Nonprofit organizations, unlike for-profit businesses, are not designed to make money for stakeholders or owners. However, they are formed to serve a government-approved purpose and are also afforded special tax treatment as a result of this.
The state of Mississippi has approximately 12,000 nonprofit organizations in the nonprofit sector. Some of the most popular Mississippi charitable organizations that are creating economic stability and mobility are Show Mercy International, Diabetes Foundation of Mississippi, Inc., and Legacy Education and Community Empowerment Foundation Inc.
Successful nonprofits in the state of Mississippi enjoy various benefits, including grant funding through local, state, and federal governments as well as private charitable foundations.
In most cases, starting a nonprofit in Mississippi will take you between two weeks to three months.
The following step-by-step guide will show you exactly how to go about starting a nonprofit in Mississippi.
1. Select a name for your organization
The most fundamental step in starting a Mississippi nonprofit organization is deciding on a name for your nonprofit. Since your organization’s name will determine its brand and image, this requires careful consideration.
The nonprofit name will need to comply with Mississippi State requirements and should preferably be easily searchable by potential sponsors and donors. The name of your Mississippi nonprofit must be easily distinguishable from other business entities in the state.
Additionally, it may not mislead the public into believing that the nonprofit is organized or arranged for any other purpose other than what is listed in your nonprofit’s Articles of Incorporation. You don’t need an organizational designation such as Inc., Incorporated, LTD, or Company in your nonprofit name.
The Mississippi Code Title 79 contains complete naming guidelines for Mississippi-based organizations.
Alternatively, you may choose to do a name search on the Secretary of State website to determine whether the name you’re deciding on is still available.
A web domain availability check is also recommended if you plan on creating a website for a nonprofit in the future.
2. Nominate a Mississippi registered agent
Every Mississippi nonprofit organization needs a registered agent. The role of the registered agent is to accept legal documentation on the nonprofit’s behalf.
Ultimately, the registered agent is the nonprofit’s point of contact with the state of Mississippi.
You may choose to nominate anyone as a registered agent for your nonprofit provided they meet the following requirements:
- The registered agent must be a resident of Mississippi
- The registered agent must have a physical address in the state of Mississippi
- The registered agent must consent to the appointment
- The registered agent must be at least 18 years old
- The registered agent must maintain normal business hours
3. Recruit your board members
The next step in the process is recruiting incorporators and initial directors for the Mississippi nonprofit organization. You’ll need to start with recruiting an incorporator who will be responsible for signing the Articles of Incorporation. You need to only recruit one of them; however, you can have more than one incorporator.
Additionally, you’ll need to nominate at least three directors who have no relation to each other. This is a crucial step in the process as the number of directors on your board will be considered prior to the nonprofit being granted 501(c)(3) tax exemption.
While it is possible to recruit only one director, this may affect your application for federal tax exemption, so it is recommended that you have a minimum of three directors on your board.
When recruiting directors, there are no residency or membership requirements. The default term for directors is one-year and can go up to a maximum of five years.
When you’re recruiting officers, you’ll need to nominate a president and a treasurer. The same person may hold two or more offices, and one officer will need to be in charge of preparing the minutes of the directors’ and members’ board meetings and authenticating the records of the corporation.
4. Consent to bylaws and conflict of interest policy
Your Mississippi nonprofit organization is required to file the Articles of Incorporation to be eligible to apply for 501(c)(3) status. Two of the documents that will be required are the:
- Conflict of interest policy
The bylaws function as the nonprofit’s handbook, including rules that outline the organization’s operating procedures.
The conflict of interest policy, on the other hand, is an accumulation of rules set aside to ensure that all of the decisions made by the Board of Directors ultimately benefit the nonprofit organization and not the board members‘ individual or personal agendas.
The Bylaws and Conflict of interest policy should be adopted during the first organizational meeting of the nonprofit when the directors and officers are officially appointed.
The Bylaws do not need to be filed with the state; however, they should be kept on hand as the nonprofit’s management handbook.
5. Select a Mississippi nonprofit startup corporation structure
Mississippi has many types of nonprofits or organizational structures, but they usually fall under one or more of the categories below:
- Religious organizations: These types of nonprofit corporation structures are strictly for religious purposes like synagogues, places of worship, and churches
- Mutual benefit common interest development corporations: The Davis Stirling Common Interest Development Act has a hand in these nonprofit formations. The aim is to administer common interest development, such as a homeowner’s association.
- Mutual benefit organizations: This type of organizational structure is a type of nonprofit organization much like other mutual benefit nonprofits. Their purpose is for the greater good, but of a specific group and not the general public.
Nonprofits under the mutual benefit category have members, and these members are charged monthly or yearly fees. This is how these types of nonprofits handle fundraising or generate or raise funds. The money is then used to benefit the paying members.
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 corporations are the most popular type of nonprofit corporation and are formed for charitable causes. 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 or programs, and social services.
6. Prepare and file nonprofit Articles of Incorporation
In order to register your Mississippi nonprofit, you need to file the Articles of Incorporation with the Mississippi Secretary of State. The Articles of Incorporation is one of the most important steps in the process of receiving tax eligibility or becoming a tax-exempt organization, therefore it must explicitly state the following:
The purpose of the nonprofit organization must be clearly stated, and it must be limited to one of the below categories:
Scientific, literary, preventing cruelty to animals/children, religious, educational, testing for public safety, and fostering national/international amateur sports competition.
