Nonprofit organizations can be created in the state of North Carolina for any lawful purpose. There are several action items to complete to ensure you are following all laws and regulations. While there are some exceptions (i.e. churches, schools, etc.), the guide below intends to highlight the procedures generally necessary for forming a nonprofit corporation in the state of North Carolina.
Choose and reserve a name – The North Carolina Department of the Secretary of State (NC SOS) must approve names chosen for emerging nonprofit organizations. They require that a chosen name be distinguishable from other entities on record. Names must also be feasible for use so as not to deceive or confuse the public.
Designate organizing individual(s) – North Carolina law requires that a nonprofit organization have at least one director. Directors are responsible for management of the corporation and comprise an organization’s Board of Directors. A nonprofit organization may also have officers, or those tasked with the day-to-day management of the corporation. While North Carolina does not have a specific guideline, the IRS recommends at least 3 officers – President, Treasurer and Secretary be in place for an organization initially.
Prepare and file Articles of Incorporation – Nonprofit corporations must file Articles of Incorporation with the state. An attorney may assist with the preparation of these articles. Special attention should be paid to proper wording in the articles relating to the organization’s tax-exempt purpose.
According to the NC SOS, a nonprofit’s Articles of Incorporation must include the following details:
- Organization name
- Principal office address
- Designation as a charitable or religious corporation
- Provisions for distribution of assets upon dissolution
Articles of Incorporation must be signed and submitted to the NC SOS, along with payment.
Create and adopt Organizational Bylaws – Organizational Bylaws govern a corporation’s internal administration and regulation of affairs. Just as with the Articles of Incorporation, an attorney may assist with the preparation of bylaws. However, these bylaws are not filed with the NC SOS. An initial meeting should be held with the Board of Directors to officially adopt its Organization Bylaws.
Obtain a Federal Employer Identification Number – Nonprofit organizations must apply for a Federal Employer Identification Number (EIN) prior to applying for tax-exempt status. To apply for an EIN, submit IRS Form SS-4 via the IRS website.
Apply for tax-exempt status – Nonprofit organizations should also file Form 1023 if applying for 501(c)(3) tax-exempt status. Organizations may instead file a 1023-EZ if they expect annual gross receipts total $50,000 or less and total assets amount to $250,000 or less. The IRS allows electronic submission through its website. It is recommended to have an attorney or accountant review applications before submission. Alternatively, nonprofit organizations can apply for other types of federal exemption status with Form 1024 or 1024-A. An organization will need to determine which status is most appropriate for itself.
While the tax-exempt application is pending, a nonprofit corporation can still operate as tax-exempt. Any contributions made to the organization during the pending process will qualify for exemption once the application is approved by the IRS.
File Form 990 series return – Nonprofits are generally required to file a Form 990 series return each year, unless they are exempted (i.e. churches, schools, etc.). The Form 990 type required to be filed depends on gross receipts and total assets:
- Form 990-N – Average annual gross receipts of $50,000 or less over the prior 3 years
- Form 990-EZ – Gross receipts less than $200,000 AND total assets less than $500,000
- Form 990 – Gross receipts greater than $200,000 OR total assets greater than $500,000
Filings are due 4 ½ months after fiscal year-end; however, a six-month extension can be requested. Failure to file Form 990-N, 990, or 990-EZ for 3 consecutive years will result in the loss of tax-exempt status.
Apply for a Charitable Solicitation License – If an organization is soliciting funds in the state of North Carolina, it is required to file a Charitable Solicitation License (CSL) or Charitable Solicitation License Exemption. Filings are generally required annually, and filing fees vary depending on the amount of contributions received by the organization. More information can be found on the NC CSL website.
Determine eligibility for semi-annual sales tax refunds – Nonprofit corporations should consider contacting the North Carolina Department of Revenue to obtain approval to file semi-annual sales tax refunds on sales taxes paid to any retailers. Tracking sales tax paid throughout the year may be time-consuming, but it could lead to receiving large refunds that can be put back into the organization to serve its purpose.
Please contact the professionals at Gilliam Bell Moser if you have any questions.
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