Do you hold a charitable intention close to your heart but are not sure on how to begin the process to form your new organization? It is important to note that a nonprofit and a tax-exempt are commonly thought to be the same entity; however, these entities have a significant difference. A “nonprofit” is a nonstock corporation formed for a nonprofit purpose under Chapter 181 of the Wisconsin Statutes. A “tax-exempt” organization is a nonprofit organization with an additional qualification: the Internal Revenue Service (IRS) has recognized the organization as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. This formal exemption is the reason that tax-exempt organizations are commonly referred to as a “501(c)(3).” The formation of a tax-exempt nonprofit organization requires, at a minimum, the following steps.
First, you should determine your specific charitable purpose and goals for your organization. You should also consider whether there is a specific need for a new organization with this charitable purpose. Under Section 202.11(2) of the Wisconsin Statutes, a charitable purpose must be for a benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary (charitable) objective. Further, to be recognized as a tax-exempt organization, your charitable purpose shall also fall under Section 501(c)(3) of the Internal Revenue Code.
Second, as you consider forming your organization, you should determine a name for your organization. This name must be distinct from other organizations registered in Wisconsin. Your attorney can assist you with determining the availability of your desired name.
Third, you should identify the initial directors and officers of the organization. A good rule of thumb for selecting directors is to identify at least three people that support your charitable purpose. These directors will govern the operation of your organization. The officers that you should elect are President, Vice President, Secretary and Treasurer. The roles for each officer are explained in the initial governing documents.
Fourth, after you determine your charitable purpose, name and initial directors, your organization must file Articles of Incorporation with Wisconsin and obtain an employer identification number. The Articles of Incorporation formally create your organization and describe the initial key operational details for your organization. Your attorney can assist with drafting and filing of these Articles of Incorporation with the Wisconsin Department of Financial Institutions (DFI). After filing the Articles of Incorporation, the organization shall obtain an employer identification number from the IRS.
Fifth, now that your organization is registered with Wisconsin, you should prepare the organizational documents and hold the organization’s initial meeting. You will need bylaws, which provide for the overarching terms that govern the organization, including the duties for directors, voting requirements and roles of officers. You should have a conflict of interest policy which states that any key person within your organization shall set aside any personal interests that may compete with the interests of the organization. Each director, officer and other key person shall sign an acknowledgement of this policy and disclose any potential competing interests. Your attorney can assist with the drafting of the bylaws, conflict of interest policy and other necessary organizational resolutions and acknowledgments to make sure the intentions of the organization are met and protected. When the documents are ready, you should hold an initial meeting of the directors and officers, at the meeting you will adopt and approve the documents and discuss the initial actions of the organization.
Finally, you should obtain 501(c)(3) status and any necessary state tax exemption status. Your accountant can assist you with the preparation and filing of Form 1023 or Form 1023-EZ to obtain tax-exempt status from the IRS. After you receive your tax-exempt status from the IRS, you should file the Form S-103 Application for Wisconsin Sales and Use Tax Certificate of Exempt Status with the State of Wisconsin. You should also consider whether it is necessary to register as a charitable organization with the Wisconsin Department of Financial Institutions.
The experienced business law attorneys at Anderson O’Brien, LLP are happy to answer your questions regarding the most suitable organization for your intentions and to guide you through the formation process and ongoing operations of your desired organization.