Vermont nonprofits hire approximately 82,257 individuals and bring in revenue of more than $8 billion each year. There’s a total of 6,503 organizations in Vermont’s nonprofit sector.
Nonprofit organizations are always formed for the greater good of the community. While some nonprofits function on a state level, others function on a federal or global level.
Ultimately, the difference between nonprofits and for-profit companies is that all of the money generated from fundraising activities and charitable solicitation are cycled back into the organization to further the nonprofit’s ultimate purpose.
The profit generated by for-profit companies, on the other hand, is paid out in dividends to stakeholders and shareholders of the business. For-profit companies have a primary goal of generating profits.
While it could take between two weeks to three months to get your nonprofit running and off the ground, the benefits that nonprofit your organization will receive are worth the wait.
Nonprofit organizations enjoy tax-exempt status, which absolves them from my paying federal income tax and state income tax in some instances. They also enjoy limited liability, the ability to grant tax-deductible donations, and perpetual existence.
The following step-by-step guide will show you how to start a nonprofit in Vermont.
1. Select a name for your organization
Irrespective of your nonprofit’s purpose or cause, it still requires a name to distinguish it from other business entities in the state. So you’ll need to decide on a professional business name for your organization. The name should comply with the relevant state laws and naming requirements and should also give the public an idea of your cause.
Additionally, try to make the name easily searchable by potential donors and stakeholders.
Furthermore, the name you choose for your Vermont nonprofit should comply with the following naming guidelines:
- It should not include the word cooperative
- It should not include the words corporation, company, Inc., Limited or abbreviations such as LTD, CO, INC, or corp
Vermont’s official naming guidelines will help you find an appropriate name for your Vermont-based organization.
Conducting a name search on the Vermont Secretary of State website will also help determine whether the name is still available or has already been taken by another business entity in Vermont.
Lastly, you may also want to check that the business name is available as a web domain in the event you plan on creating a business website for your nonprofit organization.
2. Nominate a Vermont registered agent
Registered agents are needed by every nonprofit corporation in the state of Vermont. The role of the registered agent is to receive official mail, service of process, and important legal documents on the business’s behalf. The registered agent is the nonprofit’s point of contact with the state.
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You may nominate anyone as a registered agent; however, the individual must meet the following criteria:
- They must reside in the state of Vermont
- They must have a physical street address in the state of Vermont
- They must be at least 18 years of age or older
- They must maintain usual business hours
- They must consent to the appointment
3. Recruit your board members
Every Vermont nonprofit will need to nominate an incorporator. The incorporator is tasked with filing the articles of incorporation on the organization’s behalf. You’ll need to recruit one incorporator; however, you may have more.
The nonprofit needs a minimum of three directors. These three individuals play a crucial role in the organization’s purpose and success. When nominating directors, note that they are no residency or membership requirements.
Directors may serve a default term of one year; however, they may serve the organization for up to six years until a successor is nominated.
Nonprofits will also need to recruit officers. The officers will fulfill the roles of president, secretary, and treasurer. Together the incorporators, directors, and officers make up what is called the Board of Directors.
4. Consent to bylaws and conflict of interest policy
Two important documents needed to register your organization and also make it eligible to apply for federal tax exemption are the Bylaws and Conflict of interest policy.
Both of these governing documents will need to be compiled during your nonprofit’s first board meeting.
The Bylaws are simply a collection of rules that outline exactly how the organization is going to be governed.
On the other hand, the Conflict of Interest policy is another collection of rules put in place to ensure that when a Conflict of interest arises, the board of directors will be able to handle it according to the policies laid out in this document.
Conflicts of interest arise when board members and individual members make decisions to benefit their own personal agendas as opposed to furthering the nonprofit’s cause.
The governing documents do not need to be filed with the state of Vermont; however, please keep them in a safe place for future reference as and when needed.
5. Select a Vermont nonprofit startup corporation structure
The state of Vermont has different types of organizational structures. So this step in the process depends on you deciding on the legal form for your organization.
Typically, charities take the legal form of a nonprofit public benefit corporation. However, other nonprofits are established as trusts or associations.
You should seek legal advice to determine what legal form is best for your nonprofit. Thereafter, you’ll need the necessary forms available on the Vermont Secretary of State Corporations Division website in order to incorporate your nonprofit.
Other types of corporations or types of nonprofits include mutual benefit and religious corporations. Mutual benefit corporations are formed typically to benefit their members. This includes business leagues and social clubs.
Religious organizations are usually churches and other places of worship.
6. Prepare and file nonprofit Articles of Incorporation
Preparing and filing the Articles of Organization, often referred to as the Certificate of Incorporation or Articles of Incorporation with the Vermont Secretary of State, is an essential step in the process of registering your organization with the state.
Therefore, your Articles of Organization must contain some detailed information regarding the nonprofit organization such as:
- Your Vermont organization’s name
- Whether or not your Vermont nonprofit is a mutual or public benefit corporation
- The street address of the Vermont nonprofit’s registered office, as well as the name of the registered agent at the office
- The address and names of each incorporator [if there’s more than one]
- Whether or not your Vermont nonprofit has members
Additionally, your Vermont nonprofit must include two statements that are essential for incorporating the nonprofit with the state, and these are:
- A statement of purpose meeting Internal Revenue Service requirements. Think of this as the organization’s mission statement and ensure that it aligns with IRS requirements
- The next statement is a declaration of your nonprofit’s assets and also instructions of what should happen to the assets in the event of dissolution. Most nonprofit organizations choose to leave their assets to other existing organizations with 501(c)(3) status or exempt organizations
You need to request the Articles of Incorporation Form from the Vermont Secretary of State. Once you’ve put in your request, you’ll receive an email containing a PDF form to complete and send back.
