INCORPORATING IN USA
NON PROFIT CORPORATIONS – FOUNDATIONS
THE STATE OF DELAWARE
NON PROFIT CORPORATION NAME
The corporate name ending must contain the word "Foundation," "Association," "Company," Corporation," "Club," "Fund," "Incorporated," "Institute," "Society," "Union," "Syndicate," "Limited," or the abbreviation "Co.," "Corp.," "Inc.," "Ltd.," or words or abbreviations of like import in other languages.
The name must be distinguishable from the names of other corporations organized, reserved or registered as a foreign corporation under the laws of Delaware.
Use of word "Trust" is prohibited except for corporations under supervision of the Bank Commissioner.
ARTICLES OF INCORPORATION
Articles of Incorporation must contain the following information:
- The name of the corporation
- Its Registered Office in the State of Delaware is to be located.
- The Purpose of the corporation is to engage in any lawful act of activity for which corporations may be organized under the General Corporation Law of Delaware - If the corporation is to be a non profit corporation, the expression This Corporation shall be a non profit corporation must be added
- The corporation shall not have any capital stock
- The conditions of membership shall be - In lieu of setting out the conditions of membership in the Certificate of Incorporation - a Statement may be inserted that the conditions of membership shall be stated in the By-Laws
- The Name and mailing address of the incorporator
- All of the corporation's issued stock, exclusive of treasury shares, shall be held of record by not more than thirty (30) persons.
- All of the issued stock of all classes shall be subject to one or more of the restrictions on transfer permitted by Section 202 of the General Corporation Law.
- The corporation shall make no offering of any of its stock of any class which would constitute a “public offering” within the meaning of the United States Securities Act of 1933, as it may be amended from time to time.
The purposes for which the - name of organization - is organized are exclusively religious, charitable, scientific, literary, and educational within the meaning of section 501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision of any future United States Internal Revenue law.
Notwithstanding any other provision of these articles, this organization shall not carry on any activities not permitted to be carried on by an organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision of any future United States Internal Revenue law.
Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by the Court of Common Pleas of the county in which the principal office of the corporation is then located exclusively for such purposes or to such organization or organizations, as said Court shall determine which are organized and operated exclusively for such purposes.
US NON PROFIT CORPORATIONS
Special exemptions from all U.S. Federal income tax are granted for companies that qualify under the IRC. Section 501(c). The company must have a qualified charitable or religious mission and a specific non-stock structure. Within 15 months of formation, the company must file IRS form# 1023 to qualify.
Forming a "Non Profit Corporation” is a two-step process.
First, you form a Delaware Non-Stock Non-Profit Company and then, within 15 months (which means it can be immediately afterwards the incorporation), you must apply to the IRS for non-profit Status. This is accomplished by submitting form # 1023.
In order to qualify for non-profit status with the IRS, your Delaware Certificate of Incorporation must include the proper and appropriate clauses that declare your mission and identify the IRS subsection under which you intend to apply.
We can handle all this for you in the correct manner.
The State of Delaware is a leading domicile for U.S. and international corporations. More than 500,000 business entities have made Delaware their legal home including 300,000 corporations and 200,000 limited liability companies and partnerships. More than 50% of all publicly-traded companies in the United States including 60% of the Fortune 500 have chosen Delaware as their legal home. You too can capitalize on the instant credibility that a Delaware corporation provides.
WITH DELAWARE, YOU ALSO GET:
- Low filing and franchise tax fees
- Director, Shareholder and Officer anonymity
- There is no minimum amount of money required to be in the company bank account. Many states require $1,000. Delaware has no requirement.
- You can be all of the officers of a Delaware corporation yourself
- No state income tax for entities that do not operate within Delaware
- No state inheritance tax on stock held by non-residents
- An established body of law and specialized court that protects corporations.
- No presence required in Delaware - just need a registered agent here.
NON PROFIT CORPORATIONS
If your corporation is granted an exemption by the Internal Revenue Service as a non-profit organization under Section 501(c), your corporation will be exempt from corporate income tax in Delaware as provided for in Section 1902(b)(6) of Title 30 of the State Code.
Some non-profit organizations include, but are not limited to:
- fraternal beneficiary societies,
- orders or associations, cemetery corporations and corporations organized or trusts created for religious, charitable, scientific or educational purposes or for the prevention of cruelty to children or animals, home owner associations,
- business leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare and clubs organized and operated exclusively for pleasure, recreation and other non-profit purposes.
The net profit of these organizations cannot benefit any private stockholder or member.
