The state of Massachusetts has a higher instance of active nonprofits when compared to many other US states. According to the Massachusetts Nonprofit Network, there are roughly 32,000 nonprofit corporations in the Massachusetts nonprofit sector.
Starting a nonprofit organization in Massachusetts has various benefits, including tax exemption, limited liability, and credibility with the IRS.
It could take anywhere between two weeks to three months to start a nonprofit in the state of Massachusetts.
The following step-by-step guide will reveal the process involved in starting a nonprofit organization in Massachusetts.
1. Select a name for your organization
Selecting a name for your Massachusetts nonprofit organization is the first step in the process of getting a nonprofit running and registered. Since the nonprofit name will establish the nonprofit’s brand and image, it’s important that you give it careful consideration.
The organization’s legal name should not conflict with any of the existing business entities in the state of Massachusetts. Additionally, it should also meet state requirements. Feel free to do a name search on the Massachusetts Secretary of the Commonwealth website.
Furthermore, aside from churches and other religious societies who are exempt from this requirement, all other Massachusetts nonprofit names must indicate that it is a corporation.
2. Nominate a Massachusetts registered agent
The registered agent fulfills a vital role in a nonprofit organization. Essentially the registered agent is your nonprofit’s point of contact with the state of Massachusetts. Therefore, every nonprofit will need a registered agent to receive important legal documentation on the organization’s behalf.
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You may nominate anyone as your nonprofit’s registered agent as long as they consent to the appointment and meet the following requirements:
- They must be physically located in the state of Massachusetts and also be a resident of the state
- They must be at least 18 years of age or older
- They must be able to maintain normal office hours in order to receive important paperwork from the state
You may also choose to nominate yourself as your corporation’s registered agent.
3. Recruit your board members
Your nonprofit organization needs directors, officers, and an incorporator who will sign the Articles of Incorporation on the nonprofit’s behalf. The directors are basically the governing body of the organization and stakeholders in the nonprofit’s success and cause.
Therefore, you need to nominate at least three directors unrelated to each other in order to meet IRS requirements. Directors do not need to reside in the state of Massachusetts, nor do they need to be members of the nonprofit organization. However, they will need to serve a minimum term of one year and a maximum of five years.
When it comes to recruiting officers, you need to elect a president, treasurer, and clerk. The president of the Massachusetts nonprofit must also be a director, and the clerk must be a Massachusetts resident.
The only exception to this rule is if a resident agent was already appointed.
The directors and officers make up the board of directors.
4. Consent to bylaws and conflict of interest policy
In order to obtain 501(c)(3) tax-exempt eligibility, your Massachusetts nonprofit is required to have two documents in order:
- Conflict of interest policy
The bylaws are basically the directives that outline the operational procedures of the nonprofit and should be adopted during the organization’s first board meeting.
The conflict of interest policy is an accumulation of the directives set in place to ensure that all decisions made by members of the board benefit the nonprofit organization and not the personal or professional interests of members.
While both of these important governing documents do not need to be filed with the state of Massachusetts, they are essentially the nonprofit’s management handbook and should be kept aside for reference at any point in time.
5. Select a Massachusetts nonprofit startup corporation structure
Massachusetts has various types of nonprofits or organizational structures, but they usually fall under one or more of the categories below:
- Religious organizations: These corporations are explicitly for religious purposes, such as synagogues and churches.
- Mutual benefit common interest development corporations: These are the organizational 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 nonprofit structure is a type of nonprofit much like other mutual benefit nonprofits. 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 organizations 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. Therefore, they are referred to as public charities. 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
In order to register your Massachusetts nonprofit, Articles of Organization will need to be filed with the state of Massachusetts. This is also required to ensure that you have eligibility for tax exemption. Additionally, the articles must state the following:
The reason for the existence of your Massachusetts nonprofit organization must be clearly stated, and your nonprofit must be limited to the following categories:
Charitable, Scientific, Literary, Religious, Educational, Testing for public safety, Preventing cruelty to animals and children, and Fostering international/national amateur sports competition
Think of this part of the articles as your organization’s mission statement.
All assets under your Massachusetts nonprofit must be used for the purposes set forth under the Internal Revenue Code. Therefore, it’s an IRS requirement that you disclose exactly what the assets will be used for and what’s going to become of the assets in the event of dissolution.
