There are approximately 114,242 nonprofit organizations in New York’s nonprofit sector. The most popular of these nonprofit corporations striving for the greater good of humanity include Smile Train, Inc., Children’s Scholarship Fund, and Big Apple Greeter.
Nonprofit organizations are created for various purposes; however, they all share one common denominator: they are intended for the greater good of the human race or the natural world.
Starting a nonprofit organization in New York could take you anywhere between two weeks to three months provided to you file the relevant forms and register with the relevant government agencies.
Nonprofit organizations enjoy various benefits, including tax-deductible donations, credibility with the government and the Internal Revenue Service and many financial privileges.
The following step-by-step guide will provide some insight into what it takes to start a nonprofit in New York.
1. Select a name for your organization
Your New York nonprofit needs a name. This is the first step in the process of getting your nonprofit up and running. The corporation’s name denotes its image and is essential for incorporation.
Additionally, the name you choose for your nonprofit in New York must not clash with any other existing organizations listed in the state. Ensure that the name is obtainable and also meets New York State requirements.
You may conduct a name search on the New York Department of State Division of Corporations State Records and Uniform Commercial Code website.
Furthermore, your New York nonprofit name should include some kind of designations such as Ltd, Inc. Incorporated or company.
The name should also not include any phrases or words that could mislead the public into believing that your nonprofit is acting as an agent of the United States or the state of New York.
The following words or phrases should not be included in your New York nonprofit name:
- Lawyer or Doctor
- Blind or Handicapped
- Union, Counsel, Labor, Industrial Organization, Exchange, Education, School, Secondary, Elementary, Kindergarten, Nothing School, Museum, Historical Society, Library, College, University or Preschool
Do not include any ridiculing or obscene words or phrases that may be offensive to individuals or groups
Do not include a name that indicates that your nonprofit may engage in unlawful activity.
2. Nominate a New York registered agent
In the state of New York, the Secretary of State acts as the registered agent, resident agent, statutory agent, or service of process agent as they are commonly referred to.
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However, you may also choose to elect a registered agent for your New York nonprofit. When you complete your business formation documents, this option will be given to you.
The registered agent will be responsible for receiving service of process or legal paperwork on the nonprofit’s behalf and ultimately is your business’s point of contact with the state.
You may choose to nominate anyone as your nonprofit’s resident agent, including yourself, provided the individual is:
- Over the age of 18
- A resident of New York
- Contains a physical street address in New York
- Maintains normal business hours
- Consents to the appointment
3. Recruit your board members
All nonprofits in the state of New York need to recruit an incorporator who will be responsible for signing and filing the nonprofit’s Articles of Incorporation. You only need to recruit one incorporator, although you are allowed to nominate more than one if you please.
Next, you need to recruit a minimum of three directors who have no relation to each other. The directors need to be 18 years of age; however, they do not need to be residents of New York, nor do they need to be members of the nonprofit organization.
The term of service is one year unless stated differently in the nonprofit’s bylaws. The maximum term for directors is five years.
Lastly, you need to recruit officers for your New York nonprofit. The officers will serve the roles of president, secretary, and treasurer.
The term of service for officers is one year, and more than two offices may be held by one person, with the exception being the president and the secretary.
4. Consent to bylaws and conflict of interest policy
The next step in the New York successful nonprofit startup process is establishing initial governing documents and policies. The essential documents required are the Bylaws and Conflict of interest policy.
The bylaws outline the organization’s rules and procedures that the Board of Directors will use to govern or oversee the nonprofit organization.
The Conflict of interest policy is meant to regulate key nonprofit organization members, such as your Directors. The Conflict of interest policy ensures that the decisions made are never in the professional or personal interests of individual members but always in the best interest of the nonprofit’s cause.
Both of these initial governing documents will need to be adopted and approved during your New York nonprofit’s first board meeting when the officers and directors are also officially appointed.
5. Select a New York nonprofit startup corporation structure
The state of New York has two organizational structures or types of nonprofits, and that is: religious and non-religious.
When it comes to members meeting for worship or religious observations, then you should file your nonprofit as a religious organization.
All other purposes must be filed as non-religious.
For additional information on choosing a New York nonprofit structure, refer to Section 102. Read full descriptions of each of these categories in Section 404 of the New York State Senate’s requirements for nonprofit corporations.
Obtain New York agency approval
Certain businesses need to obtain approval from the state agency that matches the cause of the nonprofit in the state of New York.
Therefore, you need to contact the relevant agency for your nonprofit type and obtain written consent from them to get your nonprofit up and running.
This consent should then be attached to the Certificate of Incorporation when it’s filed. For an idea of the business types and the corresponding agencies, please refer to the New York Consolidated Laws, Not-For-Profit Corporation Law – NPC § 404. Approvals, notices, and consents.
6. Prepare and file nonprofit Articles of Incorporation
Every state has its own requirements for filing nonprofit Articles of Incorporation, and the state of New York is no different. Additionally, aside from the varying state requirements, the IRS has its own set of requirements for filing for 501C tax exemption.
