When a group of people comes together to help others, it could be considered a nonprofit organization. Ultimately, any group that has a primary goal to serve the community and work and promote a social course is considered a nonprofit organization and not a for-profit company.
Aside from the group pursuing their passion and having positive community involvement, starting a nonprofit organization in Iowa comes with various benefits such as:
- Limited Liability
- Access to Clients
- tax-exempt organization status
- tax-deductible contributions
The state of Iowa has approximately 26,361 existing organizations in the nonprofit sector; among those are well-known nonprofits like Children’s Cancer Connection, Animal Lifeline of Iowa, and EVERYBODY WINS-IOWA INC.
It could take anywhere between two weeks to three months to start your Iowa nonprofit organization, provided you complete the necessary forms and file them with the Iowa Secretary of State.
The following step-by-step guide will give you an idea of what to expect when starting a nonprofit in Iowa.
1. Select a name for your organization
One of the first steps in starting an Iowa nonprofit organization is deciding on a name for your nonprofit. The nonprofit organization‘s name in Iowa must give the public an idea of the organization’s purpose or cause.
Additionally, it must not come into conflict with any other business name registered in the state. The name should also not imply that it is intended for any other purposes other than what is approved or allowed in the Articles of Incorporation.
To ensure that the name you’ve decided on is actually available in the state, perform a name search on the Iowa Secretary of State‘s website.
You may also choose to read the revised Iowa Nonprofit Corporation Act, which contains further rules on naming an Iowa-based corporation.
2. Nominate an Iowa registered agent
After deciding on a name for your Iowa nonprofit, you’ll need to decide who will be your business’s point of contact with the state. Your business point of contact with the state is referred to as a registered agent.
This individual or business entity will be required to accept legal notices on behalf of the nonprofit organization. You may appoint anyone as a registered agent; however, the individual or business entity must meet the following requirements:
- They must be physically located in the state of Iowa
- They must have a physical street address in the state of Iowa
- They must be at least 18 years of age
- They must maintain regular business hours
- They must consent to the appointment
You may appoint anyone as a registered agent, including yourself.
3. Recruit your board members
The next step in the process of starting your Iowa nonprofit is recruiting your board of directors and officers.
In the state of Iowa, you’ll need to appoint an individual who must meet the following requirements:
- Must be an individual and not a business entity
- Does not need to be a resident of Iowa
- Does not need to be a member of the nonprofit
- Must be willing to serve a one year term as a director
Iowa officer requirements are as follows:
- The board of directors must appoint a president, secretary, and treasurer
- One of the officers must prepare minutes of all board meetings held by the nonprofit and also authenticate the nonprofit’s records
- The same person may hold two or more offices
Additionally, Iowa nonprofits must appoint an incorporator for the nonprofit. This individual is responsible for signing the Articles of Incorporation.
You may or may not choose to appoint an executive director.
4. Consent to bylaws and conflict of interest policy
When applying for federal tax exemption, your nonprofit organization will need to be eligible for this application. One of the requirements is that your Iowa nonprofit adopts Bylaws and the Conflict of Interest policy.
Your Bylaws is basically a document describing how your nonprofit organization is going to be managed. It’s more or less an operating manual for your nonprofit organization, and it needs to be consistent with the nonprofit’s Articles of Incorporation and comply with the law.
The Bylaws will need to be adopted during the board’s first meeting, and from then on, it needs to be used as a roadmap for the nonprofit’s activities.
The Conflict of Interest policy is basically a collection of the nonprofit’s rules to abide by. Ultimately it makes sure that none of the decisions are made to further the personal agendas of members but always in the best interest of the nonprofit organization.
5. Select an Iowa nonprofit startup corporation structure
The state of Iowa consists of various types of nonprofits or organizational structures, but they usually fall under one or more of the following categories:
- Religious organizations/corporations: These nonprofits are solely for religious purposes, such as synagogues and churches.
- 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
The next step in registering your nonprofit organization in Iowa is to file Articles of Incorporation. The Articles of Incorporation must include two parts:
The purpose for which the organization is being formed must be stated explicitly and also limited to one of the following categories:
- Testing for public safety
- Preventing cruelty to animals or children
- Fostering national/international amateur sports competition
The articles must clearly state how the corporation’s assets are going to be utilized and what will happen to the assets in the event of dissolution.
* The assets of the nonprofit may only be used for purposes approved under section 501c3.
The articles will need to include information about when and where the organization was formed, including details about the registered agent, board of directors, whether the nonprofit has members, and so on.
Additionally, the IRS will be on the lookout for some basic provisions, such as specific language. So feel free to customize your articles to your nonprofit and ensure that all state and Internal Revenue Service requirements are met.
There are no Articles of Incorporation forms or a template offered by the state and you’ll need to compile your own document.
Also, see the Revised Iowa Nonprofit Corporations Act to assist you in compiling articles that will be approved. After filing the articles online with the Iowa Secretary of State, you’ll receive a certificate of acknowledgment.
