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Starting A Nonprofit Organization For Animal Sanctuaries In The United States

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The United States Capitol building.
There’s a lot of steps involved in formally incorporating as a non-profit in the US, but there are also numerous benefits!

As you likely know, although there are a vast number of ways that sanctuary organizations operate and present themselves, to be an animal sanctuary means that you do not exploit animals in order to make a profit. However, not profiting from animals in sanctuary is not the same thing as receiving legal designation to be a nonprofit organization!

For organizations in the United States, there are many considerations that go into the decision to incorporate that must be carefully considered, and failure to comply with the accompanying responsibilities carries significant risks. It’s important to be as informed as possible in order to protect your residents and sanctuary!

Resource Acknowledgement And An Offer To Sanctuaries
The following resource was written for The Open Sanctuary Project by guest contributor Peggy Cusack. Peggy is a nonprofit consultant and attorney who lives in Washington, DC. She hopes to start her own sanctuary someday, but for now she’s available to help you with your organization!

If you are getting started with an animal sanctuary or rescue organization and have questions about the regulatory information found below in this resource, contact us here and we’ll put you in touch with Peggy, who’d be happy to answer your questions!

What Does It Actually Mean To Be A Non-Profit?

In simple terms, being a nonprofit means all of the “net income” that your organization generates is reinvested back into your organization for activities that support your mission rather than being distributed to the owners or someone else. Net income is the income left over after you’ve covered all expenses and taxes – also sometimes called “net profit.” Nonprofits can make profits – but all of this profit must be put back into the organization!

When most people hear “nonprofit,” they also tend to assume “tax-exempt” – that is, an organization exempt from paying certain taxes and that may afford tax deductions to donors. But not all nonprofits are tax exempt. Federal tax exemption requires formal recognition from the Internal Revenue Service after an application process governed by Section 501(c)(3) of the Internal Revenue Code – which is why tax-exempt nonprofits are often referred to as “501(c)(3)s.” State tax exemption is a separate process managed at the state level in each state.

A nonprofit can organize itself in several different ways. For the purposes of this resource, we will only be covering unincorporated nonprofit associations and nonprofit corporations. There are other ways to organize nonprofits, but most of them are likely not applicable in an animal sanctuary context.

Most nonprofits are formed as corporations, but let’s take a look at unincorporated associations first.

A Different Path: Fiscal Sponsorships
Although not addressed below, it’s also not uncommon for new groups to opt for something called fiscal sponsorship as an alternative to starting a nonprofit. Fiscal sponsorship means that you become a program of another established 501(c)(3) nonprofit (your “fiscal sponsor”) that provides administrative support in exchange for a percentage of your donations. You can have your own name, and for the most part, you’re running your operations. However, you will be required to sign an agreement with your fiscal sponsor that lays down some rules about working together. In exchange, you are covered under the 501(c)(3) status provided by your sponsor, and your sponsor may provide accounting and legal services, HR services, fundraising support, etc. To learn more about fiscal sponsors, check out the sources at the base of this resource.

Unincorporated Non-Profit Associations

What is an Unincorporated Non-Profit Association?

Two or more people coming together under a common name in support of a common goal are considered an unincorporated association. Some unincorporated associations are for-profit associations (such as a food truck or a lemonade stand). When the purpose of the association is to support a social cause or a public good, and where all of the net income generated by the association is reinvested back into the association and its mission, the association is considered an unincorporated nonprofit association (“UNA”).

In an animal sanctuary context, two people raising money to rescue an animal and move them to a sanctuary are likely an unincorporated nonprofit association.

Unincorporated associations exist everywhere. No legal paperwork is required to form them, and generally, they are not recognized as legal entities. However, many states will recognize UNAs and provide them with some rights (for example, the right to execute a contract) and protections (for example, limited liability protections) if they abide by specific requirements. These requirements vary from state to state and may include registration requirements, tax requirements, rules regarding administration of the association, charitable solicitation (fundraising) registration requirements, and local business regulations.

Some nonprofits purposely elect to operate as UNAs because they are generally perceived to be more informal. Among other things:

  • UNAs may create an “articles of association” document and file them in their state, but in many states, these are not required.
  • UNAs may create a board of directors, but in many states, this is not required.
  • If a UNA does create a board, in many states, there aren’t strict requirements about how often the board must meet or how meetings are noticed.

