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 South Carolina nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of South Carolina. Here are the details.
First, you need to form a nonprofit corporation under South Carolina state law (Title 33-31 of the South Carolina Code (“SCC”)).
You must have at least three directors on your board in South Carolina. Your initial directors are named in your articles and need not be residents of South Carolina. Your articles can authorize a person or persons to exercise some or all of the powers which would otherwise be exercised by a board.
The name of your nonprofit corporation must be distinguishable from the name of any other nonprofit or business corporation, professional corporation, or limited partnership formed or authorized to do business in South Carolina, or a name reserved, registered, or otherwise filed upon the records of the Secretary of State.
To see if your proposed name is available, you can search South Carolina’s online business name database or you can call the Secretary of State. You may reserve a name for 120 days by filing an Application to Reserve a Nonprofit Corporate Name with the South Carolina Secretary of State Corporations Division. The reservation must be filed by mail. The filing fee is $10.
Every South 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 South 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 legally establish your nonprofit corporation by filing a certificate of incorporation with the South Carolina Secretary of State. Your articles of organization must include:
The Secretary of State has an online form you can complete and then file electronically. There is a separate “501(c)(3) Attachment” on the website which you must complete and file with your articles to obtain 501(c)(3) tax-exempt status from the IRS. To complete the attachment, you simply indicate the nonprofit purpose of the corporation.
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 South 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 South 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:
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.
There is no state-wide business license required in South Carolina. However, depending on the type of activities your nonprofit intends to carry on and where it is located, your nonprofit may need to obtain a city or county business license or permit. More information and links to city and county websites are at the South Carolina Business One Stop (SCBOS) website.
Now that you have created your nonprofit corporation, you can obtain your federal and South 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.
Once you obtain your 501(c)(3) tax-exempt status from the IRS, your nonprofit is automatically exempt from corporate income tax in South Carolina. You should mail a copy of your IRS determination letter to the South Carolina Department of Revenue for documentation purposes.
To obtain an exemption from state sales taxes, you must file Form ST-387 with the South Carolina Department of Revenue. Form PT-401-O must be filed with the Department of Revenue to obtain a property tax exemption.
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. Check with the Division of Public Charities, Secretary of State, for information and forms about registration requirements for nonprofits in South Carolina. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.