The nonprofit sector is basically a collective name that describes organizations and institutions in the US society that are neither for-profit nor government businesses. You’ll often hear nonprofit organizations or the nonprofit sector referred to as the third sector, social sector, or voluntary sector.
Ultimately, all nonprofit organizations come in various shapes and sizes, but they all aim to fulfill an unmet need in the community. Additionally, unlike for-profit organizations, nonprofits use all the funds generated through fundraising and charitable solicitation to further the nonprofit organization’s cause.
It may take anywhere between two weeks to three months to get a nonprofit up and running in the state of Maine.
This step-by-step guide aims to give you an idea of the steps involved in creating or starting a nonprofit in Maine.
1. Select a name for your organization
Your nonprofit organization in Maine will need a name. This is the first essential step in the process of getting a nonprofit up and running. The name of your nonprofit organization is its brand and therefore requires careful thought and consideration.
You should also ensure that the name is easily searchable by potential donors. There are a few naming guidelines that you should stick to, including:
- Ensure that the nonprofit name is easily distinguishable from other business entities in the state
- The nonprofit name should not include any terms, phrases, or words that may be offensive
- The nonprofit name should also not mislead the public into believing that the organization was created for any other purpose other than what you’ve listed in your nonprofit’s Articles of Incorporation
- Nonprofit names should not include designations such as Ltd, Inc, Company, or Incorporated
The Maine Revised Statutes contain complete notes on naming a Maine-based nonprofit organization.
You should also conduct a name search on the Maine Secretary of State Bureau of Corporations, Elections, and Commissions website.
In the event that you plan on creating a website for your Maine nonprofit, also check the domain availability.
2. Nominate a Maine registered agent
The registered agent also referred to as a service of process or statutory agent, is responsible for accepting legal documents on behalf of the nonprofit organization. Ultimately, the registered agent is a nonprofit’s point of contact with the state of Maine in the event that a lawsuit is brought against the organization.
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Anyone may be nominated as a registered agent, including yourself. However, the agent must meet the following requirements:
- The agent must be physically located in the state of Maine
- The agent must have a physical street address and Maine
- The agent must be at least 18 years of age or older
- The agent must maintain normal office hours
- The agent must consent to the appointment of a registered agent
3. Recruit your board members
Your Maine nonprofit will need an incorporator who is responsible for signing the Articles of Incorporation on the nonprofit’s behalf. While you may have more than one incorporator, it’s only required that you have at least one.
You also need to recruit a minimum of three directors for your organization. The directors are ultimately the governing body of your corporation and are also stakeholders in the nonprofit’s cause and success.
When recruiting directors, the requirements are as follows:
- You need to recruit a minimum of three directors who are not related to each other in any form or way
- There are no residency or membership requirements for directors
- The term that the directors will serve initially is one year
When recruiting your officers, you’ll need to select:
- A president
- A secretary or clerk
- A treasurer
The term they will serve initially is one yearThe same individual is allowed to hold two or more offices.
4. Consent to bylaws and conflict of interest policy
In order to obtain tax exemption legibility, your Maine nonprofit will need to compile two important documents. The first is your nonprofit’s bylaws.
The bylaws need to include the strategies and rules that your Maine organization will follow when holding organizational board meetings and fulfilling other business procedures such as electing officers and directors.
The conflict of interest policy is the second document that you need to compile and is a collection of the directives put in place by a nonprofit’s board of directors. Ultimately, the conflict of interest policy exists to ensure that every decision made by the nonprofit and for the nonprofit is to further the nonprofit’s cause and not the agendas of individual board members.
The bylaws do not need to be filed with the state; however, they are your nonprofit’s internal management handbook and therefore should be stored safely for reference.
5. Select a Maine nonprofit startup corporation structure
Maine 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 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 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
Articles of incorporation will need to be filed by every Maine nonprofit organization. In order to have eligibility for 501(c)(3) tax exemption, your Articles of Incorporation must clearly state the following:
Your nonprofit must be limited to one of the following categories, and the purpose for the organization’s existence must also be clearly stated. Think of it as your organization’s mission statement:
- Testing for public safety
- Preventing cruelty to animals and children
- Fostering international/national amateur sports competition
Every nonprofit organization will have assets, and these assets must be used for the purposes defined under the Internal Revenue Code for 501(c)(3) tax exemption. Therefore, the Articles of Incorporation must state what the organization’s assets will be used for and what will happen to these assets in the event of dissolution.