If you decide to operate as an unincorporated association indefinitely, it’s highly recommended that you explore UNA registration options within your state to ensure that you’re leveraging any added benefits or protections available for this type of nonprofit. You should also obtain a federal tax identification number (TIN or EIN).

Can Unincorporated Associations be Tax-Exempt?

You do not need to be incorporated to be tax-exempt at the federal level or in most states.

Tax-exempt status at the federal level means that you will not need to pay federal income tax to the IRS. There are more than two dozen types of nonprofits that the IRS recognizes as tax-exempt eligible under Internal Revenue Code section 501(c). If you are an exempt organization that is recognized under Section 501(c)(3), you receive the added benefit that donors that contribute to your 501(c)(3) can may deduct the contribution on their federal taxes (which is why many donors will inquire about your “c3 status” when considering a donation). dependent, of course, on your own tax situation.

To qualify under section 3 of section 501(c), an organization needs to be organized and operated exclusively for a purpose that falls within the “exempt purposes” the IRS lays out. The exempt purposes set forth in section 501(c)(3) of the tax code are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Nearly all animal sanctuaries in the US are qualified to become 501(c)(3) organizations because they fulfill the IRS’s exempt purpose of preventing animal cruelty.

Unincorporated associations with annual revenues of $5000 or less that have a purpose that falls within one of the IRS’s exempt purposes can operate as tax-exempt nonprofits. They do not need to apply to the IRS for this status, they do not have to pay federal taxes, and donations to these associations are considered tax-deductible.

UNAs with an exempt purpose with annual revenues greater than $5000 will need to formally apply for 501(c)(3) status with the IRS to qualify for tax-exempt status. UNAs that apply for 501(c)(3) status will be required to file articles of association (similar to Articles Of Incorporation) and a set of bylaws with their application. Any UNA operating as a 501(c)(3) tax-exempt organization will have annual federal reporting requirements and possibly state filing requirements.

Whether UNAs qualify for state tax exemption and the process for obtaining state tax exemption varies by state.

To learn more about Unincorporated Non-Profit Associations, check out the resources below.

Non-Profit Corporations

UNAs work well for informal situations with short term goals. If you’re going to be around for a while, or if you are planning to seek a large number of donations, it may make more sense to incorporate. As a practical matter, many unincorporated associations decide to seek IRS recognition because it can be challenging to raise money without an official designation from the IRS. At this point, it often makes sense just to go ahead and incorporate since the IRS will also require much of the paperwork required for incorporation in a 501(c)(3) application. Corporations are the most common form and widely used structure for nonprofit organizations.

Incorporating is the process of creating a corporation. There are for-profit and nonprofit corporations. A nonprofit corporation is a legally recognized corporate entity with a public purpose that cycles all of its net income back into its mission. Operating as a nonprofit corporation generally involves filing paperwork in your state and managing ongoing reporting requirements to comply with the regulations that govern corporations in your state.

Why Should Your Organization Formally Incorporate?

There are lots of reasons to incorporate; here are a few to consider:

Liability Protection

This is the primary reason to incorporate – limiting liability for everyone involved in operating your organization. Because a corporation is recognized as a separate legal entity, the officers and directors of a corporation are generally not exposed to personal liability for the corporation’s debts and liabilities, including personal injury, property damage, tax liability, and contractual liability, among other things. On the other hand, individual members of UNAs can be held liable for the obligations of the association if state laws do not provide for any protection. In states where protections for UNAs do exist, these protections are not automatic and generally are more limited than those afforded corporations. In addition to exposing your founders to personal liability, you may also find it challenging to recruit external board members as an unincorporated association because of the limited liability protections afforded.

Donations And Grants

Donors and funders are almost always going to ask about your 501(c)(3) status. Most foundations, corporations, and private donors will require 501(c)(3) status, and many government and private programs can only provide funding to organizations that are incorporated. Corporate status lends credibility. While it is possible to receive 501(c)(3) recognition without incorporating, practically speaking, many donors and funders are not familiar with the concept of an unincorporated nonprofit association and may hesitate to contribute.

Contracts

A corporation exists apart from its officers and directors – it exists until it is formally dissolved. A corporation can contract directly with vendors, landlords, and other individuals and organizations. An unincorporated association does not exist apart from its members. If you are a UNA, in many states, one or more of your members must personally enter each contract. In addition, each time a member leaves or joins, the entity changes. This matters to people like landlords, insurance companies, vendors, and others who don’t want to contract with a group that is fluid, informal, and continuously in flux.

