Nonprofit or public benefit organizations can take a number of forms, including religious programs, educational programs, and programs that eliminate the impacts of poverty in a community.
Therefore, charitable organizations share many differences with for-profit companies in that they must create a benefit for the public and must also be supported by the community. In the state of Kentucky, they are approximately 17,014 nonprofit organizations, the most popular of them being Active Heroes Inc., Children of the Americas (COTA), and Lexington Rescue Mission Inc.
Starting a nonprofit organization in the state of Kentucky has various benefits such as:
- Receiving tax exemption on most income generated by the nonprofit
- Access to grant funds from corporations and foundations
- Receiving contributions that are tax-deductible for the donor
Starting a nonprofit in Kentucky can take as little as two weeks or as long as three months until you receive your tax-exempt status. The following article will provide a step-by-step guide on how to start a nonprofit in Kentucky.
1. Select a name for your organization
The first step in the process of starting a successful nonprofit in Kentucky includes deciding on a name for your corporation. Ultimately, the name of the nonprofit is its brand and defines the nonprofit’s image, so it does deserve careful consideration.
Legally, your nonprofit corporation name cannot conflict with any other company organization already registered in the state of Kentucky. The nonprofit name must meet the following Kentucky state requirements, and end with a designation such as:
Alternatively, an abbreviation such as:
Please note that when using “Company,” it may not be preceded immediately by “and” or “&.”
To check the availability of the name you’ve decided on, refer to the Kentucky Secretary of State website and conduct a name search.
Additionally, if you plan on starting a website for a nonprofit organization, check the web domain and ensure that it is available.
2. Nominate a Kentucky registered agent
Each and every nonprofit organization in the state of Kentucky will need to nominate a registered agent. The registered agent is also called a statutory agent or service of process agent.
Ultimately, their primary role is to accept services of process or lawsuits on behalf of the nonprofit organization. Anyone may be nominated as a resident agent as long as they consent to the appointment.
So you may nominate a willing associate or yourself; however, the registered agent must meet the following requirements:
- They must remain available during normal office hours
- They must be at least or over the age of 18
- They must be a resident of the state of Kentucky
- They must have a physical street address in the state of Kentucky
3. Recruit your board members
Nonprofit organizations in the state of Kentucky are required to recruit a board of directors. Ultimately, nonprofits are created to serve the public interest and therefore receive favorable tax treatment by the state and federal government.
Therefore, it is always recommended that the board of directors and officers chose to represent and make decisions on behalf of the nonprofit organization do so diligently and transparently. This keeps the organization true to its public service mission.
- Some of the responsibilities the board of directors and officers will fulfill include:
- Establishing priorities for the nonprofit organization
- Ensuring that the plans and programs implemented benefit the nonprofit’s ultimate purpose and cause
Every Kentucky nonprofit organization must include at least three individuals unrelated to each other to serve as the board of directors. Additionally, Kentucky nonprofits must elect a president and secretary, known as the officers of the nonprofit corporation.
The directors and officers make up your nonprofit board of directors and will help to write the Articles of Incorporation and compile the bylaws.
You should also elect an incorporator. This is simply an individual that is responsible for signing and delivering the Articles of Incorporation. The incorporator does not need to be an officer, director, or even a member of the Kentucky nonprofit.
4. Consent to bylaws and conflict of interest policy
Applying for 501(c)(3) tax exemption with the IRS means that your nonprofit organization needs to be eligible. In order to attain eligibility for tax exemption, your Kentucky nonprofit must establish important governing documents and policies, which are:
- Conflict of Interest Policy
The bylaws are essentially the governing document for your Kentucky nonprofit corporation. Essentially it’s an operating manual and should be consistent with the Articles of Incorporation as well as federal and state law.
The bylaws will need to be adopted when your nonprofit holds its first organizational meeting where the bylaws will be reviewed and ratified.
The Conflict of Interest policy is basically an accumulation of rules under which the board must abide. Conflict of interest may arise if someone in a key position puts their own interests before the nonprofit organization‘s purpose or cause. As soon as a conflict of interest arises, it should be immediately disclosed.
Before submitting an application for 501(c)(3) tax exemption to the Internal Revenue Service, you need to have the bylaws and Conflict of Interest policy approved and adopted.
5. Select a Kentucky nonprofit startup corporation structure
Kentucky has various types of nonprofits or organizational structures, but they usually fall under one or more of the below categories:
- Religious organizations: These corporations are explicitly 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.
- Mutual benefit corporations: This type of organizational structure is a type of nonprofit much like other mutual benefit corporations. Their purpose is for the greater good of a particular group and not the general public.
Organizations under the mutual benefit category raise money by normally charging their members monthly or annual fees. The funds are then used to benefit the paying members as dividends are expected. Unions are an example of a mutual benefit corporation. These corporations may or may not opt for state and IRS tax-exemptions.
- Public benefit corporations: Public benefit nonprofit organizations are the most popular type of nonprofit and are formed for the purposes of charity. They are meant to benefit a part of the public or target a specific community.
Some of the types of charitable organizations that fall into this category are educational programs, artistic endeavors, and social services.
6. Prepare and file nonprofit Articles of Incorporation
Your Kentucky nonprofit will need to file the Articles of Incorporation with the state to attain tax exemption eligibility. Additionally, the Articles of Incorporation must clearly state the following information:
Your nonprofit organization in Kentucky must be limited to one or more of the following categories:
- Testing for Public SafetyPreventing cruelty to animals/children
- Fostering national and international amateur sports competition
The dissolution involves clearly stating what the Kentucky nonprofit’s assets are going to be used for and what is going to happen to the Kentucky nonprofit’s assets in the event of dissolution.
