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 and the state of Delaware. Here are the details.
Form Your Delaware Nonprofit Corporation
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.”
1. Choose the initial directors for your corporation.
In Delaware, you must have at least one director on your board.
2. Choose a name for your Delaware nonprofit corporation.
In Delaware, 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, it 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 for 120 days by filing a Name Reservation Request Form with the Department of State with a $75 fee.
3. Prepare and file your nonprofit articles of incorporation.
You create your nonprofit entity by filing by filing a Certificate of Incorporation for an Exempt Corporation with the Delaware Department of State. Your articles of incorporation must include basic information such as:
- the name of your nonprofit
- the name and street address of the corporation's registered office in Delaware and its registered agent in Delaware for service of process
- the corporation’s purpose, including the following statement for nonprofits: “This Corporation shall be a nonprofit corporation.”
- a statement that the corporation shall not have any capital stock
- the conditions for membership (if any)
- the name and mailing address of the incorporator.
The Delaware Department of State has an articles 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.) Use this form to create your nonprofit corporation. Complete and file your articles following the instructions provided.
You can create your own articles or use the fillable articles form on the website. Then you will need to file your articles with the Department of State by mail with the appropriate filing fee. There is no online filing option.
To receive tax-exempt status from the IRS and the state of Delaware, you must add certain specific language to 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.
The articles form on the Delaware Department of State’s website does not contain the tax-exempt language required by the IRS. 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 the required tax-exempt language in the articles you create.
4. Prepare bylaws for your Delaware nonprofit corporation.
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.
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
- electing directors
- 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 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 Delaware 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 Delaware state tax exemptions.
Once a corporation obtains 501(c)(3) tax-exempt status from the IRS, it is automatically exempt from Delaware corporate income tax. 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.
3. Other state reporting and registration requirements.
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.