A Non-Stock Corporation.) The certificate form does not contain the tax-exempt language required by the IRS, nor does it have any space to add it. You should use the form as a guideline to create your own Certificate of Incorporation and insert the required clauses. You can insert them after paragraph 5 of the form. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ (see Part II).
Your completed certificate can be electronically uploaded to the Department of State's office or filed by postal mail. The filing fee is $89 for a one-page certificate, with $9 added for each additional page.
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Before you file your articles of incorporation, you'll need to have bylaws that comply with Delaware 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 Delaware. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
For more information, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes. For help creating your bylaws, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board. Set up a corporate records binder to hold the corporation's articles, bylaws, consent forms, minutes and other important documents. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
Your nonprofit corporation must obtain a federal employer identification number (EIN). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
Nonprofit corporations are exempt from obtaining a Delaware state business license. Depending on the type of activities your nonprofit intends to carry on and where it is located, it may need to obtain a local business license or permit. For more information about local licensing requirements, see the Delaware Business First Steps website.
All Delaware exempt corporations must file an annual report with the Delaware Division of Corporations and pay a $25 franchise tax. The report is due no later than March 1st of each year. The annual report is filed online. A Notification of Annual Report and Franchise Taxes due is sent to all Delaware registered agents in December of each year.
Now that you have created your nonprofit corporation, you can obtain your federal and Delaware state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
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.
Once a corporation obtains 501(c)(3) tax-exempt status from the IRS, it is automatically exempt from Delaware corporate income tax, and from the gross receipts tax on the sales of most goods and services. Nonprofits are also exempt from various state and local property taxes and business license fees. See the Department of Finance, Division of Revenue website for more information on state tax exemptions.
Delaware does not require nonprofits to register to fundraise in the state so there are no fundraising registration requirements. However, Delaware nonprofits that solicit or receive donations in other states may have filing and reporting obligations in those states. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman (Nolo).