South Carolina is home to over 13,000 nonprofit organizations. Some of the most successful nonprofits making their mark in the community include CHARLESTON ANIMAL SOCIETY, Neuroendocrine Cancer Awareness Network Inc, and The Humane Society of McCormick County.
Nonprofit organizations are always formed to meet an unfulfilled need in the community. This is sometimes on the state, federal or global level. The process of starting a nonprofit organization is simple if you comply with the relevant state and federal laws.
Starting a nonprofit in South Carolina could take anywhere between two weeks to three months, provided you file the relevant forms and comply with the laws.
Once you’ve set up your nonprofit organization and receive tax exemption, your organization will enjoy many benefits, such as limited liability and perpetual existence.
The following step-by-step guide is intended to show you how to go about starting a nonprofit in South Carolina.
1. Select a name for your organization
The first step in the process of starting a South Carolina nonprofit is naming the organization.
You first need to see if the name you are contemplating is still available to be used. Conducting a name search on the state of South Carolina website will let you know whether the name is taken or available for use.
Additionally, South Carolina contains the following naming guidelines:
- The name should be different from any other business entity in the state
- The name should not contain any language implying was stating that the organization is formed for a purpose other than what is permitted by section 33-31-301 and the organization’s Articles of Incorporation
You may also want to conduct a web domain search to ensure that the name is available as a web domain in the event you want to create a website for your nonprofit at a later stage.
2. Nominate a South Carolina registered agent
Your nonprofit needs a registered agent in South Carolina. The registered agent is responsible for receiving official mail, legal documentation, and service of process on the nonprofit’s behalf.
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You may nominate anyone as your organization’s registered agent; however, they do need to meet the following requirements:
- They must be a resident of South Carolina
- They must have a physical address in South Carolina
- They must maintain regular business hours
- They must consent to the appointment
Nominating yourself as your nonprofit’s own registered agent is an option, but it is not recommended. This is because you need to maintain regular business hours and be available to accept service of process at any point and time during the day. Ultimately, this will limit your ability to take meetings elsewhere and at any time.
3. Recruit your board members
All nonprofits in Rhode Island will need to nominate incorporators, directors, and officers. These individuals are known as the board of directors.
Incorporators are responsible for signing and delivering the nonprofit Articles of Incorporation. You need to recruit at least one incorporator; however, you may have more.
You also need to choose at least three directors. When it comes to recruiting directors, they need to be natural persons with no residency requirements or membership requirements. The default term of service for directors is one year, and this goes up to a maximum of five years.
Lastly, all Rhode Island nonprofits require officers. The officers will serve the roles of president, secretary, and treasurer. The same person can hold more than one office.
4. Consent to bylaws and conflict of interest policy
In order for your Rhode Island organization to have tax exemption eligibility, you are required to file two important documents:
- Conflict of Interest Policy
The first document, the bylaws, is basically a collection of rules that lay out exactly how your organization will be operated.
The next document, which is the Conflict of interest policy, is put in place to ensure that the decisions taken by the board of directors and officers are always made to benefit the nonprofit organization or the organization’s mission.
The Conflict of interest policy is necessary because, in the event that a conflict of interest arises at any point in time, stakeholders and the board will be referred back to the policy. The policy will also be used to resolve the Conflict of interest.
Both of these governing documents do not need to be submitted to the South Carolina Secretary of State; however, they should be kept on file in a safe place for future reference or when needed.
5. Select a South Carolina nonprofit startup corporation structure
The following organizational structures or types of nonprofits are available in the state of South Carolina:
- Charitable Organizations or Charities: These nonprofits are regarded as 501(c)3 under the Internal Revenue Code and are exempt from taxes. These nonprofits are created for one or more of the following purposes:
- Religious, charitable, educational, literary, scientific
- Fostering national or international amateur sports competition
- Testing for public safety
- Prevention of cruelty to animals or children
Some examples of charitable organizations include food banks, low-income housing organizations, daycare centers, mental health organizations, and environmental groups.
- Trade and Professional Associations: These types of nonprofits are considered 501(c)6 organizations under the Internal Revenue Code. They are usually business alliances and the likes. Some of the Trade and Professional Associations organizations are retail Chambers of commerce, merchants associations, real estate boards.
- Civic Needs and Social Welfare Organizations: These types of nonprofits are regarded as 501(c)4 under the Internal Revenue Code. They are formed to improve the overall good and welfare of people in the community.
Some examples of civic leagues and social welfare organizations include downtown improvement associations, healthcare, housing, civic groups, and social action organizations.
- Social and Recreational Clubs: Under the Internal Revenue Code, these types of nonprofits are described as 501(c)7 organizations. They encompass country clubs, garden and variety clubs, hobby clubs, as well as amateur hunting, fishing, and sports clubs.
6. Prepare and file nonprofit Articles of Incorporation
Having your Articles of Incorporation compiled and submitted to the South Carolina Secretary Of State Division of Business Filings is one of the most crucial steps in the process. This is because your articles officially mark the creation of the nonprofit.
