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Nonprofit Basics

Nonprofit Basics. What is a nonprofit?. Nonstock corporation Provides for dedication of assets to nonprofit purpose (MGL Ch. 180, Sec. 4) Benefits cannot be to private individuals. Nonprofit vs. Benefit Corporation. Not the same as a nonprofit

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Nonprofit Basics

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  1. Nonprofit Basics

  2. What is a nonprofit? • Nonstock corporation • Provides for dedication of assets to nonprofit purpose (MGL Ch. 180, Sec. 4) • Benefits cannot be to private individuals

  3. Nonprofit vs. Benefit Corporation • Not the same as a nonprofit • For profit corporation that allows some of profits to go to a “benefit” purpose • Some states require benefit reports • Not tax-exempt

  4. Lifecycle of a Massachusetts Nonprofit • Formation • Form an entity • Register with Massachusetts Attorney General • File with IRS for Tax Exempt Status • Governance • Adoption of appropriate policies • Maintenance of registration • Employment • Compensation • Volunteers • Dissolution

  5. Articles of Organization • Name • Purpose • Address • Fiscal year end • Officers • Directors File Online https://www.sec.state.ma.us/cor/corpweb/cornp/npfrm.htm

  6. Directors • Must have at least one  • What talent sets do you need?​ • Interrelationships an issue 

  7. Formation Documents • Bylaws • Sole Incorporator Consent • Directors Consent • Policies to minimize risk of abuse and nonexempt activities • Conflict of Interest and policy acknowledgement • Whistleblower • Travel/Expense • Gift Acceptance

  8. Tax Exempt Status • Tax-exempt status exempts a nonprofit from paying corporate income tax on income generated from activities that are substantially related to the purposes for which the group was organized. • Nonprofits are not automatically exempt (for federal OR state tax) • Not all are 501(c)(3) • (c)(4): civic leagues​ • (c)(6): business leagues, chambers of commerce​ • (c)(7): social and recreational clubs​ • (c)(8): fraternal organizations

  9. 501(c)(3) 501(c)(3) organizations fall into one of three primary categories: • Public charities: Designed to directly benefit the public • Activities are restricted to the charitable purpose • Have active program of fundraising and receive contributions from many sources • Cannot be closely held • Private foundations: Designed for the purpose of financially supporting other public charities • Receives donations from limited number of sources • Can be closely held • Excise tax • Private operating foundations: Hybrid (rare). Must directly benefit public • Can be closely held • Can have funding from a limited number of sources

  10. How to file with the IRS • EIN • File 1023 or 1023-EZ with IRS

  11. EIN • https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online • Select “Begin Application” • Then select kind of organization applying for • Select if Individual or existing business is applying • Fill in the name, address, and other details • Will automatically log out if inactive • Must complete it in one sitting • Get an EIN immediately online upon completion of the application

  12. 1023 or 1023-EZ • Recognition of 501(c)(3) tax-exempt status

  13. 1023 or 1023-EZ

  14. Form 1023 Resources • Massachusetts Society of CPAs • Massachusetts Nonprofit Network

  15. Register with Massachusetts https://www.mass.gov/info-details/registering-a-public-charity

  16. Register with Massachusetts

  17. Solicitation for Donations • Each state has different requirements for soliciting donations from state residents • In Massachusetts, nonprofit must first obtain a Certificate of Solicitation from MA Attorney General (Submit Form PC to get Cert or just A-2 if before Form PC due) • Exception for < $5k annual contributions • Once nonprofit obtains 501(c)(3) status, donations become tax deductible for donors (retroactive effect back 27 months).  • Be clear in Solicitation Letter

  18. Maintenance of Registration • Annual report (MA) • Filed by November 1  • Publicly available • Annual Form PC (MA) • Filed 4.5 months after close of fiscal year  • Publicly available • Form 990/990-EZ(IRS) • Filed 4.5 months after close of fiscal year

  19. Overall Cost

  20. Employment Executive director payment • Independent Review • No more than “fair and reasonable” compensation for services rendered to the organization • Conflict of Interest policy • Pay at similarly situated organizations • Experience, education, other qualities • Reporting • Form PC (MA Attorney General) • IRS Form 990 (Federal) • W-2 (Federal) • I-9 (Federal)

  21. Volunteers • Non Profit organizations may utilize volunteers, but don’t assume everyone working for non profit counts as volunteer • Non Profit Policies • Volunteer Agreement • Conduct Policies

  22. Dissolution https://www.mass.gov/guides/dissolving-a-charity • Where does the money go?​ • Articles • Any charitable purpose​ • Process • Court petition required, possible Attorney General involvement​ • Revocation for not filing a report for two years

  23. Questions? • For more information please visit the Start Up Law Clinic’s website: https://sites.bu.edu/startuplaw/ • Eligibility: BU and MIT students

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