People create nonprofit organizations for various reasons, such as to advance scientific research, education, music, sports, art, or entrepreneurship.
There are many benefits to starting a successful nonprofit organization, including:
- Limited liability
- Grants and sponsorships from government and private foundations
- Tax-exempt status
- Credibility with the Internal Revenue Service
Montana has approximately 7,468 nonprofit organizations or public charities in the nonprofit sector.
To get your nonprofit up and running in the state of Montana, you could wait anywhere between two weeks to three months. This is why it is crucial that you get your paperwork in order and comply with federal and state laws.
In the following step-by-step guide, we’ll show you how to go about starting a nonprofit in Montana.
1. Select a name for your organization
One of the first actions your nonprofit needs to take when forming your nonprofit in Montana is reserving a name for the organization.
A name reservation ensures that the name you’re deciding on is actually available in your state and is not currently being used by any other business entity registered with the state of Montana.
Refer to the Montana Secretary of State website to reserve your nonprofit name and complete the application for reservation of the business name. When completing the application, you need to state the name of the nonprofit organization as well as two other names, just in case your first option is already taken by another business entity.
While reserving a name for a nonprofit is not entirely necessary to apply for incorporation, it’s still recommended to ensure that your application is not rejected because the name of the nonprofit is not available.
The name availability search tool on the Secretary of State website comes in handy when checking for name availability.
2. Nominate a Montana registered agent
The next step involves nominating a resident agent for the nonprofit organization. A resident agent is also referred to as a registered agent or statutory agent.
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The individual nominated will be tasked with receiving legal documents on your organization’s behalf and will be your business’s point of contact with the state of Montana.
You may nominate yourself or any other individual as a resident agent; however, they must meet the following requirements:
- The resident agent must reside in Montana and have a physical address in the state of Montana
- The resident agent must maintain normal business hours
- The resident agent must be at least 18 years of age or older
- The resident agent must consent to the appointment
3. Recruit your board members
One of the essential first steps in forming a nonprofit in the state of Montana is forming a Board of Directors. Your Board of Directors will meet periodically to discuss matters that affect the nonprofit and the organization’s mission.
Ultimately, the Board of Directors is the governing body for your nonprofit organization. When forming your nonprofit, you need to appoint three people to fulfill the roles of treasurer, secretary, and president.
You also need to nominate three directors who are unrelated to each other. While the Social Security numbers of the board members are not required, their names and physical addresses will need to be recorded.
While some nonprofits choose to have more than three directors, a minimum of three directors is adequate and enough to be eligible for tax exemption.
You should also recruit an incorporator who will be responsible for signing the Articles of Incorporation on the nonprofit’s behalf.
4. Consent to bylaws and conflict of interest policy
All Montana nonprofit organizations are required to prepare and adopt bylaws at their first organizational board meeting. During this meeting, the bylaws will be prepared, adopted, and ratified by your nonprofit’s board.
The bylaws is also a crucial step that’s essential for applying for 501(c)(3) status with the Internal Revenue Service. Your bylaws is basically the rules outlining the operational procedures of the nonprofit organization.
This is because the IRS will only deal with a fully-formed nonprofit organization. When filing Articles of Incorporation, you’ll also have the option to attach your nonprofit’s bylaws to the application; therefore, it is recommended that you have your first organizational meeting well in advance of filing for tax exemption.
You’ll also need to compile a Conflict of interest policy to ensure that all decisions made by the board of directors are always made in the organization’s best interests and never to further the business or personal agendas of the nonprofit’s members.
5. Select a Montana nonprofit startup corporation structure
Montana a few types of nonprofits or organizational structures, but they usually fall under one or more of the categories below:
- Mutual benefit common interest development corporations: These are the nonprofits created under the Davis Stirling Common Interest Development Act to administer common interest development, such as a homeowner’s association.
- Religious organizations: These types of nonprofit structures are intended purely for religious purposes like churches, synagogues, and places of worship
- Mutual benefit organizations: This type of organizational structure is a type of nonprofit 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. The members or stakeholders are charged monthly or yearly fees. This is how these types of nonprofits raise funds. The money is then used to benefit the paying members. An example of this type of organization is a union. These existing organizations may choose to apply for state and IRS tax-exemptions but don’t necessarily need to be tax-exempt organizations.
- Public benefit corporations: Public benefit nonprofit organizations are the most popular type of nonprofit corporations 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 a 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 welfare services.
6. Prepare and file nonprofit Articles of Incorporation
One of the non-negotiable requirements for forming and registering a nonprofit in the state of Montana is filing Articles of Incorporation. The articles document when and where the nonprofit was formed but also need to include other necessary information to verify the existence of a nonprofit organization in the state.