Additionally, organizations exempt under Section 501(c) of the Internal Revenue Code are exempt from obtaining a business license and paying the accompanying gross receipts tax on the sales of most goods and services. Some services such as leasing tangible personal property or providing accommodations are taxable regardless of the entity providing such services.
Non-profits corporations are required to register with The Division of Revenue and withhold Delaware State income taxes on employees performing services within Delaware. Registration is also required with the Department of Labour.
Additionally if the non-profits activities are conducted in Delaware a copy of Federal Form 990 PF must be filed with the State of Delaware, Attorney General.
REGISTRATION OF CHARITABLE SOLICITATIONS OR FUND RAISERS
Delaware currently has no State statute requiring registration of charitable solicitations or fund raisers with the Department of Justice or another state agency. However, when soliciting donations, there are now specific disclosure requirements mandated prior to asking for donations. These include identification of the solicitor, and the agency for which the funds are solicited. Donors are entitled to question how the funds are allocated between administrative costs and actual charitable use.
Further, all state laws applicable to fraud and fraudulent transactions are required to be observed.
FREQUENT ASKED QUESTIONS
1. WHAT IS A NON PROFIT CORPORATION?
A non profit corporation is created by filing articles of incorporation with the secretary of state in accordance with the Non-Profit Corporation Act. "Non-profit corporation" means a corporation no part of the income of which is distributable to members, directors, or officers. A nonprofit corporation may be created for any lawful purposes, which purposes must be fully stated in the articles of incorporation. Not all nonprofit corporations are entitled to exemption from state or federal taxes.
2. IS A NON PROFIT CORPORATION EXEMPT FROM TAXES?
Exemption from federal and state taxation is not automatic and eligible corporations must apply with the Internal Revenue Service ("IRS") and the State Comptroller to obtain an exemption. Not all non profit corporations are entitled to exemption from state and federal taxes. The secretary of state, however, does not make the determination of exemption.
3. HOW DOES A NON PROFIT ORGANIZATION, INCLUDING A NON PROFIT CORPORATION, OBTAIN EXEMPTION FROM FEDERAL INCOME TAXES?
Exemption from federal taxes is determined by the IRS. You should consult the IRS prior to filing the articles of incorporation to determine what provisions should be included in the articles for the corporation to be exempt from federal taxes. IRS Publication 557 titled "How to Apply for Recognition of Exemption for an Organization," describes the rules and procedures for non profit organizations requesting exemption.
4. HOW DO I FORM A “501(c)(3)" CORPORATION?
When articles of incorporation are filed with the secretary of state pursuant to the Delaware Non profit Corporation Act a non profit corporation is created. Designations such as 501(c)(3) relate only to federal tax provisions.
5. DO YOU HAVE TO BE A US CITIZEN OR A US RESIDENT TO INCORPORATE AND/OR OWN A CORPORATION IN DELAWARE?
No. The Delaware Business Corporation Act and the Delaware Non profit Corporation Act do not place any restrictions on who can incorporate or own shares in a corporation except that the incorporator must be at least 18 years old. A corporation may provide residency or citizenship limitations in its articles of incorporation or bylaws.
6. CAN A PERSON UNDER 18 YEARS OLD BE A DIRECTOR, OFFICER OR SHAREHOLDER OF A CORPORATION?
Yes. Neither the Delaware Business Corporation Act nor the Delaware Non profit Corporation Act place any restrictions on who can own shares in or manage a corporation. Such restrictions may be set forth in the corporation's Bylaws. The capacity of a minor to own property and/or sign a contract would be considerations in whether a corporation should have a minor as an officer or director.
7. CAN THE SAME PERSON BE A SHAREHOLDER, DIRECTOR AND OFFICERS OF A CORPORATION?
In the case of a non profit corporation, the Delaware Non profit Corporation Act requires that there be at least three directors in a non profit corporation. The required officers of a non profit corporation are a President and a Secretary; however, the same person cannot hold the offices of President and Secretary. Only an individual may serve as a director of a corporation.
8. CAN A NON PROFIT CORPORATION PAY A SALARY TO ITS OFFICERS, DIRECTORS AND/OR EMPLOYEES?
Yes. Any corporation may pay reasonable compensation for services rendered to the corporation.
9. CAN A NON PROFIT CORPORATION GIVE POLITICAL CONTRIBUTIONS?
Generally, political and social action activities are permissible purposes for a non profit corporation as long as the purpose is set forth in the articles of incorporation.
