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.
First, you need to form a nonprofit corporation under North Carolina state law (Chapter 55A, the Nonprofit Corporation Act (“NPA”)).
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.
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.
You may reserve a name for 120 days by filing an Application to Reserve a Business Entity Name with the North Carolina Secretary of State. The application must be filed by mail. The filing fee is $30.
Every North Carolina 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 North Carolina, not a post office box. Small nonprofit corporations typically name a director or officer to serve as the initial agent. The agent must consent to the appointment.
You create your nonprofit entity by filing a certificate of incorporation with the North Carolina Secretary of State. Your articles of organization must include:
The Secretary of State has a fillable 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.
The articles form from the state has the minimal information necessary to create a nonprofit in North Carolina. However, to receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
The North Carolina articles form does not contain these required clauses. You must add them to the form yourself. You may add them as attachments to the articles. The dissolution clause should be a separate attachment labeled paragraph 7, and the prohibited activities and dissolution clauses can be combined in a single attachment labeled paragraph 8. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
You can file your articles online or by postal mail. The filing fee is $60.
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.
For more information on bylaws, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes. For help creating your bylaws, see Nolo's book 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:
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, minutes of the meeting should be created. 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.
Depending on the type of activities your nonprofit intends to carry on and where it is located, it may need to obtain a local and/or state business license or permit. For local licenses, check with the clerk for the city where the nonprofit's primary office is located (or county if it is in an unincorporated area). For state license information, check State Boards and Commissions website.
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:
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.
Your nonprofit corporation must apply for an exemption from North Carolina corporate income tax by filing copies of its articles, bylaws, and IRS determination letter with the North Carolina Department of Revenue. North Carolina nonprofits are not exempt from paying sales taxes on items they purchase, buy may apply for a refund of sales taxes paid. To obtain an exemption from local property taxes, an application must be filed with the county assessor.
For detailed information and filing requirements for exemptions from income, property, sales, and other state taxes, refer to Department of Revenue's publication, State Taxation and Nonprofit Organizations.
Depending on your activities and the size of your organization, you may need to register with the Charitable Solicitation Licensing Division of the North Carolina Secretary of State before doing any fundraising in the state. Check the Secretary of State website for information and rules about fundraising and registration requirements for nonprofits. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.