Rhode Island has approximately 8,840 nonprofit organizations in its nonprofit sector. These nonprofits employ 116,033 people and earn more than $14 billion in revenue per year. The combined assets of these nonprofit organizations in Rhode Island are approximately $40 billion.
Among the most popular and successful nonprofit organizations making their mark in Rhode Island are Mayan Families, Rhode Island Tutorial & Educational Services (RITES), and Be The Change/Project Hand Up.
Nonprofit organizations are formed to meet an unfulfilled need in the community, be it on a federal, state, or global level.
Once the nonprofit corporation has received tax exemption, it will enjoy various privileges such as credibility and recognition from the IRS, discounts on US postal services, limited liability, and perpetual existence, among privileges.
Getting your nonprofit formed and incorporated could take anywhere between two weeks or three months. The following step-by-step guide will provide insight into how to start a nonprofit in Rhode Island.
1. Select a name for your organization
Every Rhode Island nonprofit needs a name. The name of the nonprofit is ultimately its image and brand. Therefore, you need to think carefully about the name you choose for your nonprofit organization.
Additionally, the name should be easily found by potential stakeholders and donors. Rhode Island has the following naming guidelines that you should stick to when choosing a name for the organization:
Your organization’s name cannot include any phrase or word suggesting that it is formed for any other purpose other than what’s listed in your organization’s Articles of Incorporation
The state also provides official guidelines for naming Rhode Island-based nonprofits.
Additionally, you may perform a name search on the state of Rhode Island website to ensure that the name is available.
While creating a website for your nonprofit is optional, it will help boost the nonprofit organization’s exposure and credibility; therefore, checking that the web domain is available is highly recommended.
2. Nominate a Rhode Island registered agent
Every nonprofit in Rhode Island will have to accept legal documents, official mail, and service of process. Therefore, a designated individual must be appointed to accept service of process and all official mail sent to the nonprofit organization.
The designated individual is referred to as a registered agent. The registered agent will be tasked with accepting all important legal documents on your nonprofit’s behalf.
You may appoint anyone as your Rhode Island nonprofit’s registered agent provided they meet the following requirements:
- They must be at least 18 years of age or older
- They must reside in Rhode Island and have a physical address in the state
- They must consent to the appointment
You may also choose to point yourself; however, this is not advisable as you need to be available during normal office hours in order to accept service of process.
3. Recruit your board members
The next step in the Rhode Island nonprofit formation process is recruiting incorporators, officers, and directors.
The incorporator will be responsible for signing and delivering the Articles of Incorporation on your nonprofit’s behalf. You need to choose at least one incorporator, although you may have more if you prefer.
Next, you need to choose a minimum of three directors for your Rhode Island nonprofit. The organization’s directors do not need to be stakeholders in the nonprofit, nor do they need to reside in the state. Directors will serve a minimum term of one year or a maximum term of three years until a successor is nominated.
Lastly, you need to recruit officers for your Rhode Island nonprofit. The officers will fulfill the roles of secretary, treasurer, and president. The term of service for officers is one year unless otherwise specified in your nonprofit Articles of Incorporation or Bylaws.
When it comes to officers, the same individual may hold more than one position unless they are a president or secretary of the nonprofit.
4. Consent to bylaws and conflict of interest policy
Every nonprofit created in the state of Rhode Island will need to create governing documents and policies. These documents and policies are referred to as the bylaws and Conflict of interest policy.
The bylaws are the operating procedures of the nonprofit organization. When it is adopted and approved, the bylaws will need to outline exactly how the nonprofit is going to be run.
Next, you must compile a conflict of interest policy. This policy is ultimately a collection of rules set in place to make sure that all decisions taken by the Board of Directors or stakeholders in the organization are for the nonprofit’s benefit and not for the benefit of individual members.
Both of these documents will need to be adopted during the organization’s first board meeting, where directors and officers are also pointed.
There’s no need to file these governing documents with the state; however, they should be kept in a safe place for reference as and when needed.
5. Select a Rhode Island nonprofit startup corporation structure
The following organizational structures or types of nonprofits are available in the state of Rhode Island:
- 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.
- 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.
- 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.
- Charitable organizations or public 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.
6. Prepare and file nonprofit Articles of Incorporation
Composing and filing the Articles of Incorporation is one of the most important steps in the Rhode Island nonprofit formation process. Ultimately, the articles will document important details pertaining to the nonprofit organization.
The information required is also essential in verifying the nonprofit’s existence. The specific language required by the IRS will vary from state to state; however, they will look for some provisions across the board when applying for tax exemption.
