Nonprofit corporations play an integral role in building healthy communities by offering critical services that contribute to mobility and economic stability.
In the state of Indiana alone, there are 15,677 nonprofit organizations. The most popular of these Indiana nonprofits are Every Child Ministries, Happy Hollow Children’s Camp, Inc., and Food Finders Food Bank Inc.
Nonprofit organizations enjoy various benefits, including tax-exempt status, limited liability, and receiving funding from private and public organizations.
Starting a nonprofit in Indiana can take anywhere between two weeks to three months, provided all your paperwork is in order.
The following article will take a look at the steps involved in starting a successful Indiana nonprofit.
1. Select a name for your organization
Once you establish the unfulfilled need in your community or state, it’s time to think of a name for your nonprofit in Indiana. This part of the process deserves careful consideration as it establishes your nonprofit’s brand and image.
Additionally, the name of your Indiana nonprofit should align with your mission statement and also follow the rules for naming in your state. The name of the organization must include a designation such as Incorporated, Limited, Inc., or Company, and it must also be distinguishable from other business entities operating in the state.
Furthermore, the name of your nonprofit in Indiana cannot imply that it is intended for any other purpose other than what is stated in your Articles of Incorporation or allowed by Indiana state law.
For the complete rules on naming an Indiana-based nonprofit, refer to the Indiana General Assembly’s official guidelines. You may also want to conduct a name search to check the availability of the name in the state.
2. Nominate an Indiana registered agent
The registered agent is also referred to as the service of process agent in the state of Indiana. The role of the registered agent is to accept necessary and legal documentation from the state on the nonprofit’s behalf. Ultimately, the registered agent for your Indiana nonprofit is your business’s point of contact with the state.
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You may choose to nominate or appoint anyone as your registered agent; however, the individual must meet the following requirements:
- They must be a resident of Indiana
- They must have a physical street address in the state of Indiana
- They must maintain regular business hours, considering they will be receiving important documents on the nonprofit’s behalf
- They must be at least 18 years old
- They must consent to the appointment
You may choose to appoint yourself as your nonprofit’s registered agent; however, please note that you should only do so if you know you are able to maintain normal business hours.
3. Recruit your board members
Another important step in getting your Indiana nonprofit up and running is selecting your Board of Directors. Indiana nonprofits are required to have at least three directors unrelated to each other.
The directors of the nonprofit come together to form the board of directors responsible for governing the organization’s operations.
You also need to choose officers for your Indiana organization, including a president, secretary, and treasurer.
This part of the nonprofit process is usually handled during the organization’s first board meeting.
4. Consent to bylaws and conflict of interest policy
Every Indiana nonprofit organization must have two very important documents in order to file for 501(c)(3) tax exemption with the state of Indiana. These two documents are the:
- Conflict of Interest Policy
The Bylaws are basically a document that determines exactly how the nonprofit is going to be overseen and operated.
The Conflict of Interest Policy is an accumulation of rules ensuring that all decisions made by the board are always in the best interest of the nonprofit organization and to further the cause rather than benefiting individual members and their personal agendas.
While you are not required to file your Bylaws and Conflict of Interest Policy, they are required for your application to the IRS for 501(c)(3) exemption.
So ensure that they are stored in a safe place. You can use them for your 501(c)(3) tax exemption application and refer to them if ever a conflict of interest arises within your nonprofit organization.
5. Select an Indiana nonprofit startup corporation structure
There are many types of nonprofits in the Indiana nonprofit sector, but they all fall under one of the following organizational structures:
- Religious organizations/corporations: These nonprofits are solely for religious purposes, such as a church.
- 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.
- Public benefit corporations: Public benefit NPOs are created for charitable purposes and are the most common type of nonprofit. They are meant to benefit a segment of the public or a specific community.
Some of the types of charitable organizations that fall into this category are educational programs, social services, and artistic endeavors.
- Mutual benefit corporations: This type of nonprofit corporation is a type of organization similar to other mutual benefit corporations found in common law nations. They work for the greater good of a select group and not the general public.
Mutual-benefit corporations normally raise money by charging their members annual or monthly dues. The funds are then used to benefit the paying members. Unions are an example of a mutual benefit organization. These corporations may or may not opt for state and IRS tax-exemptions.
6. Prepare and file nonprofit Articles of Incorporation
In order to register your nonprofit in the state of Indiana, your nonprofit organization will need to file Articles of Incorporation. When filing the Articles of Incorporation, they must include the address of the principal office, meaning the Indiana street address of the nonprofit organization.
Next, Articles of Incorporation must include the purpose of the organization. This is especially so if you intend on applying for 501(c)(3) tax-exempt status in Indiana. Ultimately, the statement of purpose must describe what your nonprofit organization aims to achieve in the community. It must also include specific language required by the IRS.
Your nonprofit must be identified as a religious, public benefit, or mutual benefit corporation in the Articles of Incorporation.
Additionally, you need to include the name and street address of the Indiana nonprofit registered agent.
Your Articles of Incorporation must also state whether your nonprofit organization will have members. This usually refers to business entities or individuals with the right to vote in the election of the nonprofit’s directors. However, nonprofits or public charities in Indiana are not required to have members.
