Unlike clubs and cooperatives that are formed to benefit their members, nonprofits are created to provide a benefit to the public. Therefore, these companies are created for educational, charitable, religious, scientific, and literary purposes.
Nonprofit organizations in the Pennsylvania nonprofit sector enjoy various benefits as opposed to for-profit companies. Some of the advantages of starting a nonprofit in the state include perpetual existence, tax-deductible donations, separate entity status, and U.S. Postal Service discounts, among other privileges.
Some of the most popular nonprofits in Pennsylvania include Global Links, Brittany’s Hope, and North Hills Community Outreach Inc. There are 79,240 successful nonprofit organizations in the state of Pennsylvania. These nonprofit organizations hire approximately 1 million people and earn over $161 billion in revenue per year.
Starting a nonprofit organization could take you anywhere between two weeks to three months, provided you have filed the relevant forms and complied with the relevant laws.
The following step-by-step guide will provide you with further information on how to go about starting a nonprofit in Pennsylvania.
1. Select a name for your organization
Once you have identified the unmet need in your community, it’s time to go ahead and decide on a name for the nonprofit.
The name is not just important for establishing the nonprofit’s brand and image, but it is essential for incorporation with the state. Therefore, it stands to reason that careful consideration should go into the nonprofit’s name.
Please keep in mind the following naming guidelines when deciding on your organization’s name:
- The nonprofit’s name should in no way be associated with (YMCA) which is the Young men’s Christian Association
- The name should not be associated with certain professions such as certified public accountant, public accountant, architect, engineer, surveyor, homeopathic, pharmacist, etc.
- The nonprofit’s name should not imply that it is an insurance company or associated in any way with insurance companies. Therefore it should not contain names such as annuity, casualty, insurance, etc.
- The nonprofit name must not include terms or phrases that are linked with educational institutions such as seminary, college, university
- The nonprofit name must not be associated with financial institutions. Therefore, it should not include terms or phrases such as Bank, Bank, and trust, trust company, trust
- The nonprofit name must not imply that your corporation is a public utility company
- The nonprofit name should not imply that your corporation is a part of a government agency
- The nonprofit name must be distinguishable from other business entities registered in the state
For additional guidance on naming a Pennsylvania organization, refer to the Pennsylvania State Guidelines.
Additionally, a business entity search on the Pennsylvania Department of State website will come in handy to ensure that the name is not already taken.
While creating a website for your nonprofit is optional, it will help to further your cause; therefore, checking the web domain availability of the name is also recommended.
2. Nominate a Pennsylvania registered agent
Every Pennsylvania nonprofit needs a registered agent. Registered agents are also referred to as statutory or service of process agents because they are responsible for receiving legal documents and official mail on the nonprofit’s behalf.
You may choose to appoint anyone as a registered agent provided they meet the requirements below:
- They must be a resident of the state of Pennsylvania
- They must have a physical address in Pennsylvania
- They must maintain regular business hours
- They must be at least 18 years of age or older
- They must consent to the appointment
You may also choose to appoint yourself as your nonprofit registered agent. However, this is not recommended as you will need to maintain regular business hours as mentioned above. Therefore, this means that you won’t be able to take outside meetings if required.
3. Recruit your board members
The next step in the Pennsylvania nonprofit formation process is recruiting incorporators and initial directors for your organization.
According to Pennsylvania law, you’ll need to nominate an incorporator who will be responsible for signing and delivering the Articles of Incorporation.
Next, you need to select at least three directors who will make up your organization’s governing body and are also stakeholders in the nonprofit’s success and purpose.
Lastly, you need to nominate officers to fulfill the president, secretary, and treasurer roles. As per Pennsylvania law, the same individual may hold all three positions.
When recruiting the board of directors, note that they will need to be natural persons of full age, but they do not need to be residents of the state or members of the organization.
4. Consent to bylaws and conflict of interest policy
Establishing your Pennsylvania nonprofit’s documents and policies is a crucial part of the process. The Bylaws are governing documents for your organization and serve as the nonprofit management handbook. Therefore, it should be consistent with the Articles of Incorporation.
A Conflict of Interest Policy is also required. When someone in a key position within the nonprofit organization has an interest in furthering their own personal or professional agenda instead of the nonprofit’s interest at all times, it is considered a conflict of interest.
Therefore this policy is necessary and essential in resolving the situation if or when it does arise.
When applying for 501(c)(3) tax-exempt status, the Internal Revenue Service will require that both the Bylaws and Conflict of Interest Policy are adopted and approved. Therefore, it’s essential that the Bylaws are reviewed, approved, and ratified during the first board meeting.
5. Select a Pennsylvania nonprofit startup corporation structure
The state of Pennsylvania has different types of organizational structures. Deciding on the legal form for your organization is an essential part of this process.
Normally, public charities take the legal form of a nonprofit public benefit corporation. However, other nonprofits are established as trusts or associations.
It’s suggested that you consult legal advice to determine what legal form is best for your organization. Thereafter, you’ll need the necessary forms available on the Pennsylvania Secretary of State website in order to incorporate your nonprofit.
Other types of organizations or types of nonprofits include mutual benefit and religious corporations. Mutual benefit corporations are formed typically to benefit their members. This includes the business leagues and social clubs.
Religious corporations are places of worship such as churches and synagogues.
6. Prepare and file nonprofit Articles of Incorporation
Every Pennsylvania nonprofit will need to file the Articles of Incorporation with the state in order to register the nonprofit. Additionally, to ensure 501(c)(3) tax-exempt eligibility, your articles will need to include some pertinent information regarding the nonprofit.