Remember to include certain information such as:
- The nonprofit’s name
- Duration of the nonprofit organization
- The name and address of the initial registered agent and initial registered office
- The number of directors on the board, as well as their names and addresses
- The name and address of each incorporator
Additionally, it is essential that you include:
- A statement of purpose that meets Internal Revenue Service requirements
- A dissolution clause stating exactly what would happen to nonprofit assets in the event of dissolution
7. File an initial report
Filing an initial report with the state is not a requirement in Rhode Island.
8. Secure an EIN (Employer Identification Number)
All nonprofits require an Employer Identification Number. This number is a unique nine-digit code assigned by the IRS to identify business entities in the state. You can think of it as your nonprofit’s social security number.
In order to obtain an EIN, you need to complete IRS Form SS-4 and submit it to the Internal Revenue Service or IRS website. The quickest way to obtain your Employer Identification Number is to complete the template or form and submit it online.
Once you’ve obtained your Employer Identification Number, you’ll enjoy many benefits such as:
- Opening a business bank account for your nonprofit
- Hiring employees for the company
- Federal and state tax purposes
Additionally, the Employer Identification Number is free of charge.
9. Apply for federal tax exemption
Tax-exempt existing organizations, unlike for-profit companies, enjoy various financial privileges that ultimately help further the cause. In order to be considered a tax-exempt organization, you will need to receive 501(c)(3) tax-exempt status from the Internal Revenue Service.
A tax-exempt organization simply means that you are exempt from paying federal corporate income tax on any income generated through fundraising efforts, charitable solicitation, etc.
As long as you can prove that the income generated is directly related to the purpose of the nonprofit organization’s mission, you have eligibility and will maintain your tax-exempt status with the Internal Revenue Service.
In order to apply for tax-exempt status with the IRS, you’ll need to complete IRS Form 1023. Small business organizations are free to compete IRS Form 1023-EZ. After completing the relevant form, go ahead and file it with the Internal Revenue Service.
Once your application has been received, it will be reviewed by the IRS, and an outcome will be determined.
If your application has been approved, the IRS will send you a determination letter stating that you are exempt from paying federal corporate income taxes.
If your application has been declined, you will receive a letter of explanation from the IRS explaining why your application is not approved.
10. Apply for Rhode Island state tax exemption
Once your federal tax exemption application has been received and approved by the IRS, and you’ve received your determination letter, your nonprofit is now automatically exempt from state income tax. So there’s no need to apply for state tax exemption.
However, you will still need to apply for sales and use tax exemption with the Rhode Island Department of Revenue Division of Taxation. Complete Form EXO-APP and file it with the Department of Revenue.
11. Other applicable permits and licenses
There’s no need to obtain statewide business licenses as per Rhode Island law. However, you should check with the Department of Business Regulation and licensing board in your city to determine whether there are additional licenses and permits required to run your organization in the state.
Additional state registration and reporting requirements
If your Rhode Island nonprofit organization plans on participating in charitable solicitation or wants to raise funds at any point in time, you need to register it with the Department of Business Regulation.
12. Submit an annual report
You need to file a one-page annual report with the Rhode Island Secretary of State in order to keep your organization in good standing with the state. The annual report is useful when it comes to confirming or updating your organization’s information. The submission window for submitting the annual report is between 1 June to 30 June. Annual reports may be completed and submitted online.
Costs of starting a new nonprofit in Rhode Island
Rhode Island nonprofits will need to take note of the following filing fees:
- Articles of Incorporation: $35
- Application for federal income tax exemption or 501(c): $275 or $600 IRS fee
- Rhode Island sales tax exemption: $25
- Rhode Island charitable trust registration: $50, if applicable
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.
Public charities use publicly collected funds raised through fundraising activities to directly support their organization’s mission. On the other hand, a private foundation is a nonprofit charitable entity that’s formed by a single benefactor, individual, or business through an establishment of funds.
Charitable contributions are considered gifts that are given without reciprocity, by IRS definition. Therefore supporting a charitable organization by purchasing merchandise or attending events puts you into the tax-deductible donations category. Giving tax-deductible donations are a major incentive for donors.
After receiving tax exemption and credibility with the IRS, you still need to work towards keeping your nonprofit compliant. Compliance laws are put in place to protect the public and make sure that organizations are not abusing the government’s financial privileges. The IRS compliance guide contains all of the information required to keep the nonprofit compliant and helps avoid getting your exempt status revoked.
A nonprofit’S mission statement is a description of the organization’s cause or purpose. It also describes how the nonprofit aims to address unmet or unfulfilled needs. Ultimately, the mission statement communicates the value that the organization delivers and what the group hopes to achieve, and how they hope to achieve their purpose.
The National Council of Nonprofits is considered a trusted resource and a leading advocate for charitable nonprofits in the United States. They help keep nonprofits empowered and informed so that they can make a positive impact on the public and use their efforts to advance their missions.