You also need to appoint at least one incorporator to sign and submit the Articles of Incorporation on your nonprofit’s behalf. An incorporator may be a member, officer, or director of the organization.
Lastly, the Articles of Incorporation must include a dissolution. The dissolution refers to the distribution of assets. You should clearly state what the nonprofit’s assets are going to be used for and what will happen to these assets in the event of dissolution.
The dissolution clause must use specific language required by the IRS, especially if you intend on applying for 501(c)(3) federal tax-exempt status.
7. File an initial report
Initial reports are not required in the state of Indiana.
8. Secure an EIN (Employer Identification Number)
Every nonprofit organization in the state of Indiana needs an EIN. This is an Employer Identification Number. It’s used by the federal government to identify business entities. Essentially this is a Social Security number for your organization.
An EIN is useful in many instances, including:
- Opening up a business bank account for your nonprofit corporation
- Applying for federal and state tax exemptions for your nonprofit
- Submitting 990 returns
- Hiring employees to work in your nonprofit organization
9. Apply for federal tax exemption
One of the most crucial steps in the process of getting your nonprofit organization registered is applying for federal tax exemption from the Internal Revenue Service. In order to do this, you need to first fill in and lodge IRS Form 1023 as per Internal Revenue Code or IRC.
If you plan to run a small business, you could be eligible to fill in and lodge Form 1023-EZ. This form is a much simpler application, requires less information, and is processed much quicker than IRS Form 1023.
Being granted 501(c)(3) tax exemption from the Internal Revenue Service comes with many benefits, including:
- The ability to accept funding that is tax-deductible to the donor
- Possible exemption from property and state sales taxes
- Exemption from state and federal income taxes
- Likely higher gateways before experiencing federal or state Unemployment tax liabilities
- Access to grants
- Discounts on United States postal services
- Pubic legitimacy and credibility from IRS recognition
In order to have eligibility for 501(c)(3) tax exemption, your nonprofit organization must have already elected at least three directors unrelated to each other, filed Articles of Incorporation, adopted Bylaws and Conflict of Interest Policy, and also obtained an EIN.
Once your application is approved, you’ll receive a determination letter, which states that your Indiana nonprofit is now one of the exempt organizations in the nonprofit sector.
10. Apply for Indiana state tax exemption
Once you receive the determination letter, it simply means that you are one of the existing organizations that are exempt from federal taxes. However, you still need to file an application for state income tax exemption.
Form NP-20A should be completed and filed with the IDR or Indiana Department of Revenue. Along with this application form, you need to send in your IRS determination letter, and the application is due within four months of incorporation.
Once the application is approved, you’ll receive a nonprofit tax registration certificate, and if needed, Form ST-105 may be used to provide your exemption details to sellers.
To obtain sales tax exemption, complete and file Form NP-20. Then file it with the Indiana Department of revenue. This form as well is due within four months of incorporation, and the IRS determination letter must be attached to the application.
11. Other applicable permits and licenses
You may use the Small Business Administration Business License & Permit look-up tool to find out if any further licenses and permits are needed to operate your Indiana nonprofit in the state.
Additional state registration and reporting requirements
In Indiana, you are not required to file with the Indiana Attorney General before fundraising or accepting donations from state individuals or business entities. However, if you plan on getting involved in charitable solicitation in any other state, you’ll need to check their compliance guide to ensure that you are operating within the law.
12. Submit an annual report
Public charities in Indiana are required to remain in good standing with the state by filing the Business Entity Report with the Business Services Division of the Secretary of State. This report is due each year on the anniversary of the nonprofit’s incorporation.
Costs of starting a new nonprofit in Indiana
The following filing fees are applicable to all Indiana nonprofits:
- Articles of Incorporation: $30
- 501(c) Tax exemption: $275 or $600 IRS fee
- Form BT-1: $25 for sales tax license, if required
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.
Nonprofit organizations exist for the greater good of the community and not for profit. Although nonprofit organizations solicit donations from individuals, corporations, and foundations, the money is cycled back into the organization to meet the nonprofit’s cause. For-profit organizations raise money from private investors and are required to give dividends to shareholders. So a return on investment is definitely expected with for-profits, while it’s not a requirement with nonprofit organizations.
Your nonprofit needs a business plan before you do anything else. This is a roadmap of your vision for the nonprofit and how you hope to bring about or meet the unfulfilled need. You’ll also need to be proactive, have a strategic plan, a financing plan, and of course, a pitch for capital. Ultimately, having a competent board of directors who share your organization’s mission is also key to running a successful nonprofit.
There are various ways to raise funds for your organization. You may choose to arrange a powerful campaign, send email updates to donors, or post-campaign updates on your crowdfunding website. However, ultimately, you’ll need to comply with state laws and ensure that you are soliciting donations legally.
All the information you require to start a nonprofit organization in the state of Indiana may be found on the Indiana Secretary of State website, the Attorney General website, or the Internal Revenue Service website. Therefore, legal advice is not necessary; however, you are free to seek legal advice if you see a need for it.
An executive director could be a good thing if the employees and members of the nonprofit are confused about the nonprofit’s operations or goals. An executive director will be able to lay down corporation-wide goals, make them public, bring guidance to employees at all levels, and ultimately serve as a leader for the nonprofit organization.