Every nonprofit will have assets, and the assets of the organization should be used for the purposes approved under section 501(c)(3). Therefore, the Articles of Incorporation must include what the assets are being used for and what will happen to the assets in the event of dissolution.
The Sample IRS Document provides some guidance on the provisions required for 501(c)(3) legibility. Your Articles of Incorporation must be completed and filed with the Mississippi Secretary of State online.
7. File an initial report
Nonprofit organizations in the state of Mississippi are not required to file an initial report.
8. Secure an EIN (Employer Identification Number)
An EIN is an Employer Identification Number and is used as a social security number for your nonprofit organization. The IRS uses the number to identify business entities such as nonprofit corporations.
The EIN is useful in various instances such as:
- Filing 990 returns
- Apply for federal and state tax exemptions
- Hiring employees for your nonprofit organization
- Opening a business bank account for your Mississippi nonprofit
In order to obtain an EIN, all you need to do is apply with the IRS. The application is free of charge and can be done online. When applying online, your EIN is issued immediately, provided you complete your application before closing your session.
File Form SS-4 for your EIN.
9. Apply for federal tax exemption
Every nonprofit needs to apply for a federal tax exemption under the Internal Revenue Code. However, prior to applying for federal tax exemption or 501(c)(3) tax-exempt status, your nonprofit must fulfill the following requirements:
- Recruit at least three directors with no relation to each other
- Obtain an EIN
- File the Articles of Incorporation with the required provisions
- Adopt Bylaws and Conflict of interest policy
Once these conditions have been met, you can go ahead and apply for 501(c)(3) tax-exempt status by filing IRS Form 1023 on the IRS website. Form 1023-EZ is a streamlined and simpler application form or template that small business organizations may file.
Once your application has been reviewed and approved, you’ll receive a determination letter from the Internal Revenue Service stating that your nonprofit is one of the existing organizations that are now exempt from federal taxes.
Some benefits of Federal income tax exemption include:
- Discounted US postage rates
- Credibility with the IRS
- Tax-deductible donations
- Access to government grants
- Access to funding from private foundations, for-profits, and public organizations
The IRS compliance guide offers further direction on submitting your tax exemption application.
10. Apply for Mississippi state tax exemption
After applying for federal tax exemption and being granted your IRS determination letter, it’s time to go ahead and obtain an exemption from state income tax.
Some organizations qualify for tax exemption under Mississippi law. However, if you want to apply for the franchise and corporate taxes, you’ll need to submit your IRS determination letter to the Mississippi Department of Revenue.
Additionally, to apply for state sales tax exemption, you’ll need to review the list of exemptions available on the Department of Revenue website, and if it is applicable, go ahead and file for state sales taxes.
11. Other applicable permits and licenses
There is no general business license that’s applicable to all nonprofits in Mississippi. That said, there are hundreds of industry-specific licenses and permits that your nonprofit may need to apply for.
Feel free to take a look at the database of common business licenses and permits to find out if any of them applies to your organization.
Additional state registration and reporting requirements
Nonprofit corporations in the state of Mississippi must register with the Secretary of State to receive and accept charitable solicitation.
To learn more about this, check out the how-to guide to registering a charity in Mississippi. Ultimately, this step will allow you to raise funds for your organization’s mission.
12. Submit an annual report
Mississippi nonprofit corporations are required to file an annual report each year with the Mississippi Secretary of State. However, you should note that the annual report should only be submitted when requested by the Secretary of State. In most cases, this is done once every five years.
Costs of starting a new nonprofit in Mississippi
The following filing fees apply to all Mississippi nonprofit organizations:
- Articles of Incorporation: $50
- 501(c) tax exemption application: $275 or $600 IRS fee
- Mississippi Charitable Registration or Exemption: $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.
Although a nonprofit functions differently from a for-profit, it is still advisable to have a business plan. This is because the business plan will include your organization’s mission statement and let potential donors know the unmet need and how you plan to affect change for the greater good of the public.
Not all nonprofits will need to apply for tax-exempt status. This is because three groups are automatically exempt from filing for tax exemption, and these are churches, nonprofits with gross receipts of less than $5000, and affiliates of existing organizations covered by group exemption. Aside from that, all other nonprofits must file if they want to be formally recognized by the Internal Revenue Service as tax-exempt organizations.
If you’re in the process of receiving tax-exempt status, then you may prepare for fundraising by researching potential foundations and donors, creating a fundraising plan, and also drafting brochures. However, it’s important to let potential donors know that your tax-exempt status is currently pending and, at the moment, donations are not taxed deductible.
A nonprofit organization needs to define its fundamental purpose, values, and philosophy. Therefore, having a mission statement ensures that your nonprofit answers the basic question of why it exists and describes the need it aims to fulfill. The lack of a mission statement means that a nonprofit’s priorities are difficult to establish.
There might come a time when you want to turn your for-profit company into a nonprofit organization. The good news is that it is possible. To start a nonprofit organization in the relevant state, you will need to follow the same process every other founder follows. This means completing and filing the necessary forms and, of course, complying with federal and state laws.