Nonprofits are created for the greater good of humanity. Nonprofits do not have hidden agendas, nor are they formed for monetary gain.
Nonprofit organizations also receive various benefits, including tax exemptions on both federal and state taxes, access to grants, and credibility for their cause.
Nonprofit corporations formed in Arizona can take anywhere between two weeks to three months until they receive their 501(c)(3) status. As it stands, there are approximately 29,043 successful nonprofit organizations in the state of Arizona.
1. Select a name for your organization
After establishing that you’d like to start a nonprofit organization instead of any other type of business entity such as a for-profit or limited liability company, you should start thinking of a name for your organization. Once you’ve decided on a name, check with the Arizona Secretary of State to ensure that it is indeed available.
Any name you choose for your Arizona nonprofit must comply with Arizona naming requirements.
You’ll need to get approval in writing from the Arizona Department of financial institutions if your nonprofit contains any of the following words:
- Savings Bank
- Credit Union
- Building Association
- Savings Association
- Building and Loan Association
- Savings and Loan Association
- Trust Company
Refer to the State of Arizona Website also referred to as the Arizona Corporation Commission to check the availability of your nonprofit name.
2. Nominate an Arizona registered agent
Every Arizona nonprofit organization must nominate a registered or statutory agent. The statutory agent is also referred to as a resident agent or service of process agent.
This is because they are tasked with receiving all legal and official documentation from the state on the nonprofit’s behalf. Ultimately, the Arizona statutory agent is your business’s point of contact with the state.
When nominating the statutory agent in Arizona, they must meet the following requirements:
- The nominated statutory agent must be a resident of Arizona
- The registered agent must be authorized to transact business in Arizona
- The registered agent must be over the age of 18
- The registered agent must have a physical address or street address and not just a P.O. Box address
- The nominated registered agent must also remain available to receive legal documentation on the nonprofit’s behalf during normal working hours
- The Arizona service of process agent must consent to the appointment
3. Recruit your board members
When setting up your nonprofit foundation, you’ll need to select a Board of Directors.
The Board of Directors is responsible for overseeing the company’s operations, and you need to select a secretary, president, and other members of the board who will all have individual responsibilities.
The organizational structure for your Arizona nonprofit should include:
- A minimum of three directors who are not related to each other
- One officer who will be tasked with recording meeting minutes
When the blood meets for the first time, it is referred to as the board’s organizational meeting.
The following actions should be undertaken during the organization’s first board meeting:
- Appointing officers
- Approving the bylaws
- Approving the initial transactions of the nonprofit such as opening a business bank account
- Creating an accounting and tax period
During this meeting, the minutes need to be taken down accurately to record all the actions that were taken by the board.
4. Consent to bylaws and conflict of interest policy
In order to be eligible for 501(c)(3) status in Arizona, your nonprofit organization must have the following documents :
- Conflict of Interest policy
The bylaws are basically the rules and regulations that outline the organization’s operational procedures. It may contain the organization’s mission statement as well to further clarify your nonprofit’s cause.
The Conflict of Interest policy is an accumulation of rules and regulations laid down to ensure that all decisions made from the onset benefit the organization’s purpose and cause instead of individual members’ agendas.
Prior to filing the Articles of Incorporation, you need to have your Bylaws in place that comply with Arizona law.
Bylaws do not need to be filed in the state of Arizona; however, they should be kept on file and used as the internal operating manual for your nonprofit.
5. Select an Arizona nonprofit startup corporation structure
There are many types of nonprofit organizational structures in Arizona as follows:
- Mutual benefit corporations: These corporations may or may not choose to apply for state and IRS tax-exemptions. This type of nonprofit corporation is an organization similar to other mutual benefit corporations found in common law nations.
- Public benefit corporations: Public benefit NPOs or public charities are created for charitable causes and act as social welfare organizations. Public benefit corporations include religious and charitable organizations formed to generate public and social good.
- Mutual benefit common interest development corporations: These are the nonprofit formations created under the Davis Stirling Common Interest Development Act to administer common interest development, such as a homeowner’s association.
- Religious organizations/corporations: These nonprofits are solely for religious purposes or places of worship like churches.
6. Prepare and file nonprofit Articles of Incorporation
The Articles of Incorporation is what formerly marks the creation of the organization. There are various requirements that need to be met when filing Articles of Incorporation that meet both Arizona and federal government requirements.
The state of Arizona does have regulations, but so does the Internal Revenue Service; however, the Articles of Incorporation you file must meet both sets of requirements in order to successfully apply for tax-exempt status and become an exempt organization.
One of the IRS requirements is that your organization’s purpose must be declared in the Articles of Incorporation, including any restrictions on activities and distribution of assets in the event of dissolution.
The following guidelines will help you file your Arizona nonprofit’s Articles of Incorporation:
- The name of the nonprofit
- A declaration of the nonprofit’s purpose
- The street address and names of the directors
- The street address, name, and signature of the service of process agent
- The address of the organization (can be the same as the registered agent’s street address)
- Names, addresses, and signatures of the incorporators
- Disclosure of whether any member or stakeholder has a criminal record
- Disclosure of whether any stakeholders were a part of receivership or bankruptcy with any other corporation
For instructions on filing your Articles of Incorporation, go to the Arizona Corporation Commission. File your articles online or via mail at the following address:
Arizona Corporation Commission
1300 W. Washington St.
Phoenix, Arizona 85007
Arizona nonprofits need to publish incorporation. Nonprofits must publish in the county of the known place of business in the state of Arizona. It needs to be done within 60 days of incorporation from the date that the ACC approves your nonprofit’s Articles of Incorporation.
Additionally, it must be published for three consecutive publications in your registered county. The only two county’s in Arizona that are exempt from publishing incorporation are Maricopa and Pima.
