Nonprofit organizations are usually formed to meet an unfulfilled need in the community or provide a benefit to the natural world.
As opposed to for-profit organizations, clubs, and cooperatives that are formed to benefit their members, all of the proceeds gained from tax-deductible donations and fundraising efforts are cycled back into the organization to further the cause.
Nonprofit organizations include companies formed for educational, religious, scientific, charitable, and literary purposes. According to federal tax data, the state of Ohio has 40,521 charitable organizations.
Some of the most well-known Ohio charitable organizations or successful nonprofits making their mark in the community include Crayons to Classrooms, Heartbeat International, Inc., and First Glance Student Center, Inc.
Aside from the intangible rewards gained from starting a nonprofit organization, there are many financial privileges to doing so.
Some of the advantages of forming a nonprofit organization in Ohio include tax exemption, discounts on US postal services, limited liability protection for your nonprofit board as well as access to funding from public and private foundations.
It could take anywhere between two weeks to three months to form a nonprofit in the state of Ohio. The following step-by-step guide will show you how to go about starting a nonprofit in Ohio.
1. Select a name for your organization
When forming a nonprofit in Ohio, one of the first things you need to do is choose a name. The name of your nonprofit should let people know who you are and also tell your nonprofit’s story.
Additionally, it should be a name that’s easy to remember and find by potential donors. The state of Ohio has a few naming guidelines that should be followed:
- The name of the organization must not include any terms that are considered profanity
- Your nonprofit name should not imply that your organization is affiliated with a government agency in any way
- Your nonprofit name should be distinguishable from other business entities in the state of Ohio
- The name of the nonprofit must not be associated with a financial institution. Therefore, it should not contain the words trust, bank, bank, and trust, or trust company. The only exception to this rule is if approval is obtained from the superintendent of financial institutions
Official guidelines for naming an Ohio-based nonprofit organization may be found on the Ohio Secretary of State’s website.
Additionally, conduct a name search in the state of Ohio site to determine whether the name is in fact obtainable.
A web domain check is also recommended if you plan on creating a website for a nonprofit organization.
2. Nominate an Ohio registered agent
Your Ohio nonprofit needs to nominate a statutory agent. A statutory agent is often referred to as a service of process or registered agent and is a person responsible for receiving necessary legal paperwork on your nonprofit’s behalf.
Ultimately, a statutory agent is a nonprofit’s point of contact with the state of Ohio. You may nominate anyone as a statutory agent; however, the individual must meet the following requirements:
- The Ohio statutory agent must be a resident of the state
- The Ohio statutory agent must have a physical street address in Ohio
- The Ohio statutory agent must be at least 18 years of age or older
- The Ohio statutory agent must maintain normal business hours
- The Ohio registered agent must consent to the appointment
Anyone may be nominated as a statutory agent for your nonprofit, including yourself.
3. Recruit your board members
All nonprofit organizations need to have a Board of Directors. The Board of Directors is ultimately a nonprofit’S leadership team, and therefore careful consideration should go into choosing stakeholders or members.
You need to recruit an incorporator to start. The incorporator is responsible for signing the Articles of Incorporation.
Every nonprofit will need at least one incorporator. In the state of Ohio, you must elect a Board of Directors. You need to recruit a minimum of three directors as per Ohio state law. The directors do not need to be members of the nonprofit, nor do they need to reside in Ohio.
Every director you select will remain in office until a new director is elected. Additionally, you need to appoint officers who will serve the roles of treasurer, secretary, and president of the nonprofit.
The positions of officers don’t need to be held by the directors. When it comes to officer positions, the same person may hold more than one position.
Additional guidance for selecting a board of directors may be found on the Ohio Attorney General’s office website.
4. Consent to bylaws and conflict of interest policy
In order to receive federal tax-exempt status, you’ll need to have eligibility to apply for 501(c)(3) status with the IRS. In order to do that, your nonprofit is required to have two essential documents:
- Conflict of interest policy
The bylaws are essentially the nonprofit’s handbook or manual used to govern the organization’s operating procedures.
The Conflict of interest policy is another operational manual that ensures that every decision taken by the Board of Directors and officers is made to benefit the nonprofit and its cause instead of benefiting individual members.
It’s recommended that you adopt the bylaws and Conflict of interest policy during the nonprofit’s first board meeting.
5. Select an Ohio nonprofit startup corporation structure
The following organizational structures or types of nonprofits are available in the state of Ohio:
- Social and Recreational Clubs: Social and recreational clubs are described as 501(c)7 organizations. They are made up of garden-variety clubs, country clubs, hobby clubs, amateur fishing, hunting, and sports clubs.
- Charitable Organizations or Charities: Charitable organizations or charities are the most common type of nonprofit and are considered 501(c)(3) corporations under the Internal Revenue Code. Additionally, they are exempt from taxes. Some examples of charitable corporations are low-income housing organizations, food banks, daycare centers, and environmental groups.
- Civic Needs and Social Welfare Organizations: Civic needs and social welfare organizations are considered 501(c)4 nonprofit organizations. Ultimately, their main goal is to improve the overall good and welfare of people in the community, be it on a state, federal or global level. Examples of social welfare organizations also include healthcare, housing, social action organizations, and downtown improvement associations.