10. WHO HAS AUTHORITY TO INVESTIGATE THE ACTIVITIES OF A NON PROFIT CORPORATION?
The Secretary of State is a filing officer for the documents that create non profit corporations, but the Secretary does not have any regulatory authority or enforcement authority over those corporations. There are some circumstances under which the Attorney General has authority to take action against non profit corporations. The Attorney General has statutory authority under the Delaware Non profit Corporation Act to investigate the operations of charities that are operated as non profit corporations. Additionally, the Attorney General has authority under the Delaware Miscellaneous Corporation Laws Act to inspect and examine all books and records of corporations, including non profit corporations. Contact the Charitable Trust Section, Consumer Protection Division of the Office of the Attorney General to determine if the section has authority to take action in a particular matter.
If a non profit corporation is exempted from federal taxes, the Internal Revenue Service may revoke the exemption of a non profit corporation for actions that run afoul of federal tax laws.
11. ARE THE BOOKS AND RECORDS OF A NON PROFIT CORPORATION AVAILABLE FOR INSPECTION?
The Delaware Non profit Corporation Act, requires that non profit corporations maintain complete books and records of account, minutes of the proceedings of its members, boards of directors, and committees having the authority of the board of directors. These books and records should be available for examination and copying by members of the corporation.
In addition, the Act provides that non profit corporations should maintain accurate financial records including records relating to all income and expenditures. Based on these records, the board of directors shall prepare or approve an annual report of the financial activity of the corporation. All records, books, and annual reports of the financial activity of the corporation shall be available for inspection or copying by the public. There are numerous exceptions to this provision.
It does not apply to corporations that solicits funds only from its members or a corporation that does not intend to solicit and does not actually receive contributions from sources other than its members in excess of $10,000 during a fiscal year. Nor does the provision apply to proprietary schools; religious institutions; trade associations or professional associations whose principal income is from dues and member sales and services; insurers; charitable organizations concerned with conservation and protection of wildlife, fisheries, and allied natural resources; and alumni associations.
12. DOES A NON PROFIT CORPORATION FILE THE IRS FORM 990 WITH THE SECRETARY OF STATE?
The form 990 or 990-PF is not filed with the Secretary of State. There may be special circumstances when a non profit corporation files the 990 with the Charitable Trust Section of the Attorney General. Please check with the Attorney General regarding the necessity for your corporation to file the report.
FREQUENTLY ASKED QUESTIONS RELATING APPLICATION FOR TAX EXEMPTION
How long does it usually take to get recognition of tax-exemption?
The entire process generally takes about 2 - 4 months from start to finish. A lot of it depends on how fast the client gets information to us, and on how long a particular state takes to file the articles of incorporation. Most of the applications we file with the IRS are reviewed in about 2 - 3 months. It's important to keep in mind, however, that the official date of the tax-exemption from the IRS will date back to the original date of incorporation if the tax-exemption application is filed within 27 months of the end of the month of the date of incorporation.
How do we get started?
First you should contact our firm; we will discuss your organization with you and determine all matters relating the application for tax exemption.
Then you will need to sign a retainer letter that you understand the firm's fees and the work we will complete for you and provide the retainer fee. In addition, to get started we will need the following basic information about your organization:
1. Name and address for the organization
2. Basic mission statement and list of primary activities you plan to engage in
3. List of names and addresses of the initial board of directors (we recommend at least 3-5 board members to start)
Estimated budgets for the first three years of the organizations existence, including basic sources of income (i.e., individuals, corporate grants, private foundation grants, membership dues) and major categories of expense (i.e., program expenses, salaries, rent/utilities, legal, accounting).
We recommend setting up a simple spreadsheet, which we shall be very pleased to assist you to, considering following basics: Income, Individual Donations, Corporate grants, Total Income, Expenses, Program expenses, Salaries & benefits, Rent/utilities, Legal, Accounting, Total Expenses et surplus (deficit)
What happens after you get all the necessary information?
We'll draft articles of incorporation and bylaws and complete the required IRS forms. We'll send everything to you for your review and signature, and then the documents will be filed.
How often does the IRS deny tax-exemption?
For applications we've filed...rarely, if ever. We simply don't take on cases that we don't think will qualify for tax-exempt status.
The purpose of this site is to give you legal information. However, no attorney-client relationship is created by your use of this site or any of its features, including the "Ask a Lawyer" section and chat features. Because legal advice must be tailored to the specific circumstances of each case and laws are constantly changing, you should seek the assistance of competent legal counsel for specific legal advice.
Our firm provides high quality, affordable, legal services for a wide variety of non profit organizations.
Please contact us if you would like to engage our firm to assist you with the legal needs of your non profit organization.
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