The articles must include:
- The effective date of the articles
- The name, address, and street number of each of the organization’s incorporators
- A statement declaring whether or not the organization is going to have members
- A statement of whether the nonprofit will issue stock
- A statement that the Pennsylvania nonprofit is incorporated under the provisions of the Nonprofit Corporation Law of 1988
- A declaration of the nonprofit’s mission statement, purpose or organization’s mission complying with IRS requirements
- A dissolution clause stating what should happen to the nonprofit’s assets in the event of dissolution
- The name, address, and street number of the nonprofit’s registered agent
- The organization’s name
You will need to complete the Articles of Incorporation Form or template and then file it online with the Pennsylvania Department Of State Bureau of Corporations and Charitable Organizations.
Additionally, the articles will need to be filed with the PA docketing statement. This is simply a short form that requires some basic information regarding your nonprofit.
Pennsylvania’s advertising requirement
An additional requirement in the state of Pennsylvania is that incorporators of the nonprofit must advertise their intent to file the Articles of Incorporation or file the actual articles in two newspapers of general circulation.
The first newspaper should be a legal journal, if possible. Please refer to the Pennsylvania Department of State website containing a geographical listing of legal publications to use.
7. File an initial report
Filing an initial report is not a requirement in the state of Pennsylvania.
8. Secure an EIN (Employer Identification Number)
Irrespective of the type of nonprofit you plan on forming, you’ll still need to apply for an EIN. The EIN is an Employer Identification Number and is assigned by the Internal Revenue Service to identify business entities.
Your EIN will be used to open a business bank account, submit 990 returns to the IRS, and apply for federal tax exemption. It will also come in handy if you need to request a Pennsylvania sales tax exemption.
However, you should note that the Internal Revenue Service website is only available during certain operating hours; therefore, you need to print your EIN prior to closing the session.
Further reading and guidance may be found on the IRS Pub 1635.
9. Apply for federal tax exemption
In order to join the list of existing organizations that are also exempt organizations, you’ll need to apply for 501(c)(3) tax exemption with the Internal Revenue Service, under the Internal Revenue Code.
You should start by completing IRS Form 1023. If your organization is a small business and meets certain requirements, then you can go ahead and file Form 1023-EZ. The second form may be found online after setting up an online account with pay.gov.
After completing the necessary or relevant form, go ahead and file it online with the Internal Revenue Service.
Once the IRS receives your federal income tax exemption application, it will be reviewed and approved if it meets the relevant requirements.
In this case, you’ll receive an IRS Determination letter stating that your nonprofit is exempt from federal income tax.
The benefits of gaining federal income tax exemption include:
- U.S. Postal Service discounts
- Limited liability
- Access to grants and funding from both public and private foundations
- Credibility with the IRS and so on.
In the event that your application is not approved, you’ll receive a letter of explanation from the Internal Revenue Service.
10. Apply for Pennsylvania state tax exemption
If your federal income tax exemption application is approved and you’ve already received your IRS Determination letter, you are automatically exempt from Pennsylvania’s corporate income tax. However, you’ll also need to file to obtain a sales tax exemption. You may do so by completing Form REV-72 And then submitting it to the Pennsylvania Department of Revenue.
11. Other applicable permits and licenses
Your nonprofit in Pennsylvania may or may not require additional licenses and permits based on the activities you plan on carrying out. Other factors to consider include where it is located or the county, city, or town your nonprofit is based in.
The Pennsylvania Business One-Stop Shop contains the relevant information to determine whether you do need additional licenses and permits before getting your nonprofit up and running in the state.
Additional state registration and reporting requirements
Under the Pennsylvania Solicitation of Funds for Charitable Purposes Act, all nonprofits in the state that conduct charitable solicitation, fundraising activities, or raise funds on the half of a nonprofit organization must register with the Bureau of Corporations and Charitable Organizations. In order to do this, you need to file a Charitable Organization Registration Statement or Form BCO-10.
12. Submit an annual report
Decennial reports are due every 10 years or during years ending with the number “1”. All reports are due by the 31st December on decennial report years.
Costs of starting a new nonprofit in Pennsylvania
The following filing fees are applicable to all Pennsylvania nonprofits:
- Articles of Incorporation: $125
- Incorporation publishing: ~$200
- Employer Identification Number: $0
- Application for federal tax exemption or 501(c): $275 or $600 IRS fee
- PA-100: $0 + fees for needed licenses
- Pennsylvania Charitable Registration: usually $0 due to exemption
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.
The amount of time it takes to get your nonprofit up and running will vary from one state to the next. Filing Articles of Incorporation may take between 10 to 15 business days, and this does not include the processing time or publishing your intent to incorporate. Additionally, filing for tax exemption with the IRS could take anywhere from one to six months until you receive your IRS determination letter.
The registered agent you nominate for your Pennsylvania nonprofit should be an individual that is at least 18 years of age or older and has a physical office or address in the state of Pennsylvania. Additionally, they should maintain business hours so that they are available in the event that service of process needs to be accepted.
In the event that your corporation does not qualify as a tax-exempt organization, fiscal sponsorships will enable your nonprofits to operate. This is because fiscal sponsors have tax-exempt status and can therefore assist you in attracting funding for operations. Through fiscal sponsorship, all donations received by a nonprofit organization will be tax-deductible to donors.
In most cases, when a company donates to a nonprofit charitable organization, they receive recognition by the company through various events and materials such as merchandise, signage, and online advertising. This ultimately bolsters the company’s reputation and may attract new customers.
Nonprofit organizations that apply for federal tax exemption receive tax-exempt status on net income. Therefore, they are not liable to pay taxes, and all earnings can be cycled back into the nonprofit organization to ultimately further the cause. Additionally, since donations made by companies and individuals are tax-deductible, it’s an incentive to contribute towards your nonprofit.