- Trade and Professional Associations: Trade and professional associations are regarded as 501(C)6 Corporations under the Internal Revenue Code. Most of these associations are business alliances and the like. Some trade and professional associations examples include retail Chambers of commerce, merchants associations, and real estate boards.
6. Prepare and file nonprofit Articles of Incorporation
Every nonprofit in the state of Ohio must file the Articles of Incorporation with the state. In order to be eligible for tax exemption, your articles will need to explicitly state the following:
Every organization exists to meet an unfulfilled need or purpose in the community. You’ll need to mention exactly what your organization’s reason for existing is and also ensure that it’s limited to one or more of the following categories: Scientific, religious, charitable, fostering national or international amateur sports competition, literary, testing for public safety as well as preventing cruelty to animals or children.
Nonprofit organizations accumulate assets that are used to promote the organization’s cause. Your articles must state what your assets are being used for and what should happen to the assets in the event that your nonprofit is dissolved.
Additional information required in your articles are:
- The name of the organization
- The principal address of your nonprofit
- The name and address of the registered agent
You need to complete Form 532B: Initial Articles of Incorporation. Once you’ve completed the relevant form, file Form 532B online with the Ohio Secretary of State.
7. File an initial report
While nonprofits in many states must submit initial reports, it is not a requirement in the state of Ohio.
8. Secure an EIN (Employer Identification Number)
An EIN or Employer Identification Number is a nonprofit’s Social Security number. Therefore, it is used by the Internal Revenue Service to identify your business entity.
All Ohio nonprofits will need to obtain an EIN irrespective of whether they plan to hire employees.
Additionally, the employer identification number is useful in many instances, such as:
- Opening a business bank account
- State and federal tax purposes
- Submitting 990 returns to the IRS
An employer identification number may be obtained from the IRS free of charge. You’ll need to complete IRS Form SS-4 and then file it online.
9. Apply for federal tax exemption
Every Ohio nonprofit must file with the IRS for 501(c)(3) tax exemption. All organizations are given two options depending on the amount they expect to receive over the next three years.
Form 1023 is for most nonprofit organizations that expect to raise more than $50,000 in the next three-year period.
However, nonprofits that plan to run small business organizations may file Form 1023-EZ for smaller corporations that anticipate revenue of under $50,000 over the next three years.
After completing the relevant forms, go ahead and file them on the IRS website.
Once your application for federal income tax exemption is received, it will be reviewed by the Internal Revenue Service.
If all goes well, you’ll receive an IRS determination letter stating that your nonprofit is one of the existing organizations that are exempt from federal taxes.
10. Apply for Ohio state tax exemption
If you’ve received 501(c)(3) tax-exempt status, then your organization is not liable for state income tax or state sales tax. However, your organization will need to complete template or Form STEC-B, which is the sales and use tax blanket exemption certificate to sellers.
11. Other applicable permits and licenses
Ohio nonprofit corporations are required to obtain a vendor license. However, aside from this, a statewide business license is not required. However, depending on the scope of the organization, you should consult the checklist section provided on the Ohio Business Gateway to make sure that no additional licenses or permits are required.
Additional state registration and reporting requirements
If you plan to raise funds, participate in fundraising activities, or engage in charitable solicitations, then you must register your nonprofit with the Ohio Attorney General’s office.
12. Submit an annual report
Nonprofit corporations operating in the state of Ohio must submit annual reports to the Ohio Attorney General’s office. This is as per state law, and the filings are public and ultimately contribute towards transparency and accountability within the nonprofit sector.
Costs of starting a new nonprofit in Ohio
The filing fees below apply to all Ohio nonprofits:
- Filing Articles of Incorporation: $99
- Ohio Charitable Registration: $50 – $200
- Applying for 501(c) tax exemption: $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.
According to the IRS, organizations that qualify as public charities include schools, churches, medical research organizations, hospitals, etc. The organization must be publicly supported or receive a specific portion of their total support from public sources as well as specific supporting organizations. Additionally, the organization must have an active fundraising program to receive contributions from many sources.
Exempt organizations are charitable organizations, private foundations, churches and religious organizations, political organizations, and various other nonprofits. However, all of these different types of organizations have one thing in common: they have received federal tax exemption from the IRS. This means that they’re not liable for corporate income and many other taxes that for-profit organizations need to pay.
In other words, every nonprofit is on a mission. Therefore, an organization’s mission statement lets people know what they stand for and believe in. Additionally, by defining a nonprofit organization’s purpose and cause, everyone involved would understand and agree on the mission, and ultimately this eliminates confusion and brings about unity towards the cause.
A nonprofit business plan should include an executive summary, organization description, management information, market analysis, and any programs, products, or services you plan on offering. However, a critical part of the nonprofit business plan is the organization’s goals and vision or, in other words, what your nonprofit hopes to achieve.
Both a 501C and a 501(c)(3) organization are exempt organizations. This means that they are not liable for corporate income taxes. However, the difference is that a 501(c) nonprofit cannot permit its supporters to disregard donations. A 501(c)(3) nonprofit organization allows its donors to take tax deductions on their donations.