Additionally, the Articles of Incorporation need to include the following information:
- The name of your Kentucky nonprofit
- The purpose of the Kentucky nonprofit
- The name and address of your Kentucky nonprofit registered agent
- The nonprofit’s mailing address
- The name and address of directors and corporators
- Whether or not your nonprofit organization in Kentucky will include members
Further information and reading can be found on the Internal Revenue Service website.
Once the Articles of Incorporation Form or template has been downloaded and completed, file them online with the Kentucky Secretary of State.
7. File an initial report
Nonprofits in Kentucky do not need to file an initial report.
8. Secure an EIN (Employer Identification Number)
Every nonprofit in Kentucky will need to apply for an Employer Identification Number. It’s also referred to as an EIN or Federal Tax Identification Number [FTIN]. This number is used by the Internal Revenue Service to identify a business entity. However, an EIN, which is more or less a Social Security security number for your nonprofit, is useful in the following instances:
- To hire employees for the nonprofit organization
- For federal and state tax purposes
- To open a nonprofit business bank account
The EIN is free of charge and allocated by the IRS to nonprofit organizations after forming the company. You may choose to apply for your EIN online or by mail.
You’ll need to complete and file Form SS-4, and you’ll need to apply on the IRS website.
Your EIN will be immediately allocated to your nonprofit organization when filing online.
9. Apply for federal tax exemption
Obtaining 501(c)(3) tax-exempt status in Kentucky comes with various benefits such as:
- While this status exempts organizations from state and federal corporate taxes, it may exempt them from property and sales taxes in certain states as well
- The organization will attain legitimacy and credibility simply for having a 501(c)(3) status allocated and recognized by the IRS
- Receive grants from private foundations, corporations, and government more freely and speedily thanks to having 501(c)(3) tax-exempt status
- Tax exemption also means limited liability protection for directors, officers, and founders of the nonprofit
- Kentucky nonprofit corporations with 501c3 tax exemption also qualify for discounted postage and publicity rates
In order to bring an application for tax exemption, you need to have already elected your directors and officers, adopted your Bylaws and Conflict of interest policy, filed Articles of Incorporation, and obtained EIN free of charge from the IRS.
Once these requirements have been met, complete IRS Form 1023 or IRS Form 1023-EZ for small business organizations.
Read more about obtaining tax exemption in Kentucky on the Internal Revenue Service website under IRS Publication 557.
Once your application has been approved, you’ll receive a Determination letter from the IRS stating that your nonprofit is now one of the existing organizations exempt from corporate or federal income tax or an exempt organization.
10. Apply for Kentucky state tax exemption
While the determination letter exempts you from corporate income tax, you still need to file to obtain sales and use tax exemption. Complete Form 51A125 and file it with the Kentucky Department of Revenue.
Along with your form, you need to include a copy of the Articles of Incorporation and your Internal Revenue Service Determination Letter.
11. Other applicable permits and licenses
Nonprofits in Kentucky are not required to obtain a statewide business license to legally operate their organization in the state. However, your nonprofit may need to obtain one or more licenses or permits in your town or county.
Depending on the services your organization is going to be providing, you should seek legal advice or check with your local licensing division to ensure that you’re complying with the relevant laws. You may also refer to the Small Business Administration Business License & Permit look-up tool.
Additional state registration and reporting requirements
When it comes to other registration and state reporting requirements, you should refer to the Kentucky Attorney General‘s website for additional rules.
Depending on the activities and the size of the nonprofit in the state of Kentucky, you may need to register with the Kentucky Attorney General prior to getting involved in any charitable solicitation or attempting to raise funds for the organization.
12. Submit an annual report
In order to comply with state laws and keep your Kentucky nonprofit in good standing, you need to file your annual report with the Secretary of State by no later than June 30 each and every year.
The annual report should conclude basic information about your organization, such as the address of the organization, the names and addresses of directors, and the names and addresses of the registered agent. Once completing your annual report, you should submit it online.
Costs of starting a new nonprofit in Kentucky
The following filing fees are applicable to all nonprofits in Kentucky:
- Articles of Incorporation: $8
- 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.
There are many ways to get involved in fundraising for your Kentucky nonprofit. Some of them include creating a donation page, launching a crowdfunding campaign, enabling reoccurring donations, trying peer-to-peer fundraising, applying for private and government grants, and launching a text-to-give campaign.
Public charities are tax-exempt nonprofit organizations that are recognized under the Internal Revenue Code. These organizations accept financial support in the form of donations from foundations, corporations, companies, individuals, and fundraising initiatives. Public charities are places such as churches, schools, and hospitals and provide services for the greater good of the community.
The collective name used to describe organizations and institutions in American society is referred to as the nonprofit sector. They are not classified as government or business entities. The nonprofit sector includes charities, foundations, social welfare organizations, and professional and trade associations. The nonprofit sector is often referred to as the philanthropic sector, the independent sector, and the social sector.
While you don’t necessarily need to have a mission statement, every nonprofit is on a mission. Therefore your organization’s mission statement will basically let people and the outside world know what you believe in and what you hope to achieve by starting your nonprofit corporation. Therefore, every mission statement should be included in your nonprofit business plan and should encapsulate the reason for your nonprofit’s existence.
The National Council of Nonprofits is a leading advocate for charitable nonprofits and also a trusted resource. Ultimately, they identify emerging trends, promote solutions, benefit charitable organizations and the communities they serve and share proven practices. The National Council of Nonprofits ultimately is a helping hand for nonprofit organizations nationally.