The state of Delaware has approximately 8,144 nonprofit organizations. Among the most well-known Delaware NPOs are Faithful friends Inc, Myositis Support, and Understanding Association, and Delaware Financial Literacy Institute.
Forming a nonprofit in any state provides various advantages. However, there are even more benefits to creating Delaware nonprofit organizations. Some of them include:
- Ease of formation
- Amendments do not require approval from state agencies
- No registration with the Delaware Attorney General required
- Flexible governance
- All 501c corporations are exempt from Delaware franchise and income tax
Getting your Delaware nonprofit up and running will take time, so expect to wait at least two weeks to three months for your 501c3 tax-exempt status. Follow our step-by-step guide to start your own nonprofit in Delaware.
1. Select a name for your organization
One of the most important steps in starting your Delaware nonprofit corporation is choosing a name for your organization. The name of your Delaware organization requires careful consideration as it is one of the first things that people learn about your nonprofit.
Also, ensure that the name of your nonprofit corporation complies with Delaware naming requirements and may be easily found by members and anyone wanting to contribute towards your nonprofit’s cause.
So when choosing a name for the organization, keep the following naming guidelines in mind:
- The name of the Delaware nonprofit must include an appropriate suffix, which will depend on the nature of your organization. Some of the possible suffixes include company, foundation, club, society, etc.
- Your Delaware nonprofit name must also be easily distinguishable from other organizations and business entities in the state.
Further direction on naming your Delaware-based organization may be obtained from Delaware’s official naming guidelines. You may also conduct a name search on the State of Delaware – Division of Corporations website.
2. Nominate a Delaware registered agent
All Delaware nonprofit organizations are required to have a registered agent. The registered agent is also referred to as the service of process agent and accepts legal papers and documents on the Corporation’s behalf.
Anyone may be nominated as a nonprofit’s registered agent provided they meet the following requirements:
- The agent must have a physical street address in the state of Delaware(this should not be a PO Box address)
- The agent must consent to the appointment
- The agent must be over the age of 18
- The agent must maintain normal office hours
In most states, one of the directors or officers is nominated as the initial agent. However, anyone may be selected as a registered agent, including yourself.
3. Recruit your board members
Any nonprofit corporation in the state of Delaware is required to elect a Board of Directors. The Board of Directors is made up of at least one director and any number of officers who will fulfill the roles of president, secretary, and treasurer.
This should be done during the board’s first meeting, which is referred to as the board’s organizational meeting. Some of the actions that will be undertaken include:
- Electing directors
- Electing officers
- Approving the bylaws
- Consenting to preliminary transactions of the organization such as the opening of a business bank account
- Determining an accounting period and tax year
4. Consent to bylaws and conflict of interest policy
Prior to filing the Certificate of Incorporation in Delaware, your nonprofit needs to have bylaws that comply with state law. Your nonprofit’s bylaws are basically the rules and procedures that the nonprofit is going to use for a number of tasks, including:
- Holding board meetings
- Electing officers and directors
- Carrying out corporate formalities
Think of it as your nonprofit’s internal operating manual.
Next, your organization will need to compile a Conflict of Interest Policy. This policy ensures that all decisions taken by the board are in the nonprofit’s best interest and that decisions are not made to further the personal agendas of the Delaware nonprofit members.
So your nonprofit needs both of these documents in order to file the Certificate of Incorporation. It does not need to be filed with the state but should be kept on file for the nonprofit’s use.
5. Select a Delaware nonprofit startup corporation structure
You’ll find two nonprofit organizational structure corporations in the state of Delaware. These are exempt and nonstock organizations. An exempt organization does not need to comply with Delaware’s annual franchise tax as the nonprofit is not subject to these requirements.
In order to be exempt, the nonprofit must meet the requirements of 501b. Your nonprofit will qualify if it meets one or more of the following requirements:
- It is a civic organization
- It is exempt under the US Internal Revenue Code 501(c)(3)
- It is a charitable organization It is organized mainly for charitable or religious purposes
- It is listed in 8106a Title 9
- It is not formed for profit, and none of the organization’s earnings will be distributed to any member of the organization
If your Delaware nonprofit does not qualify for the exemption, the next best option is to file as a nonstock nonprofit organization.
6. Prepare and file nonprofit Articles of Incorporation
Your Delaware nonprofit organization will need to file a Certificate of Incorporation with the Delaware Department of State – Division of Corporations. You’ll need to file the Certificate of Incorporation correctly, and these instructions taken from the corpfiles.delaware.gov website will help you do that.