The requirements vary from state to state when it comes to the specific language. However, there are some basic provisions that the IRS will require. This is especially important when vetting your 501(c)(3) tax exemption application. Therefore, your Articles of Incorporation must state the purpose and dissolution of the nonprofit organization.
Your nonprofit was formed for a specific purpose or cause; therefore, your articles must state exactly why your nonprofit organization was formed or what needs you plan to fulfill in the community. Think of this as a mini-mission statement.
Nonprofit organizations will have assets, resources, or possessions that they’ve accumulated over time. The dissolution clause needs to declare what the resources of the nonprofit are being used for and also what will be the outcome of the nonprofit’s resources in the event of dissolution.
The Articles of Incorporation need to be filed online with the Montana Secretary of State.
7. File an initial report
Initial reports are not required by nonprofit organizations in the state of Montana.
8. Secure an EIN (Employer Identification Number)
An EIN is an Employer Identification Number which is also called a nonprofit tax ID number. Every Montana nonprofit will need an EIN regardless of taxable status. An Employer Identification Number allows you to hire and pay employees, file taxes, and open up an account and credit accounts for your nonprofit.
Ultimately, your EIN is considered a Social Security number for your nonprofit and is used by the IRS to identify an organization. When applying for the EIN, only an authorized member of the nonprofit may do so.
The authorized person applying for the EIN will need to use their SSN or Social Security Number for the application. Once the EIN is received, the SSN is no longer required. In addition to providing their SSN, the agent applying for the EIN will need to include the legal name, the entity’s legal name, the physical address of the nonprofit as well as the mailing address of the organization.
9. Apply for federal tax exemption
Every nonprofit organization looks forward to attaining 501(c)(3) tax-exempt status. An exempt organization is not liable for income and property taxes and also qualifies for tax-deductible donations, access to private and government grants, and much more.
In order to apply for federal income tax exemption, you need to file Form 1023 with the IRS under the Internal Revenue Code. Smaller nonprofit organizations or small business organizations can make use of Form 1023-EZ, which is a streamlined application and is available online.
To find out whether your organization is eligible for the streamlined application for exemption, you need to complete the eligibility worksheet. Before applying for federal tax exemption, you will need to have already obtained your EIN.
Once the IRS has received and vetted your application, and if it’s approved, you’ll receive a determination letter stating that your organization is now one of the existing organizations that are exempt from federal income tax.
10. Apply for Montana state tax exemption
Applying for state income tax exemption is the next step in the process of starting your Montana nonprofit. File the Montana tax-exempt status request Form or template with the Montana Department of Revenue.
At the time of this guide, there isn’t a state-level sales tax, so there is no need to obtain an exemption from state sales tax.
11. Other applicable permits and licenses
A statewide business license is not a requirement in Montana. However, there could be other licenses and permits that are relevant to your nonprofit organization. So check with your local licensing division to determine whether you need to apply for any licenses or permits to operate your nonprofit organization legally in the state.
12. Submit an annual report
Submit an annual report each year by the 15th of April in order for your nonprofit to remain in good standing. Feel free to go ahead and file your annual report online.
Costs of starting a new nonprofit in Montana
Take note of the following filing fees for Montana nonprofits:
- Articles of Incorporation: $20
- Tax exemption application 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.
For-profit organizations and nonprofit corporations exist for different reasons. A for-profit organization is usually owned by one person or several shareholders who are also private investors in the business. They exist to make a profit. A nonprofit organization does not have owners but founders, and all of the profits or money raised from charitable solicitation is cycled back into the organization to fulfill the nonprofit’s purpose.
Charitable organizations are referred to by many names. Nonprofit organizations, nonprofits, NPO’s, foundations, and charities are all names used to refer to charitable organizations. Ultimately, they are developed for the greater good of the community and aim to meet an unfulfilled need. They raise funds that are used to benefit individuals who are in need.
The founder of a nonprofit organization is usually referred to as the president. This is while there are no employees. However, once the nonprofit starts growing and employees are hired, the founder of the nonprofit may be referred to as the executive director.
The reason why nonprofit compliance laws and the IRS compliance guide are put in place is to protect the public and make sure that nonprofits are not abusing their financial privileges. Nonprofits that receive tax-exempt status are held to high standards by the government, and following the necessary compliance laws are crucial to maintaining that credibility.
A fiscal sponsorship is a nonprofit corporation providing fiduciary oversight, administrative services, and financial management to help to build other charitable organizations. They make useful partnerships if your nonprofit is currently in the process of obtaining tax-exempt status.