Do I Need a Lawyer to Form a Nonprofit?

Entrepreneurs are natural self-starters who believe they can do it all themselves, including the incorporation work necessary to start a small business. (And with some of the resources available on the internet, sometimes they might be right.)

But incorporation can be a tricky thing to get right. It is important to do your research if you are establishing a nonprofit to do good. This could mean that you need to hire an attorney to help with the start of your nonprofit.

Start From Scratch

Even choosing a name for your nonprofit organization can get legally complicated. There are some limitations to the name you choose. For example, a nonprofit name can’t conflict with the name of another business or nonprofit, can’t infringe on an existing trademark, and must steer clear of certain terms (like “bank,” “federal,” or “insurance”). An attorney can often check the state agencies’ naming rules and look for existing business names more quickly and easily.

Just as a for-profit corporation writes a business plan, so should a nonprofit organization. A nonprofit’s business plan should not be focused on its charitable purpose, unlike a business for profit. A business attorney’s expertise can also be useful in this area. They can help you develop a business strategy that describes how your everyday operations will contribute to your mission. This makes your business plan an important roadmap that will help you succeed.

And a lawyer will have experience paying the filing fees and filing the incorporating paperwork in order to comply with local, state, and federal law. Along with your application, you will need to file articles of incorporation. Some states call this a certificate or certificate of formation. Most states require basic information about the corporation, its purpose, address, and names of the board of directors.

Moving forward

However, drafting incorporation documents is not a one-time task. While you can always make changes later if necessary, that’s not always possible. Changing a nonprofit corporation’s bylaws, structure, or articles of incorporation means filing those modifications with the state.

The tax issue is another. One of the biggest reasons to incorporate as a nonprofit is to qualify for tax-exempt status with the Internal Revenue Service (IRS) and state governments. In addition, if a nonprofit is a 501(c)(3) charitable organization, donors can receive tax deductions for their contributions. To obtain federal tax-exempt status or income tax exemptions, you will need to file an exemption application with the IRS. This is another problem that an experienced lawyer will be capable of addressing efficiently.

However, not all nonprofit corporations can be granted 501(c),(3) status. Nonprofits that serve the public good and have a religious, charitable or educational purpose are eligible. To maintain their nonprofit status, they must follow certain formalities and record-keeping procedures. An experienced attorney can help ensure that your organization is compliant with the tax laws regarding nonprofits.

Although state laws can vary, it is possible that a periodic report must be filed about your nonprofit to the state agency. An attorney can help you file these annual reports and annual returns to the IRS so your organization stays in compliance and out of trouble.

It could be a good idea to hire a lawyer to help avoid legal problems

As mentioned above, you can incorporate your business without legal advice. But if things go wrong, it can be hard to undo the problems you’ve created for yourself, and you may end up having to start over with a local attorney anyway. This is a waste of money and time that you could have saved if you hired professional legal services.

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Cyndy Lane

Cyndy is business journalist with a focus on entrepreneurship and small business. With over a decade of experience covering the startup and small business landscape, Cyndy has a reputation for being a knowledgeable, insightful and approachable journalist. She has a keen understanding of the challenges and opportunities facing small business owners and is able to explain them in a way that is relatable and actionable for her readers.