Nonprofit organizations are created when an unmet need in the community has been identified. Nonprofits are not formed for personal gain, and all donations and money raised are placed back into the organization to fulfill and further the cause.
Some of the benefits of starting a nonprofit include:
- Discounted postal rates
- Tax-deductible contributions
- Tax-exempt financing
When starting a nonprofit in Arkansas, it may take anywhere between two weeks to three months to get up and running. This is because you’ll need to wait for your 501c3 tax exemption before you can participate in fundraising activities.
There are various types of nonprofits in the nonprofit sector. Some of the most well-known nonprofits in Arkansas are Safe Places Little Rock, WAL-MART ASSOCIATES IN CRITICAL NEED FUND, and Keep Kids Fire Safe Foundation.
Arkansas has approximately 16,075 nonprofit organizations, and the numbers are continually growing.
1. Select a name for your organization
One of the fundamental steps in getting your Arkansas nonprofit up and running is choosing a name for your corporation. Your nonprofit’s name is also its brand and the first thing that people will notice about your nonprofit.
Therefore, thought must be put into the name of your organization. Additionally, the organization’s name must comply with Arkansas naming requirements and guidelines such as:
- It must be noticeably different from other existing organizations or business entities in the state of Arkansas
- It must not mislead the public, and the purpose must be maintained as per the Articles of Incorporation
- It should not include offensive terms
- It does not need to include a designation like Inc, Incorporated, Ltd, or Company
Further guidance on choosing a name for your Arkansas nonprofit may be found on the Nonprofit Corporation Act – Section 401.
2. Nominate an Arkansas registered agent
All Arkansas nonprofits must appoint a registered agent. A registered agent is also referred to as a statutory or service of process agent.
The main role of an Arkansas registered agent is to receive legal or official documents on the nonprofit’s behalf.
You may appoint any individual as a registered agent, including yourself. However, they must meet the following requirements:
- The statutory agent must be a resident of the state of Arkansas
- The registered agent must remain available during business hours
- The service of process agent must be authorized to conduct business in the state
3. Recruit your board members
When running a nonprofit organization, you need to have an organizational structure in place to govern the operations of the corporation and ensure that all dealings are above board. This is why nonprofits need directors.
Once the directors are recruited, they form a board of directors after coming together. The president, treasurer, and secretary are the officers that need to be nominated and are considered individuals with the authority to carry out certain functions on the nonprofit’s behalf.
The board is formed by bringing together the directors and officers and ultimately creates the structure for your nonprofit in Arkansas.
The structure of the Arkansas 501c3 corporation must include:
- A treasurer
- A secretary
- A president
- A minimum of three directors not related to each other
It is possible for one individual to hold more than one office.
4. Consent to bylaws and conflict of interest policy
As mentioned earlier, it is the responsibility of the board of directors to govern the Arkansas nonprofit according to rules that apply on a federal and state level.
In order to do this, rules need to be put in place. These rules are referred to as the organization’s bylaws. The rules must be compiled when the board meets for the first time and are imperative for the nonprofit formation process.
The person or persons creating the bylaws must be familiar with both federal and state law that oversees the operation of a tax-exempt corporation.
Arkansas nonprofits are not required to file bylaws with the state, but a copy of the bylaws must be kept on file and used as the nonprofit’s internal operating manual.
You’ll also need to provide a copy of the bylaws to the IRS website when applying for tax exemption.
The only time the bylaws are not required is if you are applying for tax exemption using Form 1023-EZ, used by small businesses.
Additionally, the nonprofit needs to have a Conflict of Interest policy. This policy is there to make sure that any and all decisions made by the board during board meetings are always in line with the nonprofit’s purpose or organization’s mission statement and not motivated by personal agendas.
5. Select an Arkansas nonprofit startup corporation structure
- Mutual benefit corporations: This type of organization is similar to other mutual benefit organizations found in common law nations. These corporations may or may not choose to apply for state and IRS tax-exemptions.
- Public benefit corporations: Public benefit Nonprofit organizations are developed for charity purposes and act as social welfare organizations. Public benefit organizations include religious and charitable organizations formed to bring about 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 nonprofit corporations are created solely for religious purposes, such as churches.
6. Prepare and file nonprofit Articles of Incorporation
All Arkansas nonprofits must file the articles of incorporation with the Arkansas Secretary of State.
This is also to ensure that you are eligible to apply for 501(c)(3) status. Therefore the Articles of Incorporation must contain the following statements:
The purpose of the nonprofit organization must be clearly stated in your Articles of Incorporation and must be limited to one of the following categories:
- Preventing cruelty to animals/children
- Testing for public safety
- Fostering national/international amateur sports competition
File Form Form NPD-1-501c3, for Arkansas nonprofit Articles of Incorporation.
Additionally, you’ll need to include a dissolution that must state exactly what the nonprofit’s assets are going to be used for and what will happen to the assets if the nonprofit is dissolved.
Qualifying for 501(c)(3) status means that your organization must only be used to promote the purposes contained in the articles of incorporation and approved under section 501(c)(3).