A corporation can sue and be sued in its corporate name. An unincorporated association can generally only sue (or be sued) in the name of the individual members. If you are a UNA bringing an action against a vendor because a piece of faulty equipment injured one of your volunteers or staff, your members may need to file a joint lawsuit against the vendor individually. If you are a corporation, the lawsuit would be filed in the name of the corporation. On the flip side, if a volunteer or staff member is bringing an action against you because of an injury that occurred onsite related to claimed negligence on your part, as a UNA, that action will probably be brought against your members instead of against the association. This is another reason why it may be hard to recruit board members for an association: the risk of being named personally in a lawsuit or legal action.

Structure and Predictability

A corporation is a creature of state law. There are established rules about how they are formed, how they need to be run, how things like intellectual property rights, succession, voting, and other matters are handled. If questions or issues arise, there’s usually a state law or a state court case that will provide guidance about how things should be sorted out. These provide predictability and stability for nonprofit corporations and assurances for your board members, donors, and other key stakeholders. While UNAs may seem like a more flexible and informal arrangement, sometimes, flexibility can work against them since there is less predictability when issues arise. In addition, since UNAs are relatively new in the grand scheme of legal things, there aren’t always state laws that address every situation that may arise. Bottom line, you might save yourself time, money, and hassle in the long run by incorporating.

To learn more about why incorporation might be the best option for your organization, check out the resources below.

How Do You Incorporate?

Many people new to nonprofit management find that simply going through the steps of incorporating – creating all the foundational documents necessary for filing – is a learning process that helps them be thoughtful about the foundation they are laying for moving forward with their new organization.

Before You Get Started, Write A Business Plan For Your Organization
This is not an officially required step for incorporation, but many people that have created nonprofit organizations in the past will tell you that one of the best places to start this whole process is with the creation of a business plan – a roadmap that details the goals you’re trying to achieve and the steps you’re going to take to get there. A business plan is a useful exercise, even if you never decide to incorporate or seek tax-exempt status. But if you choose to go down these paths, many of the elements that you will need will already exist in your business plan if you have one. It’s also not uncommon for potential donors and board members to ask to see a copy of your business plan while considering formalizing a relationship with you.

To learn more about business plans and view some sample business plans, check out the resources below.

Official Incorporation Steps

Below are the five steps generally required to incorporate in most states in the United States. The process of incorporating is relatively simple, can often be done online, and usually requires a fee of less than $100.

Pick A Name

Chances are you already have a name – it’s one of the first decisions people make when they start thinking about starting something. But have you reserved your name? With some exceptions, your state government is generally not going to allow you to operate using a name already in use by another corporation. Whether you are incorporating or not, this is an important early step to take as you get started, since it either ensures that the name you want to use is reserved for you, or helps you identify a possible problem early in the process so that you don’t waste time and money generating materials in a name that you will not be able to use.

In most states, you will be incorporating your organization by filing paperwork with the department that governs corporations and corporate filings in your state – usually part of the Secretary Of State or Department Of State’s office. The corporate office for most states has a lot of information available online, including any state-specific requirements about reserving a name. Most states have online tools available that will allow you to search to see if your name is already in use. Generally, most states will require you to end your name with a corporate designator (“Corporation,” “Corp.,” “Incorporated,” or “Inc.”). Many states will not allow you to include specific words like Bank, Cooperative, Federal, National, United States, or Reserve. The paperwork for name reservation is generally straightforward, can often be done entirely online, and the required fee is usually nominal.

While you’re online reserving your name, it’s a great time to take a look around your state corporate office website to see what else is required for incorporating as a nonprofit in your state.

To learn more about incorporation rules by state, check out the resources below.

Establish Your Board

All corporations have a Board Of Directors empowered with the legal authority to take action and make decisions. Good boards are focused on legal governance, financial management, and ensuring that your corporation has the resources that it needs to succeed. The board always acts as a group – individual directors are not empowered to act alone.

For many nonprofits, the Executive Director or CEO of the nonprofit is also a member of the board. This person is usually the individual designated with primary responsibility for carrying out the direction provided by the board and running the day to day operations and management of the organization. For example, a Board might authorize the corporation to enter into any contracts needed to support sanctuary operations. The Executive Director will identify, negotiate with, and manage the vendors providing the services.

Many states require you to establish your board of directors before you can incorporate because they will ask you to list the names of your officers and directors in your incorporation documents. Even if they don’t, it’s a smart move to establish your board before you incorporate so that you’re starting on the right foot from day one.

