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 Ohio nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Ohio. Here are the details.
First, you need to form a nonprofit corporation under Ohio state law (Chapter 1702 of the Ohio Revised Code (“ORC”)). For helpful guidance, see Your Guide to Starting a Nonprofit in Ohio, available on the Ohio Secretary of State’s website.
In Ohio, you must have at least three directors on your board.
The name of your nonprofit corporation must be distinguishable from the name of any other business entity registered in Ohio. To see if your proposed name is available, you can search the Ohio business name database on the Secretary of State’s website. You may reserve a name for 180 days by filing a Name Reservation with the Ohio Secretary of State. The application may be filed online or by mail. The filing fee is $39.
See ORC 1702-05 for more information on name restrictions for nonprofits.
Every Ohio 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. A registered agent must be one of the following: (1) an Ohio resident; (2) an Ohio corporation; or (3) a foreign corporation licensed to do business in Ohio and authorized by its articles of incorporation to act as a statutory agent with a business address in Ohio. The registered agent must have a physical street address in Ohio. However, an individual agent may provide a P.O. box as the agent address, but the agent must certify by checking the appropriate box in the registration that the individual is an Ohio resident.
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 Ohio Secretary of State. Your articles of organization must include basic information such as:
The Secretary of State has an articles form you may complete online and file electronically. It has a fillable articles of incorporation form for nonprofits on its website which you can complete and file by mail. The filing fee is $99.
The articles form available from the state has the minimal information necessary to create a nonprofit in Ohio. It does not include language required by the IRS to obtain 501(c)(3) tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
You'll need to add these clauses to your articles yourself. You may do so in an attachment you add to the online articles or the fillable pdf form on the Secretary of State's website. 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).
Before you file your articles of organization, you’ll need to have bylaws that comply with Ohio 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 Ohio. Your bylaws do not need to be filed with the state -- they are your internal operating manual. See ORC 1702.11 for more information on what to include in your bylaws.
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:
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 state business license. 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, consult the checklist section in the Start a Business page at the Ohio Business Gateway.
Now that you have created your nonprofit corporation, you can obtain your federal and Ohio 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.
Nonprofits who receive 501(c)(3) tax-exempt status from the IRS are generally automatically exempt from Ohio’s commercial activity tax. Your nonprofit can claim an exemption from state sales taxes by filing a Sales and Use Tax Blanket Exemption Certificate (Form STEC B) with the Ohio Department of Taxation. For more information about exemptions from state taxes, check with Ohio’s Department of Taxation.
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. Check the Attorney General’s website for information and rules about fundraising and registration requirements for nonprofits. For more information about fundraising registration requirements in all 50 states, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.