7. File an initial report
Initial reports are not required in the state of Iowa.
8. Secure an EIN (Employer Identification Number)
The Iowa nonprofit organization will need to apply for an EIN. An EIN is an Employer Identification Number and works as a Social Security number that the IRS uses to identify a business entity in the state.
The EIN is also useful in several instances such as:
- Opening a business bank account for your Iowa nonprofit
- Applying for tax exemption in Iowa
- Submitting 990 returns to the Internal Revenue Service
- Hiring nonprofit employees
To apply for your employer identification number, use IRS Form SS-4. You may apply for an EIN online via the IRS website, and if so, it is issued immediately. You should also note that the Internal Revenue Service website is available during certain hours.
Therefore, you should print your EIN prior to closing your session. More guidance on obtaining an EIN for your Iowa nonprofit can be found by reading through the IRS pub 1635: Understanding your EIN document.
9. Apply for federal tax exemption
In order to have your Iowa nonprofit up and running, you need to apply for a 501c3 tax exemption with the Internal Revenue Service.
The benefits of obtaining tax exemption include access to grants and growing your organization’s fundraising success, all while being exempt from IRS federal income tax.
When applying for 501(c)(3) tax exemption for public charities, you will need to file Form 1023. Form 1023-EZ is a shorter and simpler application form that is also processed quicker and intended for small business organizations.
Prior to completing these forms, you’ll need to review the criteria for each application and ensure that you meet the eligibility requirements set out by the IRS as per Internal Revenue Code.
Once your application has been accepted, your Iowa nonprofit will receive a determination letter from the IRS stating that your corporation has obtained tax-exempt status from federal income tax.
10. Apply for Iowa state tax exemption
In the state of Iowa, nonprofits that have received their IRS Determination letter are automatically exempt from Iowa income tax. Additionally, Iowa nonprofits that have received a determination letter are also exempt from state sales taxes.
11. Other applicable permits and licenses
Legally operating a nonprofit organization in any state means that you need to secure the relevant licenses and permits. The Small Business Administration Business License & Permit look-up tool is useful in determining exactly that.
Additionally, Iowa nonprofits that plan on conducting raffles, bingo, and other charitable games need to register with the Iowa Department of Inspections & Appeals – Social and Charitable Gambling Unit.
Additional state registration and reporting requirements
The good news is that charitable solicitation registration is not a requirement under Iowa state law.
12. Submit an annual report
Any registered nonprofit organization in the state of Iowa or any other organization authorized to transact business within the state is liable to file a Biennial Report with the Secretary of State between the 1st of January and the 1st of April of each odd-numbered year.
The Biennial report notice will be sent to the nonprofit’s registered agent, and there is no filing fee for the Nonprofit Corporation Biennial Report.
Costs of starting a new nonprofit in Iowa
The below filing fees apply to all nonprofit organizations in Iowa:
- Articles of Incorporation: $20
- Tax exemption 501(c): $275 or $600 IRS fee
- Iowa Business Tax Registration: varies based on tax accounts/licenses
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.
A nonprofit’s mission is basically its mission statement and describes the organization’s unique and fundamental purpose. Ultimately, nonprofit organizations are required to create a mission statement to communicate the value that the organization delivers and what unmet need it plans on fulfilling. The mission statement is usually a part of your business plan and should include why a nonprofit exists, whom it seeks to serve and how it seeks to serve the disadvantaged group.
The Compliance guide for 501(c)(3) tax exemption of the Internal Revenue Code is basically a document providing guidelines on how nonprofits can obtain 501(c)(3) tax-exempt status. This document is essential as it will help you avoid getting your application returned or, worse, denied. So feel free to peruse the compliance guide prior to putting in your application for tax exemption.
An Iowa nonprofit needs not apply or register for charitable solicitation. This means that you won’t need to submit any paperwork or documentation in order to raise funds to meet your nonprofit’s purpose. However, while this rule is applicable to the state of Iowa, you should check with other states if you plan on accepting donations from other state residents, as the laws tend to vary from state to state.
When a nonprofit organization offers its tax-exempt and legal status to other groups who haven’t as yet registered their nonprofit, it’s referred to as fiscal sponsorship. Essentially, it’s a partnership between a tax-exempt nonprofit and one that is still on its way to being tax-exempt. If you are still starting your nonprofit organization and would like all of the credibility of tax-exempt status, feel free to partner with an existing organization registered with the IRS to help further your nonprofit’s cause.
Starting a nonprofit organization is not easy as there are several steps involved in the process. However, if you are passionate about your cause, it is definitely worth all the fuss. Ultimately, running a successful nonprofit organization means having all of your paperwork in order and remaining committed to your cause. Additionally, you’ll need to make the nonprofit organization a top priority at all times and ultimately look for new and innovative ways to bring in funds and fulfill the unmet need in the community.