Furthermore, your Maine nonprofit’s Articles of Incorporation must include the below details:
- The Maine nonprofit’s duration
- The Maine nonprofit’s name
- The Maine nonprofit’s purpose
- The street address and name of your statutory agent
- The street address of the organization’s registered office
- The name and address of each incorporator and each initial director
Form MNPCA-6 (D): Articles of Incorporation should be completed and filed with the Maine Secretary of State – Bureau of Corporations, Elections, and Commissions.
7. File an initial report
Maine nonprofits are not required to file an initial report.
8. Secure an EIN (Employer Identification Number)
An Employer Identification Number or EIN, as it is commonly referred to, is a nine-digit number assigned by the IRS to identify all nonprofits. All nonprofit needs to apply for an EIN, irrespective of whether they plan on hiring employees or not.
The EIN is useful in several instances, including:
- Submitting 990 returns to the Internal Revenue Service
- Applying for tax exemption
- Opening a business bank account
- Hiring employees for a nonprofit organization
9. Apply for federal tax exemption
When you receive 501(c)(3) tax-exempt status, your nonprofit organization is considered part of the nonprofit sector, including public charities, charitable organizations, private operating foundations, and private foundations. Therefore you must meet the requirements set forth in the 501c3 compliance guide before applying.
Furthermore, tax-exempt organizations enjoy many benefits such as:
- Exemption from federal income tax
- A possibility of exemption from sales, state, and employment tax
- Discounted rates on postal services
- Tax-exempt financing
- Tax-deductible donations
In order to be eligible to apply for 501(c)(3) status, your Maine nonprofit must have undertaken the following obligations:
- Elected three directors not related to each other
- Obtained their EIN from the IRS
- Adopted bylaws and conflict of interest policy
- Filed the Articles of Incorporation with the state
If you’ve already met the above-mentioned requirements, you should go ahead and file Form 1023 online. Small business organizations are free to file Form 1023-EZ, a quicker and simpler application form.
Once the application has been reviewed and approved, the IRS will send you a determination letter stating that you are a tax-exempt organization. You are now free to enjoy all of the benefits that existing organizations with the tax-exempt status benefit from.
10. Apply for Maine state tax exemption
After receiving the determination letter from the Internal Revenue Service, your Maine organization is automatically exempt from corporate income tax. So there’s no need to put in an application for state income tax.
However, you’ll still need to file to obtain sales tax exemption with the Maine Revenue Services.
Since the state has many sales tax exemptions, you’ll need to locate the relevant template or form that applies to your nonprofit corporation and then complete and file it on the Maine Revenue Services website.
11. Other applicable permits and licenses
Statewide business licenses are not required for main nonprofits. You may, however, need to apply for the relevant licenses to hold events such as bingo or casino nights to raise funds for your cause. Refer to the Small Business Administration Business License & Permit look-up tool to search for your nonprofit type and locality.
Additional state registration and reporting requirements
If you plan to participate in charitable solicitation, your Maine organization will need to comply with the Charitable Solicitation Act. This should be done with the State of Maine Department of Professional & Financial Regulation Charitable Solicitations website.
12. Submit an annual report
You’ll need to file an annual report with the Maine Secretary of State in order to keep your Maine nonprofit in good standing establish your organization as a successful nonprofit. Simply go to the annual reports page on the Maine Secretary of State website and click the annual reports online link to file your report online.
Costs of starting a new nonprofit in Maine
The filing fees below apply to all Maine nonprofits:
- Articles of Incorporation: $40 + optional $50-$100 expedite fee
- Tax exemption 501(c): $275 or $600 IRS fee
- Maine Charitable Registration: $50
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.
Nonprofits receive tax exemption for several reasons. However, while they may be exempt from federal corporate income taxes as well as sales, local property, and state taxes, they are not exempt from payroll taxes. However, some of the reasons nonprofit organizations receive tax exemption are because they relieve the government’s burden and benefit society. The benefits of tax exemption allow nonprofits to be more productive.
Every business needs to operate with funds that are put away for a rainy day. Therefore it is important to have net revenue at the end of each year. While nonprofits are fully capable of generating profit, what happens to the profit matters. Ultimately, according to all applicable laws, the profits generated by nonprofit organizations must be used to further the cause.
A conflict of interest occurs when the personal agendas of board members come into conflict with the interests of the organization. The board members must at all times act in the best interest of the organization and never aim to further their own personal agendas or professional interests.
Charitable organizations are not allowed to take part in or influence political campaigns. If they do, then they risk losing their tax-exempt status. If you would like to find out more about how you can go about having some part in educating the public without breaking the law, you should seek legal advice.
Fiscal sponsorship is definitely something that all nonprofit organizations should consider. This is because the fiscal sponsorship arrangement offers a way for nonprofit organizations to attract donors even before receiving tax-exempt status under the Internal Revenue Code.