At the Piatchek Law Firm, our attorneys provide assistance to non-profit corporations at all stages of the process: from individuals thinking about starting a non-profit (the pre-formation stage) to well-established non-profits that have been operating for years.
Where would our society be without the non-profit sector? Just think of all the good things that non-profit associations do. This is why we often get phone calls and emails from individuals interested in setting up their own non-profit corporations. It is wonderful that there are so many people who want to make a difference for others. However, the reality is that simply wanting to set up a non-profit corporation is not enough. Quite frankly, setting up a non-profit corporation takes a lot of time, money, effort, and knowledge, and it is a major ongoing commitment.
We talk to many people who are interested in setting up a non-profit corporation in Missouri. The purpose of the non-profit may be to make a difference in the lives of others, to help a certain type of person, or to aid a specific type of situation. In addition, some non-profit corporations are not charitable at all; they are simply social clubs or neighborhood associations.
Historically, we have found that many people interested in starting a non-profit greatly underestimate the time, effort, knowledge, and costs involved in forming and maintaining the organization. Many folks like the idea, in theory, of starting their own non-profit organization. However, they may lose interest when they begin to understand the reality of what it takes to form a successful non-profit. And that is not necessarily a bad thing. For those who are not “all in,” it is best to realize this before becoming heavily invested in the process.
If you are still interested after learning the level of commitment required, contact the Piatchek Law Firm today. We have helped many clients with their non-profit concerns, and we would be happy to help you as well.
Consider the following issues if you are thinking of setting up a non-profit:
Is Your Non-Profit’s Purpose Charitable?
If you are setting up a “charitable” non-profit agency for the greater good of society, you will want to make sure that a contributor to your non-profit gets a tax deduction for their contribution. However, to accomplish this, you will have to apply to the IRS for a “charitable” designation. Only one type of non-profit association exists under Missouri law: a non-profit corporation. However, once you file a non-profit corporation, you can apply through the IRS for the non-profit corporation to be considered “charitable” under one of the many applicable sections of IRS code, such as 501(c)(3).
IRS Scrutiny of Non-Profits
If you pursue a “charitable” designation from the IRS, such as in the case of a 501(c)(3) charitable non-profit corporation, you are seeking the ability to take donations and not pay any income tax on these contributions. Additionally, your contributors will be able to deduct their contributions to your non-profit corporation on their personal taxes. Therefore, the IRS takes these matters very seriously and applies plenty of scrutiny when processing applications for non-profit corporations who wish to attain charitable or 501(c)(3) status. You will have to fill out a long and detailed application and will likely need the assistance of a Certified Public Accountant (CPA).
Do You Have an Accountant or CPA Familiar with Non-Profits?
If you are setting up a “charitable” non-profit, you will undoubtedly need a qualified CPA in addition to a qualified attorney. As your law firm, we will handle the filing of the non-profit corporation, making bylaws, setting up your board of directors, writing meeting minutes, and handling many other legal matters involved in establishing the non-profit corporation. However, we do not typically assist with any tax-related issues, so you will need to consult a CPA who understands non-profit taxation and the process of attaining charitable designation through the IRS.
State Filing Fees and IRS Filing Fees
All non-profits, including “charitable” non-profit corporations, have filing fees. The filing fee for a Missouri non-profit corporation (the legal part) is a mere $25. However, the application to get a “charitable” designation with the IRS (the tax part) typically ranges in cost from $400 to $850. These are just filing fees; do not forget to account for attorney fees and CPA fees.
Non-Profits Do Not Have Owners or Shareholders
Please remember that non-profits are typically formed for the greater good of society or to serve some larger purpose. They are not formed to make money. Therefore, a non-profit cannot be owned, and there are no owners or shareholders in a non-profit corporation. A non-profit corporation may own assets; however, if the non-profit ever shuts down, any assets or monies held by the entity will typically be distributed to another non-profit, especially if it is a charitable non-profit corporation.
Board of Directors and Control of the Non-Profit Corporation
You need at least three people to serve on a board of directors for your non-profit corporation. In the event that you are going to be asking for a “charitable” designation, note that the IRS generally does not like for too many related persons (such as husbands, wives, and other family members) to be serving together on the board. Also, because the non-profit corporation cannot be owned, there is no absolute way to ensure that you will maintain control of the corporation. Therefore, if the bylaws are not properly drafted, issues regarding control of the non-profit corporation could arise in the future. For example, you could be voted out of the very non-profit you established.
Will Your Non-Profit Have Members?
One of the most important considerations for non-profits is whether the entity will have “members.” Is this non-profit a group that people will join? This is one of the most important questions involved in creating a non-profit and will affect how you set up the bylaws for the corporation. Typically, having members means you and your attorney will have to spend extra time considering questions like the following:
- Who is eligible to apply to be a member?
- How does a prospective member apply?
- How are applicants scrutinized or approved?
- Do the members pay dues?
- How much will dues be?
- What is the term of membership: one year or longer?
- What must a member do to stay in good standing?
- How do you remove members that are not in good standing?
- Will there be different classes of members?
- If so, how will the classes be differentiated?
- What powers will members have?
- What powers will members not have?
- Can members vote?
- How much power will members have collectively compared to the board of directors or officers?
As you can see, setting up a non-profit association takes a lot of time, thought, and effort. For those who are not discouraged and wish to move forward with the formation process, our attorneys can assist you. Call us today at 417-882-5858 to schedule a complimentary consultation.