How to Start a Nonprofit in Tennessee

Starting a nonprofit organization could take anywhere between two weeks to three months, provided you have filed the relevant forms and complied with the relevant state and federal laws. 

However, once your nonprofit organization is formed and has received tax-exempt status, the nonprofit will enjoy many benefits such as limited liability, perpetual existence, discounts on US postal services, access to funding from public and private foundations, etc.

The state of Tennessee is home to 37,895 successful nonprofit organizations in their nonprofit sector, which employ a total of 357,354 people and earn over $44 billion in revenue yearly.

Nonprofit organizations are formed when an unfulfilled need is identified in the community. This is sometimes on a state, federal or global level. 

Ultimately, a nonprofit’s primary goal is to further its cause.

The following step-by-step guide will show you how to go about starting a nonprofit organization in Tennessee.

1. Select a name for your organization

Just like for-profit companies, nonprofits also need names. Naming your nonprofit in Tennessee requires careful consideration, considering that it will determine your nonprofit’s image and brand. 

Additionally, the name will need to comply with Tennessee naming requirements and should be easily found by potential stakeholders and donors.

If you choose a nonprofit name containing the words banking, banks, bank, trust, or credit union, then you’ll need to attain written permission from the Tennessee Department of Financial Institutions

The official guidelines for naming a Tennessee-based nonprofit contain the complete rules on appropriately choosing a name for a nonprofit.

Additionally, a name search could also prove helpful and will determine whether the name is available to be used or has already been taken by another business entity in the state. Perform the name search on the state of Tennessee website.

Lastly, checking that the name is available as a web domain is always recommended as it will allow you to create a website for your nonprofit using the exact same name.

2. Nominate a Tennessee registered agent

The state of Tennessee requires that all nonprofit organizations have a registered agent. The registered agent’s duty, who was often called by different names such as a resident agent, statutory agent, or service of process agent, is responsible for keeping your business compliant by maintaining up-to-date paperwork. 

They are also tasked with accepting official mail and legal documentation on your nonprofit’s behalf. For example, in the event that your nonprofit were to be sued for whatever reason, then the legal documentation will be subject to your registered agent.

You may select anyone as your nonprofit’s registered agent; however, they need to meet the following requirements:

  • The Tennessee registered agent must be at least 18 years of age or older
  • The Tennessee registered agent must be a resident of the state
  • The Tennessee registered agent must have a physical address in the state
  • The Tennessee registered agent must consent to the appointment
  • The Tennessee registered agent must maintain normal business hours

3. Recruit your board members

Every nonprofit organization in the state of Tennessee needs an incorporator. The primary goal of the incorporator is signing and delivering the nonprofit Articles of Incorporation. You’ll only need to recruit one individual as the nonprofit incorporator; however, some organizations choose to have more than one incorporator.

Next, your nonprofit needs at least three individuals to serve the roles of directors. The directors need to be natural persons; not related to each other, however, there are no residency or membership requirements. The term of service is one year, and this goes up to five years or until a successor is nominated. 

Next, you need to choose Tennessee officers for your nonprofit. The officers will fulfill the roles of president and secretary. You’ll also need to designate an officer who will be in charge of preparing the minutes of the board meetings and authenticating records of the organization.

Together these individuals make up the board of directors.

4. Consent to bylaws and conflict of interest policy

The bylaws are your nonprofit’s internal management handbook. It is also required by state and federal law prior to filing Articles of Incorporation and applying for federal tax exemption. Therefore, this is an essential step in the process that must be completed as soon as possible.

The bylaws are basically a collection of rules and procedures that outline exactly how your nonprofit is going to be operated. 

You’ll also need to compile a Conflict of interest policy to protect the best interest of your nonprofit organization

The Conflict of interest policy ensures that in the event that any stakeholder or board member of the nonprofit organization makes a decision to further their own personal agenda as opposed to the nonprofit’s best interest, it will be dealt with in the procedures laid out in the Conflict of interest policy.

Neither one of these governing documents need to be filed with the state of Tennessee; however, you need to keep it in a safe place for reference as and when needed.

5. Select a Tennessee nonprofit startup corporation structure

The state of Tennessee has different types of nonprofits or organizational structures. Deciding on the legal form for your organization is an essential part of this process.

Usually, 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 Tennessee 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

In order to legally incorporate your nonprofit with the state, you need to file Articles of Incorporation. The articles will need to contain pertinent information pertaining to the organization. 

Ensure that you include:

  • The nonprofit’s name
  • The address and name of your nonprofit’s primary location
  • Name and address of the registered agent
  • Name and address of the incorporator
  • A statement that the nonprofit is not for profit
  • A statement indicating that your nonprofit will not be engaging in activities unrelated to its purpose or mission statement

Additionally, the articles need to include two essential statements which will come into play when you apply for federal tax exemption:

  • A statement declaring the purpose of your organization or your organization’s mission and stating whether the nonprofit is a mutual benefit, public benefit, or religious corporation
  • A dissolution clause stating what would happen to the assets in the event that your organization is liquidated or dissolved

Once you’ve organized the information, you need to complete the Charter Form or template to file the Articles of Incorporation with the Tennessee Secretary of State-Division of Business Services.

Upon approval, your nonprofit will receive a Certificate of Incorporation.

