Life Cycle of a Nonprofit: Formation, Governance, and Dissolution

1. Life Cycle of a Nonprofit: Formation, Governance, and Dissolution By: Jacob Berman & Megan Fouse

2. Overview • Formation • Idea • Form an entity • File with IRS for Tax Exempt Status • Register as a Public Charity with Massachusetts • Governance • Maintenance of registration • Employment • Compensation • Volunteers • Dissolution

3. Idea • Name: Order on the Court • Purpose: Help disadvantaged communities in the United States. • Mission: To empower disadvantaged youth through recreational activities with mentors in the legal community. More specifically, the organization is dedicated to empowering youth through mentorship and tennis lessons, developing leadership, teamwork, and athletic skills.

4. Q: Is a non-profit right for us? • Allowable purposes for a nonprofit corporation include: • 1. any civic, educational, charitable, benevolent or religious purpose; • 2. the prosecution of any antiquarian, historical, literary, scientific, medical, chiropractic, artistic, monumental or musical purpose; • 3. for establishing and maintaining libraries; • 4. for supporting any missionary enterprise having for its object the dissemination of religious or educational instruction in foreign countries; • 5. for promoting temperance or morality in the Commonwealth; • 6. for fostering, encouraging, or engaging in athletic exercises or yachting;

5. Q: Where do we start? • Name, purpose, address, fiscal year end, officers, directors • https://www.sec.state.ma.us/cor/corpweb/cornp/npfrm.htm • $35 Filing Fee

6. Q: Is that it? • Bylaws • Sole Incorporator Consent • Directors Consent • Policies

7. Q: How do we get tax exempt status with the IRS? • 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 • 501(c)(3) organizations fall into one of three primary categories: public charities, private foundations, and private operating foundations. • Public charity if substantial portion revenue from general public or government

8. Q: How do we get tax exempt status with the IRS? • EIN • File 1023 or 1023-EZ

9. 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

10. 1023 or 1023-EZ • https://www.irs.gov/forms-pubs/about-form-1023-ez

12. Form 1023 Resources • Massachusetts Society of CPAs • “CPA” stands for Certified Public Accountant  • Massachusetts Nonprofit Network • This site is a resource for all nonprofits in Massachusetts. • Nonprofits can sign up for a membership.  

13. Q: We have filed our 1023-EZ are we done? • Register as a Public Charity in MA • Anyone who files for tax exempt status • Forms • Registration Form and Checklist • Schedule A-2 • Additional Materials • Current List of Officers and Directors • Bylaws • Articles of Organization • Check $150 • IRS letter designating the organization's 501(c)(3) status

14. Q: What regulations apply to our fundraising activities? • Certificate of Solicitation • Only organizations that have completed 501(c)(3) and public charity registrations may solicit tax exempt donations • Recordkeeping • Quid Pro Quo Contributions • Acknowledgement of the donation above $250

16. Q: How do we add an officer or director to the board? • Written Consent of Directors • Amount of vote required to add a new director is specified in organization bylaws • Elects the individual as a director • Elects another individual officer of the organization

18. Q: How should we structure paying our executive director? • 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 • IRS Form 990 • W-2 • I-9

19. Q: What should we know about soliciting volunteer mentors? • Non Profit organizations may utilize volunteers • FLSA • DOL • Volunteer Act • Non Profit Policies • Volunteer Agreement • Conduct Policies

20. Q: How do we dissolve our entity? • https://www.mass.gov/guides/dissolving-a-charity • Confirm compliance with all registration and reporting requirements • Board approves dissolution • Complete form PC-F • Complete dissolution worksheet • Draft administrative petition to the AGO

21. Q: How do we dissolve our entity? • Submit the Package to the AGO • If all is correct, we will receive notice from the AGO that we are dissolved • Must inform the IRS and MA Secretary of State

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