This must be done so that your organization will have eligibility for 501(c)(3). Additionally, your Certificate of Incorporation must contain the following statements:
The nonprofit’s purpose must be clearly stated and also limited to one or more of the below categories:
- Preventing cruelty to animals and children
- Fostering national or international amateur sports competition
- Testing for public safety
Your nonprofit will need to raise funds to further its cause. These funds, together with any tools or equipment needed to run the organization, are your nonprofit’s assets.
Your dissolution must state what the assets are used for and what happens to the assets in the event of dissolution.
Please refer to the following sample IRS document taken from the IRS website to read more on this.
7. File an initial report
Delaware nonprofits are not required to file an initial report with the Delaware Secretary of State.
8. Secure an EIN (Employer Identification Number)
Obtaining an EIN is another step in the process of forming a Delaware nonprofit corporation. It’s a unique nine-digit code that is allocated by the Internal Revenue Service and essentially identifies your organization.
Irrespective of the different types of nonprofits, all Delaware nonprofits are required to apply for this number irrespective of whether you plan on hiring employees or not. The EIN or employer identification number will be required when you open a bank account, submit 990 returns to the IRS, and apply for 501(c)(3) tax-exempt status.
You may apply for your employer identification number using IRS Form SS-4 and submit it online.
9. Apply for federal tax exemption
Every Delaware nonprofit corporation will need to apply for 501(c)(3) federal tax-exempt status. Obtaining tax exemption has various benefits, including:
- Access to grants
- Discounted US postal rates
- Tax deductions for donors
- Tax exemption from property, sales, and federal income tax
All nonprofits or public charities must file Form 1023 with the IRS under the Internal Revenue Code. Small businesses organizations in the nonprofit sector may file Form 1023-EZ. This form is necessary if your nonprofit is not expected to earn more than $50,000 for the first three years.
To be eligible to apply for tax exemption, the Delaware nonprofit must meet the following requirements below:
- Have an EIN
- Nominate no less than one director
- Be registered as a nonprofit with the state of Delaware
- Adopt both the Bylaws and Conflict of Interest Policy
A determination letter will be sent to you once your 501c3 status is granted.
10. Apply for Delaware state tax exemption
Once your Delaware nonprofit corporation has obtained 501(c)(3) tax-exempt status from the Internal Revenue Service, the organization is automatically exempt from corporate income tax.
Additionally, your Delaware corporation is also exempt from sales tax. Further benefits include exemption from various local and state property taxes and business license fees.
11. Other applicable permits and licenses
Delaware NPOs who have their determination letter do not need to apply for permits and licenses to run the nonprofit in the state of Delaware.
Additional state registration and reporting requirements
All nonprofits in Delaware are exempt from state reporting and registration requirements. This basically means that your nonprofit does not need to register to raise funds in the state, and there are no fundraising registration requirements.
However, suppose you plan on receiving charitable solicitation in other states. In that case, you need to check with the reporting obligations in those specific states prior to accepting donations on the nonprofit’s behalf.
12. Submit an annual report
Your Delaware nonprofit must file an annual report with the Delaware division of corporations. You’ll need to submit the annual report by the 1st of March each year, and it may be filed online. The notification of annual reports is sent to all Delaware statutory agents in the month of December every year.
Costs of starting a new nonprofit in Delaware
The following filing fees are required by nonprofits in Delaware:
- Certificate of Incorporation: $89 + $9 for extra pages + optional $50-$1000 expedite fee
- Tax exemption 501(c): $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.
While lots of people on the misconception that only for-profit organizations need a business plan, the reality is that you need a business plan for your Delaware nonprofit as well. A business plan lays out your vision for the nonprofit organization and helps others understand what you hope to achieve by running a nonprofit. This is why your business plan should also include your organization’s mission statement to help possible donors understand the cause.
Whether you choose to start a new nonprofit organization in Delaware or join existing organizations will depend on your cause. In some cases, there may not be any other existing organizations fulfilling the purpose you hope to meet, so you won’t be able to participate in partnerships or fiscal sponsorships. In that case, it’s better to start your own nonprofit corporation.
The founder of a nonprofit organization in Delaware may pay themselves a fair salary for the time and effort put into running the organization. Additionally, nonprofit founders may hire full or part-time employees and also pay them for their time and service. However, all salaries must be disclosed to the IRS.
If you don’t have the required funds to start a nonprofit organization in Delaware, here are a few tips to help you raise money. Recruit a Board of Directors who will give the organization:
- Credibility within the community
- Act as a fundraising vehicle to bring in donors and funds itself
- Create contacts for fundraising and finding funders
The role of an executive director within a nonprofit is to provide the board with the advice and resources required to bring about change and promote growth. Some of the responsibilities of the executive director is to select the board members and also act as an intermediary between the staff and the board.