This means that the language has to match across your forms, and the IRS requirements must be submitted with your original Articles of Incorporation. Therefore, including the specific language required by the Internal Revenue Service is of paramount importance.
Nonprofits in New York need to file a Certificate of Incorporation which may be submitted by the nonprofit incorporator to the New York Department of State – Division of Corporations, State Records, and Uniform Commercial Code.
Information that must be included in your Certificate of incorporation includes:
- The nonprofit’s name
- The nonprofit’s purpose and whether it is a charitable or non-charitable organization
- The names and addresses of initial directors
- The county where your nonprofit is located
- Any internal affairs provisions
- The names and addresses of your registered agent
To ensure that you have eligibility for federal tax exemption, ensure that you include and explicitly state the purpose of your organization. Think of this as your organization’s mission statement.
Next, you also need to include a dissolution that pertains to the assets of the organization. You’ll need to explain what your nonprofit’s assets are being used for and what should happen to the assets in the event of the dissolution of your nonprofit organization.
7. File an initial report
New York nonprofits do not need to file the initial report.
8. Secure an EIN (Employer Identification Number)
An Employer Identification Number or EIN is a 9-digit number assigned to a nonprofit by the Internal Revenue Service. You can think of it as a Social Security number for a nonprofit organization.
The EIN is used for tax purposes and also opening business bank accounts for a nonprofit. This unique number is completely free of charge by applying online on the IRS website and completing Form SS-4.
When applying online, complete your application in one session to ensure that you receive your EIN instantaneously.
9. Apply for federal tax exemption
Every New York nonprofit that would like to be exempt from federal taxes will need to apply for federal tax exemption. In order to do so, you need to complete and file IRS Form 1023.
This application form or template is a long and detailed form that requires quite a bit of information regarding your nonprofit, including its finances, history, organizational structure, operations, activities, and so on.
Small business organizations can therefore complete a simpler and shorter application form which is Form 1023-EZ.
Once you’ve completed the relevant form, feel free to file it with the IRS. If the application is accepted, you’ll receive a determination letter stating that your organization is exempt from federal income tax like many other existing organizations in the state.
Obtaining federal tax exemption has many disadvantages such as gaining access to funding and grants from sponsors and donors as well as government organizations and private foundations. Tax-exempt organizations also experience discounted rates on US postal services and limited liability protection.
10. Apply for New York state tax exemption
Once you’ve received your determination letter stating that you are exempt from federal income tax, under the Internal Revenue Code, it’s time to obtain an exemption from state income tax.
Your nonprofit organization can do so by completing Form CT-247 and then filing it on the New York State Department of Taxation and Finance website.
The same applies to obtaining sales tax exemption, but in this case, you need to complete Form ST-119.2.
11. Other applicable permits and licenses
Your nonprofit may need to obtain local and/or state business licenses and permits depending on the type of activities it plans on running and also where it is located.
When running a nonprofit in the state of New York, refer to the New York business permits assistance program website to check if there are applicable local licenses and permits that may apply to your organization.
Additional state registration and reporting requirements
If you intend to participate in charitable solicitation or fundraising activities, you need to register with the NYS Attorney General [charities Bureau]. In order to register, you’ll need the signature of your organization’s treasurer and president.
12. Submit an annual report
All public charities or nonprofit corporations in the state of New York must file a biennial statement or report. The statement must be filed with the Department of State every other year. The due date of the biennial report is on the calendar month in which the corporation’s original Articles of Incorporation was filed. Biennial reports can be filed online.
Costs of starting a new nonprofit in New York
The following filing fees are applicable to New York nonprofits:
- Certificate of Incorporation: $75 + optional $25-150 expedite fee
- Application for 501(c) tax-exempt status: $600 or $275 IRS fee
- New York State charitable registration: $25 to solicit contributions ($0 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 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.
Charitable organizations engage in fundraising activities to get revenue from donations. They may also qualify for grants from both government and private foundations. Some nonprofit organizations sell products and so on. Once you’ve received tax exemption and the organization has undergone charitable registration, you may go ahead and raise funds for your nonprofit in various ways.
Charitable organizations may be private or public. Private charities get their revenue from one source, such as one family or corporation. On the other hand, public charities may derive their funds from the public, government, fiscal sponsorship, or partnerships with other nonprofits.
A conflict of interest is also referred to as a duality of interest. This is when someone on the board has a barrier preventing them from being loyal to the organization or being impartial when decisions regarding the nonprofit are made. This is why the Conflict of interest policy is essential for nonprofit organizations.
An executive director is much like the CEO in a for-profit corporation. This is because they are the senior operating managers of the nonprofit and are responsible for guiding the organization by managing its operations. Executive directors need to have a high degree of motivation and also be goal-driven in order to help fulfill the organization’s mission.
If you’ve identified a need in your community or there’s a cause that you are passionate about, one of the best ways to go about making a difference is to start a nonprofit organization. Additionally, one of the best ways to get things up and running is with a well-formulated business plan. The business plan will help secure funding and also build excitement for your nonprofit.