Go ahead and complete the Articles of Incorporation Form or template and then file it with the Vermont Secretary of State Business Services Division.
7. File an initial report
Initial reports are not required by the state of Vermont.
8. Secure an EIN (Employer Identification Number)
An Employer Identification Number is essential for all business entities in the state of Vermont. The Employer Identification Number is considered a Social Security number for your nonprofit. It is assigned and used by the IRS to identify business entities.
Your Employer Identification Number will be useful in several instances such as:
- Hiring employees for a nonprofit organization
- Opening a corporate or business bank account
- Federal and state tax purposes
In order to obtain your Employer Identification Number, you need to complete IRS Form SS-4 and file Form SS-4 with the Internal Revenue Service. The application is completely free of charge, and you also won’t pay to obtain the Employer Identification Number.
The quickest way to apply is online since you’ll receive your Employer Identification Number immediately. Also, note that the IRS website is operational during specific hours, and therefore to obtain your Employer Identification Number instantaneously, you need to print it out prior to closing the session.
Further reading and guidance on obtaining an Employer Identification Number or EIN may be found on the IRS Pub 1635.
9. Apply for federal tax exemption
Nonprofit status is a state law concept and may make give organizations eligibility for certain benefits like property, income, and state sales tax exemptions. Not all nonprofit organizations are automatically exempt from federal income tax.
This is why you will need to meet the requirements set forth by the Internal Revenue Code and apply for 501(c)(3) tax-exempt status. This application is called recognition of exemption, and the law provides limited exceptions to this requirement.
Once you’ve applied for federal tax exemption and received your IRS Determination letter, it results in a formal recognition of your nonprofit status and is preferable for that reason. In order for your Vermont nonprofit organization to be exempt from federal income tax, you need to complete IRS Form 1023. Small business organizations should complete Form 1023-EZ.
However, prior to completing and filing the relevant form, you need to have elected three directors with no relation to each other, filed the Articles of Organization, adopted governing documents, and obtained your nonprofit’s Employer Identification Number.
In the event that your application for recognition of exemption is declined, you’ll receive a Letter of Explanation from the IRS, letting you know exactly why the application was not approved.
10. Apply for Vermont state tax exemption
Once you’ve received your IRS determination letter formally recognizing your nonprofit as an exempt organization, there’s no need to apply for state income tax exemption. This is because Vermont organizations exempt from federal income tax are also automatically exempt from state income tax. There’s also no need to file for state sales tax exemption.
11. Other applicable permits and licenses
When it comes to obtaining additional licenses and permits, there’s no need for a statewide business license to operate a nonprofit in Vermont. However, additional licenses and permits may be required based on your nonprofit’s county or town. Ensure that you check with your local licensing department for further details.
Additional state registration and reporting requirements
There is no need to register for charitable solicitation in the state of Vermont. This is because it’s not a requirement on the state level. However, some Vermont charities and counties may require nonprofit organizations that solicit in-person to register with the state prior to fundraising. For more information on this, refer to the Attorney General’s website.
12. Submit an annual report
Vermont nonprofits need to file a biennial report in order to remain in good standing with the law. This biennial report must be filed every two years with the Secretary of State. You’ll need to file the first report following your nonprofit’s initial registration and thereafter file the biennial report every two years, but no later than April 1. This report must be submitted online.
Costs of starting a new nonprofit in Vermont
The following filing fees are applicable to all Vermont nonprofits:
- Articles of Incorporation: $125
- Application for federal income tax exemption or 501(c): $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.
Public charities or charitable organizations refer to the solicitation of donations from the community. In other words, public charities make use of publicly collected funds to support their cause. Private foundations are nonprofit charitable entities created by a single benefactor, which is usually a business or individual. Investments are made into the business to generate income which is then dispersed to individual stakeholders. So, in other words, a private foundation’s primary goal is to generate profits to benefit shareholders.
A business plan is required, regardless of whether you are running a nonprofit or a for-profit company. Additionally, no matter the stage that your nonprofit is currently in, a business plan will help you reach your goals quicker than if you’re trying to operate without one. The business plan ultimately helps you figure out what resources you need to accomplish your mission and the direction your nonprofit needs to achieve success in the shortest amount of time.
There are many ways to raise funds for your organization. One way is to host your own fundraising events. From amateur art exhibits to happy hours, they are plenty of ways to bring in money by hosting fundraising events. Another way to raise funds is to empower others to share your cause with their network. Also, learn how to sharpen your strategizing skills and do your own research on fundraising tips and ideas.
Once you’ve received tax-exempt status from the IRS, you’ll need to maintain the status by complying with the law. Therefore, some of the ways to do this are not to :
- Have any shareholders to whom dividends are dispersed
- Spend the nonprofit’s income on anything other than your nonprofit’s purpose
- Contribute to political campaigns
For a detailed guide on how to remain compliant, refer to the IRS compliance guide.
When it comes to raising funds through social media, nonprofit organizations normally ask their followers and fans to share content mentioning a hashtag. This reaches your friend’s organization’s fans and followers. Therefore, this is a powerful way to fundraise as your message travels way beyond your current audience size.