Nonprofit organizations raise money; however, the money earned through their fundraising efforts is used to further the nonprofit’s purpose.
Unlike for-profit organizations, the money raised by nonprofits is not distributed to founders or members of the organization. They are, however, allowed to pay employees of the nonprofit.
Nonprofit organizations include feeding schemes, homeless shelters, animal shelters, and more.
The state of Louisiana has approximately 23,343 nonprofit corporations in the nonprofit sector. The most popular of these Louisiana nonprofits are Children and Arthritis, Inc., Manners of the Heart, and Volunteer Health Corps of Batonrouge.
Some of the advantages of starting a nonprofit in Louisiana include access to grants, limited liability, credibility with the IRS and the community, and perpetual existence.
Starting a Louisiana nonprofit may take as little as two weeks or as long as three months.
The following step-by-step guide will show you how to start a successful nonprofit organization in Louisiana.
1. Select a name for your organization
After identifying the unmet need in your community, it’s time to start thinking of a name for your corporation. The name deserves careful consideration as it will become your nonprofit’s brand and will ultimately define its image.
When deciding on a nonprofit name in the state of Louisiana, there are specific naming guidelines that you need to follow.
The name of the organization must not include any of the following words: banker, banking, bank, deposit, trust, savings, assurance, mutual, insurance, fiduciary, casualty, indemnity, surety, building and loan, homestead, guarantee, security, parish, state, cooperative, electric cooperative, redevelopment corporation or credit union.
For complete rules on naming your Louisiana nonprofit organization, refer to the state’s official naming guidelines.
Additionally, you may want to conduct a name search on the Louisiana state website to determine whether the nonprofit name you are thinking about is available.
2. Nominate a Louisiana registered agent
The next step in the nonprofit process is appointing a Louisiana registered agent. The registered agent is also called a service of process agent or statutory agent.
A resident agent is basically a person who is responsible for accepting legal documents on behalf of the nonprofit organization. They are also tasked with accepting service of process in the event that a lawsuit is brought against the nonprofit.
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You may choose to point any person as a registered agent; however, they need to meet a few requirements:
- They must be a resident of Louisiana
- They must be at least 18 years of age or older
- They must consent to the appointment
- They must have a physical Louisiana street address
- They must maintain usual business hours
You may also choose to elect yourself as your nonprofit’s registered agent.
3. Recruit your board members
All nonprofit organizations, irrespective of which state it is located in, will require a board of directors. The board of directors is responsible for governing the nonprofit according to rules that are put together during the first organizational board meeting.
Every nonprofit organization in the state of Louisiana must elect three individuals to fulfill the roles of directors. Each of these individuals must have no relation to each other.
Additionally, your Louisiana nonprofit requires a president and a secretary known as the organization’s officers, and they have individual authorities and responsibilities.
In Louisiana, one individual may hold two or more officer positions; however, if a document needs the signatures of two officers, it must be signed by two separate individuals.
4. Consent to bylaws and conflict of interest policy
Louisiana nonprofits must put together bylaws that fall in with Louisiana law. They also need to incorporate the rules and strategy that the nonprofit follows when having meetings and electing directors and officers, in addition to fulfilling other business procedures required by the nonprofit in Louisiana.
The bylaws are essentially rules put together to outline the organization’s operating procedures.
Additionally, a Conflict of Interest policy will also need to be compiled. This is basically a collection of rules set in place to ensure that all decisions made by the board of directors ultimately benefit the nonprofit’s cause and not individual members’ agendas.
While there’s no need to file the bylaws with the state, they must be kept on file and used as your nonprofit’s internal management handbook.
5. Select a Louisiana nonprofit startup corporation structure
Louisiana has various types of nonprofits or organizational structures, but they usually fall under one or more of the categories below:
- Religious organizations: These nonprofits are strictly 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 organizations: 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 targeted group and not the overall public.
Organizations under the mutual benefit category raise money by charging their members monthly or annual fees. The funds are then used to benefit the paying members as dividends are expected. An example of this type of organization is a union. These corporations may choose to apply for state and IRS tax-exemptions, but it is not compulsory.
- 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, meet an unfulfilled need or target a specific community.
Some of the different types of charitable corporations that fall into this category are educational programs, artistic ventures, and social services.
6. Prepare and file nonprofit Articles of Incorporation
Your nonprofit needs to file Articles of Incorporation. This must be done with the Secretary of State in Louisiana. The Articles of Incorporation must clearly state the following in order for you to be eligible for 501c3 tax exemption:
The purpose of your nonprofit must be stated clearly and also limited to the following categories:
- Testing for public safety
- Preventing cruelty to animals and children
- Fostering international/national amateur sports competition
The Articles of Incorporation must clearly state what the organization’s assets are being used for. It must also state what happens to the assets in the event of dissolution.