7. File an initial report
Nonprofits are not required to file an initial report in the state with the Arizona Attorney General.
8. Secure an EIN (Employer Identification Number)
Obtaining an EIN is a crucial step for your Arizona nonprofit. The nine-digit Employer Identification Number is assigned to the nonprofit by the IRS and is essentially a Social Security number for your organization. Therefore, your nonprofit needs an EIN.
Some of the benefits of obtaining an EIN include:
- Being able to pursue tax exemption
- Receive tax-deductible donations
- Open a business bank account
- Hire employees for your nonprofit
You may apply on the IRS website online using Form SS-4 to obtain an EIN. The application is free online, and you’ll receive your EIN immediately.
9. Apply for federal tax exemption
Every nonprofit in the state of Arizona must file for 501(c)(3) federal tax exemption. Some of the benefits of obtaining tax-exempt status in Arizona include:
- Access to grants and sponsorships
- Tax-exempt status on business-related expenses
You need to apply to the IRS under the Internal Revenue Code to receive tax exemption by using one of the following forms:
- File Form 1023: This IRS form has a three to six-month ETA. It is intended for larger organizations or those expecting to generate more than $50,000 in the next three years.
- File Form 1023-EZ: This form is intended for small business nonprofits who expect to earn under $50,000 over the first three years.
Additionally, you’re required to include the nonprofit’s Articles of Incorporation. This should include the same language used when you initially filed your articles with the state of Arizona.
If the IRS approves your application for federal income tax exemption, they’ll send you a determination letter.
10. Apply for Arizona state tax exemption
Your Arizona nonprofit is automatically exempt from state income tax after receiving 501c3 or federal tax exemption from the IRS. Once you have your determination letter in hand, you don’t need to apply for state tax exemption.
11. Other applicable permits and licenses
After obtaining federal tax exemption, your Arizona nonprofit may still require business licenses. Ultimately, it depends on your location, business type, and the types of activities your nonprofit is going to be involved in.
Additional state registration and reporting requirements
As of 2013, Arizona nonprofits are no longer required to register for fundraising or charitable solicitation.
12. Submit an annual report
Arizona nonprofits are required to file an annual report with the Arizona Corporation Commission. This is to ensure that all information pertaining to the nonprofit organization is up-to-date. The annual report may be filed online.
Costs of starting a new nonprofit in Arizona
- Publishing of incorporation: ~$200
- Articles of Incorporation: $40 + optional $35 expedite fee
- Tax-exempt status or 501(c) filing fee: $275 or $600 IRS fee
- Arizona state taxes: $12 per license/location
Payment for tax-exempt status must be paid via pay.gov at the time of submission.
After you’ve started your nonprofit, there are a few necessary steps that you should take to keep your organization running smoothly. Let’s take a closer look at them below:
Open a business bank account
- Maintain accounting and tax filing
- Ensure that your personal assets are kept separate from your nonprofits’ assets
To open a bank account, you will need to provide:
- Your EIN
- A copy of your articles of incorporation
- A copy of your organization’s bylaws.
Hire a business accountant
- Simplify payroll and bookkeeping
- Prevent your nonprofit from avoiding penalties and tax errors
- Manage your nonprofit’s funding
- Focus on growing your nonprofit
- Manage risks
You may opt for General liability, Personal liability, or Worker’s compensation insurance.
Build a website
As we mentioned earlier, you may want to create a website for your organization to legitimize your business or give it more credibility. A dedicated website is also one of the best ways to share your nonprofit’s vision, mission, and story with supporters. Consequently, it’s also a great way to announce upcoming events and goals.
Sign legal documents
One aspect that tends to get overlooked is signing legal documents in your personal capacity instead of as an authorized representative of your nonprofit.
If you’ve appointed yourself as a registered agent of the nonprofit, then the following tips will help avoid personal liability:
- State the registered name of your nonprofit
- Use your name and signature
- State your position/role in the organization as its authorized representative
When signing legal documents on behalf of the nonprofit, it is important that you do so in your capacity as the registered agent, as opposed to your capacity as an individual.
Example: Instead of signing your name only, state the name of the nonprofit and then your name and position within the organization before signing.
Yes, a registered office is required for all nonprofits in the state of Arizona. The name and address of the registered agent must be included in the Articles of Incorporation and when publishing incorporation. Additionally, the nonprofit’s registered agent must maintain regular working hours and be physically located in the state to receive all official documentation on the organization’s behalf.
Costs will be incurred on both the state and federal levels for nonprofit organizations in Arizona. You’ll need to pay for filing Articles of Incorporation, state tax licenses, and an additional fee for 501c3 tax exemption. In total, you should expect to pay anywhere between $300 – $687 or more, depending on eligibility. If you’re concerned about the costs, another option would be to join a fiscal sponsorship, which is an organization that has already attained 501c status and can take your cause under their wing.
It is not difficult to start a nonprofit in Arizona. You’ll need to create a business plan to help you put your mission into perspective, get your paperwork in order and learn about the laws surrounding nonprofits in your state. Once the nonprofit is up and running, you’ll need to comply with federal and state laws to keep it in good standing. Refer to the IRS Compliance Guide for further information or refer to The National Council of Nonprofits.
No, nonprofits are not owned but founded. This is the one major difference between nonprofits and for-profits. While nonprofit organizations may raise funds or earn revenue, it must be cycled back into the organization. These funds must be used to serve the intended cause or purpose and not distributed to any member of the nonprofit corporation. When in doubt about the legalities of running a nonprofit, seek legal advice.
A nonprofit organization is accountable to several entities, starting with the general public. Since the organization is formed to serve the greater good of the community, they are accountable to the general public. Nonprofits are also required to comply with state agencies’ rules and regulations and report to the IRS to maintain their tax-exempt status.