Furthermore, the following details will be required:
- The duration of your Massachusetts nonprofit
- The name of your Massachusetts nonprofit
- The purpose of your Massachusetts nonprofit
- 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
7. File an initial report
An initial report is not required in the state of Massachusetts.
8. Secure an EIN (Employer Identification Number)
Every nonprofit needs an EIN from the IRS. You may apply for one by completing IRS Form SS-4. The EIN is an Employer Identification Number used by the IRS to identify your business entity or nonprofit organization.
The EIN will need to be applied for irrespective of whether you plan on having employees for your Massachusetts nonprofit or not. However, the EIN is useful in several instances, including, submitting 990 returns to the Internal Revenue Service, applying for 501(c)(3) tax-exempt status, as well as opening a bank account for a nonprofit organization.
Once you’ve completed IRS Form SS-4, file it online to receive your EIN immediately. However, you should note that the IRS website is only available during specific hours, and you need to print your EIN prior to closing the session.
9. Apply for federal tax exemption
After receiving a federal income tax exemption, you’re able to enjoy all of the benefits that come along with it. This includes limited liability, credibility with the IRS, discounted postal rates, and access to sponsorships and funds from both public and private institutions.
However, before applying for tax-exempt status, you need to meet the following requirements:
- Adopt the bylaws and conflict of interest policy
- Obtain your EIN
- File the Articles of Organization with the Massachusetts state
- Elect three directors unrelated to each other
Once the application has been reviewed and approved, you’ll receive a determination letter from the IRS stating that your nonprofit is an exempt organization and is now tax-exempt under section 501(c)(3).
Refer to the 501c3 compliance guide for additional info and guidance.
10. Apply for Massachusetts state tax exemption
Once you’ve received your determination letter from the Internal Revenue Service, you are now one of the existing organizations that have federal income tax exemption.
However, you still need to obtain a state income tax exemption. To apply for state income tax exemption with the Massachusetts Department of Revenue, you need to submit a copy of your IRS determination letter, a copy of your IRS Employer Identification Number, as well as a copy of the Articles of Organization, filed with the Secretary of State’s office.
If you’d like to obtain sales tax exemption for your Massachusetts nonprofit organization, you also need to file with the Massachusetts Department of Revenue.
There is no template or application form for sales tax exemption, and all you need to do is send in your IRS determination letter along with an explanation, and the Department of Revenue will review the request.
11. Other applicable permits and licenses
In order to legally operate your Massachusetts nonprofit, you need to secure the relevant licenses and permits. The Small Business Administration Business License & Permit look-up tool is available to search your business type and locality to ensure that you have the relevant licenses and permits to operate in the state.
Additional state registration and reporting requirements
All charitable organizations in the state of Massachusetts must register with the Massachusetts Attorney General prior to fundraising, participating in charitable solicitation, or accepting tax-deductible donations in the state.
12. Submit an annual report
All public charities operating in Massachusetts need to register and submit annual reports with the Attorney General’s Office Nonprofit Organizations Public Charities Division.
Costs of starting a new nonprofit in Massachusetts
The following filing fees apply to all Massachusetts nonprofits:
- Articles of Incorporation: $35
- Application for tax exemption 501(c): $275 or $600 IRS fee
- Massachusetts Charitable Registration: usually $150
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 several ways to raise funds for a nonprofit organization in Massachusetts. Some of them include creating a donation page, launching a crowdfunding campaign, hosting a fundraising event, or asking for sponsorships. As long as you have 501(c)(3) tax exemption, you are seen as a credible organization by donors.
While some people choose not to create a business plan for their nonprofit organization, it will help to secure support in various ways, be it monetary, in-kind, or simply having support from volunteers. Just like for-profits, your nonprofit’s business plan conveys your nonprofit’s purpose and goals.
While it is not necessary to seek legal advice when starting a nonprofit organization, lots of nonprofit founders choose to do so. Legal advice is definitely beneficial if you’re not sure of how to proceed when it comes to certain formalities or decisions regarding a nonprofit organization.
While you’re still waiting to receive your tax-exempt status, you should consider making use of fiscal sponsorships. This is because they provide the expertise and infrastructure, including the financial management and compliance needed to run a successful nonprofit organization.
An executive director is in charge of the daily operations of a nonprofit organization. Some of the executive directors‘ responsibilities include but are not limited to managing finances, programs, fundraising, and volunteering outreach.