Additionally, you must include the following information:
- The Louisiana nonprofit’s duration
- The Louisiana nonprofit’s name
- The Louisiana nonprofit’s purpose
- The street address and name of your service of process agent
- The street address of the organization’s registered office
- The name and address of each incorporator and each initial director
Additionally, it is required that you file the following documents with your local recorder of mortgage office no later than 30 days after filing the Articles of Incorporation:
- A copy of the Articles of Incorporation
- A Secretary of State certified copies of the Articles of Incorporation
7. File an initial report
Your Louisiana nonprofit must file an initial report after filing the organization’s Articles of Incorporation. The initial report must be filed with the Louisiana Secretary of State – Commercial Division using the Supplemental Initial Report.
8. Secure an EIN (Employer Identification Number)
Every Louisiana nonprofit will need to apply for an EIN. An EIN is often called a Federal Tax Identification Number or Employer Identification Number.
Ultimately, it’s a social security number for your nonprofit organization and is used by the federal government to identify business entities.
The EIN is useful in several aspects, including:
- Opening a business bank account for a nonprofit organization
- Hiring employees for your nonprofit
- Federal and state tax purposes
- Submitting 990 returns
You need to print your EIN prior to closing your session since the IRS website is only available during certain hours. Additional guidance can be found by reading the IRS Publication 1635.
9. Apply for federal tax exemption
Nonprofit organizations are regulated by The 501(c)(3), which is a chapter of the Internal Revenue Code. Nonprofits are also able to apply for grants and promote their fundraising activities in addition to receiving tax exemption from the IRS. However, you need to read the guidelines carefully prior to applying for tax exemption.
In order to have tax exemption eligibility, you need to have elected at least three directors, not related to each other, obtained your EIN, adopted the Conflict of Interest policy and Bylaws as well as filed Articles of Incorporation.
When applying for tax exemption for your Louisiana nonprofit, you need to file Form 1023, which is applicable to charities and foundations. Form 1023-EZ is a form for small business organizations and is a relatively simple and quick application to complete.
Your nonprofit organization will receive a determination letter once the IRS has approved your application. This letter recognizes your exemption and allows you to enjoy all the benefits that come along with it.
10. Apply for Louisiana state tax exemption
Once the IRS has sent you the determination letter recognizing your exemption, you must file to obtain an exemption from state income tax. This may be done by submitting your Internal Revenue Service determination letter to the Louisiana Department of Revenue.
The form that you need to complete is Form R-1048. A point to note is that Louisiana nonprofits are normally not exempt from use, and sales tax exemption, but it may be requested for specific events provided it’s done at least two weeks in advance.
11. Other applicable permits and licenses
You need to secure the relevant licenses and permits in order to operate your Louisiana nonprofit in the state legally.
Requirements for licenses and permits for nonprofits vary from state to state, which is why you should access the Small Business Administration Business License & Permit look-up tool resource to search your business type and locality.
Additional state registration and reporting requirements
If you plan to raise funds and undertake charitable solicitation or fundraising for your Louisiana nonprofit, Louisiana charitable organization registration is applicable.
Apply with the Louisiana Department of Justice Public Protection Division – Charities. Only educational bodies, religious institutions, hospitals, and voluntary health organizations are exempt from registering for charitable solicitation.
12. Submit an annual report
Maintaining your Louisiana nonprofits means that you should file an annual report on the anniversary of your nonprofit formation date with the Louisiana Secretary of State. Essentially, the report is intended to update the state on important information pertaining to the nonprofit such as the names and current addresses of the organization’s directors.
Costs of starting a new nonprofit in Louisiana
The following filing fees are applicable to all Louisiana nonprofits:
- Articles of Incorporation: $75 + optional $30-$50 expedite fee
- Tax exemption application – 501(c): $275 or $600 IRS fee
- Louisiana Charitable Registration: $25 (no filing if exempt)
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 must 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.
Having tax-exempt status means that your existing organization is recognized by the IRS under section 501(c)(3). When you receive tax exemption, it may exclude revenue, certain income, and taxpayers from tax altogether. Ultimately, nonprofits that receive the tax-exempt status are not required to pay income tax. Additionally, some of the benefits of tax-exempt status include tax-deductible contributions, discounted postal rates, and exemption from federal income tax.
In order to obtain tax exemption, you must meet the requirements laid out by the Internal Revenue Code. All tax-exempt charitable organizations are considered public charities and exempt organizations. They are exempt from federal income tax as charitable organizations, and all donations made to public charities by companies or individuals are deductible under code section 170.
A nonprofit business plan is much like that of a for-profit business plan. It should serve as a complete and clear roadmap for your nonprofit organization. Some of the aspects that your business plan will need to address are the goals you’re trying to accomplish and the organization’s true purpose. The business plan should also include your organization’s mission statement.
An executive director fulfills many roles within a nonprofit organization. Some of them are:
- Overseeing the hiring and firing process
- Ensuring that the board members and staff comply with the bylaws and conflict of interest policy
- Maintain nonprofit records and perform other administrative duties
The Executive Director is also responsible for overseeing fundraising and ensuring ethical financial practices.
The compliance guide is basically the nonprofit compliance laws put together to protect the public and ensure that nonprofits are not abusing their tax-exempt status or financial advantages.