Steps for Starting a Nonprofit Corporation in Indiana
The following is a description of the process Smith Rayl typically follows in serving as a new nonprofit organization’s attorneys.
- The incorporator signs a legal services agreement engaging Smith Rayl.
- Smith Rayl drafts the Articles of Incorporation and Bylaws based on information provided by the incorporator.
- The incorporator recruits the initial officers and directors. Most startup nonprofits do well with an initial board of five to nine directors with 3-4 of them also serving as officers (president, secretary, treasurer, and possibly a vice president or other assistant officer).
- The incorporator signs the Articles of Incorporation, which Smith Rayl files in the Business Services Division of the Office of the Indiana Secretary of State, along with a $30 check for the filing fees. The organization’s legal existence begins when the Articles are filed. Until the organizational meeting of the board of directors, the incorporator has authority to take the actions that are necessary to get the organization started.
- The incorporator convenes an organizational meeting of the board of directors, assisted by Smith Rayl. At the outset of the organizational meeting, the incorporator signs a resolution adopting the bylaws and appointing the initial officers and directors.
- Smith Rayl obtains an employer identification number from the IRS using Form SS-4 Online. The name and social security number of an officer of the corporation, typically the president, will be submitted to the IRS as the company’s “responsible party.” Alternatively, the officer can obtain the EIN using Form SS-4 rather than authorizing Smith Rayl to do it.
- An officer of the corporation opens a bank account when it becomes necessary.
- NOTE: It is possible for the incorporator to obtain an EIN and open a bank account before the organizational meeting of the board of directors, but unless there is a compelling reason to do so, it is a better practice to wait until the board is organized.
- If the organization will have employees, before they are hired, an officer of the corporation:
* Submits to the Indiana Department of Revenue the Indiana Business Tax Application, BT-1, which is now online.
* Registers the organization as a new employer with the Indiana Department of Workforce Development, which creates a State Unemployment Tax Account (SUTA).
* Makes arrangements for payroll processing.
- Smith Rayl, using information provided by the organization’s officers and directors, drafts an Application for Recognition of Tax exempt status. For 501(c)(3) organizations, the application is on Form 1023. For all others, it is on Form 1024. If the organization expects annual gross revenues for the first four years to be $10,000 or more, the application must be accompanied by a user fee of $850. If less average revenues are expected to be less than $10,000 a year, the user fee is $400. Smith Rayl submits the application, which must be signed by an officer, to the Tax Exempt and Government Entities Division of the IRS in Cincinnati. The application should be submitted no later than 27 months after the date of incorporation.
- The IRS should send an acknowledgement letter within 3-4 weeks, acknowledging that the application was accepted.
- Next, the IRS will issue one of the following:
* A letter denying the application (which is unusual, at least at this point).
If the application is denied, the organization will have the right to appeal.
* A letter recognizing the organization as tax exempt, called a determination letter.
* A request for additional information or changes to the organizations Articles or Bylaws. In that case, Smith Rayl will prepare and submit the response with information and assistance from the organization. The response must be signed by an officer. Smith Rayl will continue to work with the organization in responding to any additional requests for information until either a determination letter is issued or the application is rejected.
The time between submission of Form 1023 or 1024 until a determination letter is issued can be anywhere from six weeks (which is very unusual) to six months or a year, occasionally even longer, particularly if there are multiple requests for additional information.
- After the determination letter is received, Smith Rayl will, if requested, prepare Form NP-20A for submission to the Indiana Department of Revenue to request exemption from state sales tax. A copy of the IRS determination letter is attached. Although Smith Rayl is happy to prepare the form for signature by a corporate officer, the form is so simple most of our clients do it themselves. In response, the organization will receive Form ST-105, a General Sales Tax Exemption Certificate.
- If the organization owns real property, Smith Rayl may also assist the organization in applying for an exemption from property tax. If so, the legal service agreement will describe the services and the associate fees.