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.
Form Your Ohio Nonprofit Corporation
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.
1. Choose the initial directors for your nonprofit
In Ohio, you must have at least three directors on your board.
2. Choose a name for your Ohio nonprofit corporation
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 can reserve a name with the Secretary of State which will prevent another nonprofit or business from registering the name while you prepare and file your articles.
See ORC 1702-05 for more information on name restrictions for nonprofits.
3. Prepare and file your nonprofit articles of organization
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 name of your nonprofit
- the place in the state where the principal office of the corporation is to be located, and
- the purpose for which it is formed.
The required statement of purpose clause in the articles must be carefully drafted to comply with state law requirements for nonprofits. See ORC 1702.04 for other information that you may want to include in your articles.
The Secretary of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided on the Secretary of State’s website.
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 tax-exempt status from the IRS, you'll need to have additional specific language in 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.
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 both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your Ohio nonprofit corporation
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.
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:
- electing directors (if not named in the articles)
- approving the bylaws
- 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 Ohio 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 Ohio state tax exemptions.
Nonprofits who receive 501(c)(3) tax-exempt status from the IRS are generally automatically exempt from Ohio’s commercial activity tax. For information and filing requirements for exemptions from other state taxes, including sales or use and property taxes, check with Ohio’s Department of Taxation.
3. Other state reporting and registration requirements.
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.