They contain pertinent information regarding the nonprofit organization such as:
- Corporations name
- Registered agent’s name and address
- Principal office name and address
- Whether you have members or not
- Whether you are applying for 501(c)(3) tax-exempt status
- Additionally, you need to include the following information:
- The incorporator’s name, address, and signature
- Each director’s name and signature
- The effective start date of the organization, if different from the filing date
There are two statements required in your Articles of Incorporation in order for your nonprofit to receive the federal tax exemption.
- The first statement is a description of your nonprofit’s purpose or mission statement that must fall under the categories or provisions set forth by the Internal Revenue Service. So you need to state whether your organization is a mutual, public benefit, or religious corporation.
- The next statement is a dissolution clause stating how your organization’s assets will be distributed upon dissolution.
Complete the Articles of Incorporation Form or template and then submit it to the South Carolina Secretary of State-Division of Business Filings.
7. File an initial report
All South Carolina nonprofit corporations must file an initial report with the South Carolina Department of Revenue. In order to do this, you need to complete Form CL-1 and submit it at the time of formation.
8. Secure an EIN (Employer Identification Number)
Nonprofit organizations, just like for-profits, are also considered business entities. Therefore, your nonprofit will need to have an Employer Identification Number, also known as an EIN.
An EIN is more or less a social security number for your business organization. It’s useful when it comes to various tasks, including applying for licenses, business loans, permits, and filing tax returns.
In this case, your EIN will be issued immediately, provided you print it prior to closing a session.
9. Apply for federal tax exemption
Obtaining tax-exempt status comes with lots of benefits. However, one of the biggest benefits of tax exemption is that any public charity that earns an income or profit that exceeds its expenses does not have to be taxed. In other words, nonprofit organizations do not need to pay tax on their earnings or income if they are tax-exempt organizations.
In order for South Carolina nonprofits to be eligible to apply for tax exemption, you’ll need to have completed the following steps:
- Obtained your Employer Identification Number
- Filed your nonprofit Articles of Incorporation
- Adopted the necessary governing documents
- Elected to at least three directors not related to each other
After submitting your tax exemption application, and the IRS approves it, you’ll receive a determination letter stating that your nonprofit is one of the existing organizations that are also now an exempt organization under the Internal Revenue Code.
10. Apply for South Carolina state tax exemption
If your application for tax exemption was received and approved and you have your IRS determination letter in hand, you don’t need to obtain an exemption from state income tax. This is because the nonprofit is automatically exempt as long as you have been approved for federal tax exemption. However, charitable organizations still need to obtain sales tax exemption by filing Form ST-387 with the South Carolina Department of Revenue.
11. Other applicable permits and licenses
The state of South Carolina does not require nonprofits to get a statewide business license. However, check with the South Carolina Business One Stop website to determine whether there are additional licenses and permits based on the county or city your nonprofit is located in.
Additional state registration and reporting requirements
Unless your nonprofit corporation falls under one of the statutory exemptions from registration, your organization will need to register with the South Carolina Secretary of State’s office before making any charitable solicitations for the organization.
12. Submit an annual report
Foreign and domestic South Carolina nonprofits are not obligated to file an annual report. This is because the state does not have a renewal requirement for sales tax exemption; however, it would be in your organization’s best interest to keep the information up-to-date.
Costs of starting a new nonprofit in South Carolina
These are the filing fees for South Carolina nonprofits:
- Filing Articles of Incorporation: $25
- Applying for federal income tax exemption or 501(c): $275 or $600 IRS fee
- South Carolina charitable registration: $50 (or $0 if filing 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.
Nonprofit organizations depend heavily on fundraising efforts to earn revenue that is cycled back into the organization to further the cause. Some of the ways that you can fundraise for your nonprofit organization include soliciting online donations, social media donations, mobile donations, and individual event donations. You may also want to apply for public and private funding from government and private foundations.
The nonprofit sector, put simply, consists of nonprofit organizations that are tax-exempt and benefit the broad public interest. The most common nonprofit is classified as a 501(c)(3) and includes private foundations and public charities. The vast number of independent sector members are 501(c)(3) organizations.
The frequency of board meetings is ultimately determined by the Board of Directors. However, it is better to hold board meetings as and when needed as opposed to scheduling meetings each and every month and then scraping around for topics to discuss. Therefore, holding board meetings quarterly or when needed is highly recommended.
The term fiscal sponsorship refers to the practice of nonprofit corporations offering their legal and tax-exempt status to organizations that either do not qualify for tax exemption or have not yet received their tax-exempt status from the IRS. Ultimately, fiscal sponsors engage in activities directly related to the organization they are sponsoring. It may involve a fee, a contractual arrangement, or a partnership.
Simply put, donations to 501(c)(3) nonprofits are tax-deductible. This means that when you donate to a 501(c)(3) organization that the Internal Revenue Service has granted federal tax exemption, you are eligible for a deduction when you file your taxes. However, the exception to the rule is you only qualify for a deduction when filing your taxes if you’ve not received anything in return for your donation.