For further reading and guidance, please refer to the sample IRS document. One of the quickest ways to file the Articles of Incorporation is online. You may also choose to download the form and submit it at the following address:
Arkansas Secretary of State
Business and Commercial Services
1401 West Capitol Ave, Ste. 250
Little Rock, AR 72201
7. File an initial report
Arkansas nonprofits are not required to file an initial report with the state.
8. Secure an EIN (Employer Identification Number)
An EIN is an Employer Identification Number. It’s basically a nine-digit number that the IRS allocates in order to identify your nonprofit corporation. Irrespective of the type of nonprofit you’re forming, the EIN is compulsory and doesn’t only apply to nonprofits planning on hiring employees.
The EIN is useful when it comes to:
- Opening a business bank account
- Submitting 990 returns to the IRS
- Applying for 501(c)(3) status
- Hiring employees for your nonprofit
After forming your Arkansas nonprofit, apply for your EIN from the IRS, free of charge. The form required is IRS Form SS-4. You may choose to apply online, and if so, you’ll receive your EIN immediately.
9. Apply for federal tax exemption
Nonprofit organizations in Arkansas are required to apply for federal tax exemption from the IRS. Nonprofit organizations in Arkansas are also regulated by the 501(c) chapter of the Internal Revenue Code, and, therefore, it is compulsory for organizations to apply for tax exemption or exemption from federal income tax.
Some of the advantages of obtaining federal tax exemption in the state of Arkansas include:
- Recognition for your nonprofit
- Being exempt from various types of taxes, including sales, income, property, and payroll taxes
- Postage rates that are discounted
- Access to grants for your Arkansas nonprofit organization
- Ability to give tax deductions to donors
You’ll need to complete IRS Form 1023 using the following instructions. Smaller nonprofits may use the streamlined application called Form 1023-EZ, using the following instructions.
You may file these forms with the Internal Revenue Service. The ETA is under one month when filing Form 1023-EZ and between three to six months when filing Form 1023. For an Arkansas nonprofit to have eligibility to file for 501(c)(3) status, it must:
- Have at least three directors who have no relation to each other
- Adopt Conflict of Interest policy and Bylaws
- Registered as a nonprofit with the state of Arkansas
- Have an Employer Identification Number
Once you’ve met these conditions, you’re free to go ahead and apply with the IRS or file electronically via pay.gov.
If the application is approved, you’ll be sent a determination letter by the IRS stating that the Arkansas organization has obtained tax-exempt status as per section 501(c)(3).
10. Apply for Arkansas state tax exemption
After applying for federal tax exemption and receiving your determination letter, the next step is applying for state income tax exemption.
You’ll need to complete Form ARR1023CT to begin the process. The instructions for completing the form are important, so please read them prior to filling in the form.
To successfully apply for state income tax exemption in Arkansas, you must send the following:
- Submit a copy of the IRS determination letter
- A statement disclosing the nonprofit’s federal tax-exempt status
- The first two pages of IRS Form 1023
If you do not have an IRS determination letter, you should:
- Submit Form ARR1023CT
- A copy of your Arkansas nonprofit Bylaws and Articles of Incorporation
To obtain sales tax exemption, you must:
- Submit Form SSTGB Form F0003: Exemption Certificate
- Follow these instructions for Streamlined Sales and Use Tax Agreement Certificate of Exemption
11. Other applicable permits and licenses
Depending on the size and type of activities your nonprofit plans on running, you may need certain licenses and permits. Feel free to head over to the Small Business Administration Business License & Permit look-up tool.
Additional state registration and reporting requirements
Depending on your nonprofit’s type, activities, and size, you may need to register with the Arkansas Attorney General. Please refer to Arkansas’s attorney general website for additional rules and further guidance on Arkansas fundraising registration requirements.
12. Submit an annual report
Annual reports are required by all nonprofits in the state of Arkansas. The due date of the annual report in Arkansas is the 1st of August annually. Please refer to the Arkansas Secretary of State for the necessary forms. Once completed, you may submit your nonprofit’s annual report online.
Costs of starting a new nonprofit in Arkansas
- Articles of Incorporation: $45-50
- 501(c) Application for tax exemption filing fees: $275 or $600 IRS fee
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.
The main aspect in which nonprofits and for-profits differ is the existence of their overall purpose. Nonprofits are developed to meet a need in the community and are not intended for profit or monetary gain for its members. On the other hand, for-profits are developed to maximize profits and then allocate these profits to stakeholders and company owners.
Public charities are exempt charitable organizations such as churches, universities, colleges, hospitals, and medical research facilities. Public charities all have in common that they actively raise funds and receive contributions from various sources, unlike a private foundation that receives funds from one main source. The proceeds from fundraising are also used to further the cause of the charity.
You should start by filing annual reports. You should also renew your registration annually in the state that the nonprofit is registered. Additionally, you must comply with all federal and state laws pertaining to tax exempt organizations to ensure that your organization is above board and remains a successful nonprofit. When in doubt, seek legal advice.
Yes, a business plan can help you put your plans and how you intend to meet or fulfill the nonprofit’s purpose into words. So a business plan can help others see your mission and access specific details that all go a long way in helping the nonprofit come along.
Charitable solicitation is just another way to say that you accept donations on your nonprofit’s behalf. In states like Arkansas, nonprofits must register for charitable solicitation to comply with state laws and keep their fundraising activities above board.