7. File an initial report

Tennessee nonprofits do not need to file an initial report with the state.

8. Secure an EIN (Employer Identification Number)

An Employer Identification Number is also referred to as a Federal Employer Identification Number and is assigned by the IRS. The unique nine-digit number is used by the Internal Revenue Service to identify business entities in each state. 

Therefore, it is required that all nonprofit organizations obtain An Employer Identification Number. In order to apply to obtain an Employer Identification Number, you need to complete IRS Form SS-4 and submit it online to the Internal Revenue Service

There is no additional cost for obtaining an Employer Identification Number, and you will receive it immediately when filing online. However, please note that the IRS website is only operational during specific is hours; therefore, you need to print your Employer Identification Number before closing your session.

The IRS Pub 1635: Understanding your EIN will provide additional guidance for obtaining an Employer Identification Number for your nonprofit organization.

9. Apply for federal tax exemption

The next step in the Tenessee nonprofit formation process is applying for federal tax exemption or 501(c)(3) tax-exempt status under the Internal Revenue Code with the IRS

However, prior to making your application, you will need to have completed the following steps in order to have tax-exempt eligibility:

  • Elected at least three directors who have no relation to each other
  • Obtained your Employer Identification Number
  • Adopted your nonprofits bylaws and compiled the Conflict of interest policy
  • Filed the Nonprofit Corporation Charter with the required IRS provisions

If you’ve completed all the steps mentioned above, you’re free to go ahead and fill in Form 1023. Small business organizations are free to complete Form 1023-EZ.

Once the Internal Revenue Service has received your application, it will be reviewed and approved. If the application is approved, you’ll be sent a determination letter from the Internal Revenue Service stating that your organization is one of the existing organizations that are exempt from federal taxes. 

Donations made to exempt corporations are tax-deductible

Alternatively, if the application is not approved, you’ll receive a letter of explanation outlining why the application was declined.

10. Apply for Tennessee state tax exemption

Tennessee nonprofit corporations that have received their IRS Determination Letter do not need to file to obtain an exemption from state income tax. This is because the IRS determination automatically makes your nonprofit an exempt organization or exempt from state income taxes.

However, Tennessee nonprofits should still file to obtain sales tax exemption. Complete and file Form RV-F1306901 and file it with the Tennessee Department of Revenue.

11. Other applicable permits and licenses

Your Tennessee nonprofit organization may need to get a business license based on the type of activities it intends on carrying out. Your nonprofit’s location will also play a role in whether you need to obtain business licenses or permits. Ensure that you check with the Small Business Administration Business License & Permit look-up tool to determine if you need to obtain specific licenses and permits to operate a nonprofit in the state.

Additional state registration and reporting requirements

All Tennessee nonprofit organizations or public charities are required to register with the Tennessee Department of State Division of Charitable Solicitation and Gaming. This is especially if you plan on fundraising for your corporation. The state of Tennessee exempts a few charitable organizations from charitable solicitation registration. Religious, and educational organizations are exempt. Nonprofits that earn less than $30,000 nationwide per year are also exempt. Rescue squads, volunteer fire departments, and local civil defense organizations are also exempt from registering for charitable solicitation in the state of Tennessee.

12. Submit an annual report

Tennessee nonprofit corporations are required to file an annual report with the Tennessee Secretary of State. The reports are due before the first day of the fourth month following the nonprofit’s fiscal year closing. Annual reports may be filed online.

Costs of starting a new nonprofit in Tennessee

The following filing fees are applicable to all Tennessee nonprofits:

  • Articles of Incorporation: $100
  • Application for federal income tax or 501(c): $275 or $600 IRS fee
  • Tennessee charitable registration: $50 ($0 if exempt)

Next steps

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

Obtain insurance 

  • 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. 

FAQs

Nonprofit organizations that are tax-exempt enjoy various benefits, and the tax-exempt status is one of them. This means that nonprofits do not pay taxes on money raised, and all earnings are recycled back into the nonprofit to further the cause. Additionally, donations made by individuals are tax-deductible, thereby providing an incentive to donors to contribute toward your cause.

The founder of the nonprofit organization, often referred to as the executive director, is allowed to pay himself or herself a salary. The remuneration will be in exchange for their work running the nonprofit organization. Additionally, the founder of the nonprofit organization is allowed to compensate full and part-time employees for their work. However, all salaries paid out to members of the organization must be disclosed to the IRS

It’s regarded as fiscal sponsorship when you work together with or form partnerships with other nonprofit organizations. These organizations have already obtained their tax exemption from the IRS. Therefore if you are still waiting to receive your exemption or have been declined, partnering with a fiscal sponsorship will allow you to offer tax exemption to your donors. You’ll also obtain eligibility to apply for certain government and foundation grants, among other benefits.

There are many benefits to using social media for fundraising. One of the advantages of using social media is keeping existing donors engaged and up-to-date with the events of your nonprofit organization. Social media allows nonprofits to easily share their news updates and campaigns with potential sponsors and donors. Additionally, you may use competitions, polls, and quizzes to activate your fans and followers. 

Just like for-profits, nonprofits also need business plans. However, nonprofit business plans are called operational plans. They describe how your nonprofit will operate, its legal structure, management team, organizational structure, product development, location, inventory, and other processes that are all relevant to the services you provide.

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