Generally, a smaller board is easier to work with, and you’ll want an odd number of board members to make things easier when you are voting on something. If you are planning to seek federal tax exemption, the IRS suggests a minimum of three board members – a President, a Secretary, and a Treasurer – and three different individuals need to hold each of these roles.

Board members of federal tax-exempt corporations are ideally volunteers – while they can legally receive compensations in some states, it is considered best practice to have an uncompensated volunteer board. Staff may be paid. Paid staff members that are also serving on the board should ideally serve as a nonvoting member though it is also legal in many places for them to be paid staff and be a voting member of the board. Ideally, you will set out not only the number of board members and how they are selected, but also their roles, and how voting is managed in your organization’s bylaws.

Be thoughtful in selecting your board. Ideally, you are selecting individuals who are passionate about your mission and bring a diversity of skill sets that will help support your organization in many different areas – fundraising, accounting, marketing, medical, etc. Recruiting a board member who can help you incorporate and keep on top of compliance issues at the state and federal levels is a big win!

To learn more about getting started with boards, check out the resources below.

File Your Articles Of Incorporation

Articles Of Incorporation are just a fancy description for a document that you file with your state that officially creates your corporation. It’s kind of like your corporate birth certificate. Articles generally include fundamental information about your organization, including your proposed (or reserved) name, your purpose or mission statement, your address, your registered agent (the person in the state where you are filing that agrees to receive legal documents on your behalf), and in many states, your board members. What needs to be included in your Articles Of Incorporation varies by state.

Many states offer sample templates or fill in the blank Articles Of Incorporation online on their corporate office website. This is also generally where you will find the best overview of the nonprofit incorporation requirements applicable in your state, relevant instructions, and filing fees. If your state does not offer an articles template, there are many available online.

For nonprofits that are planning to seek 501(c)(3) federal tax exemption, there are several things you need to include in your articles that aren’t necessarily required at the state level but will be required by the IRS. The primary requirement is what’s called an “exempt purpose” – basically language that states that the purpose or mission of your corporation falls within one of the exempt purposes the Internal Revenue Code recognizes as qualifying for tax exemption, as outlined above.

To help expedite a future 501(c)(3) application, you should include the following language about exempt purposes directly in your articles:

“This corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.”

In addition to the above language, your articles should note that your corporation will not engage in activities prohibited for exempt organizations and that if the corporation is dissolved, it will distribute its assets to another nonprofit, a government agency, or for some other public purpose.

Other than the language that is required by the IRS and by your state, it’s generally best to keep your articles as clean and straightforward as possible. Most corporations will get into more detail in their bylaws, since these are often easier to amend because they do not need to be filed in your state (although if you are a 501(c)(3), you will need to notify the IRS about changes to your bylaws each year in your annual filing).

You do not need an attorney to file for incorporation. State fees for incorporation range from the tens of dollars to hundreds of dollars, and the time frame for incorporation varies by state from days to weeks.

To learn more about Articles Of Incorporation, in addition to viewing some sample Articles Of Incorporation, check out the resources below.

Draft Your Bylaws

Drafting Articles Of Incorporation generally goes hand in hand with creating bylaws for your organization. Bylaws are sort of like an operating manual for your board (not for the sanctuary itself). They usually include information about the rules and procedures for holding board meetings, selecting directors, electing or appointing officers, the roles and duties of directors and officers, how often the board meets, and other essential corporate formalities. It’s generally best to keep them simple, especially as you are just starting.

As with everything else, different states have different requirements for what needs to be included in your bylaws and what the default governance rules are for all corporations in the state. In most states, as long as you’re not violating any other state laws, you can override the state default rule by formally selecting a different rule within your bylaws. If you do not specifically address something in your bylaws, the applicable state regulation will govern if an issue arises.

While Articles Of Incorporation are filed with your state, bylaws are typically an internally focused document. The IRS does not require any specific language in a nonprofit corporation’s bylaws. However, you will need to file a copy of your bylaws with the IRS if you apply for 501(c)(3) status.

You can access a sample of bylaws provided by the Animal Defense Partnership here!

To learn more about drafting bylaws, in addition to viewing some sample bylaws, check out the resources below.

Host Your First Board Meeting

Although there are a few states that require you to host your first board meeting before you file for incorporation, in most cases, this is something that you will do after you have incorporated (after the state approves your Articles Of Incorporation). Your organization’s first board meeting should be hosted as soon as possible after incorporating and definitely before you apply for federal or state tax-exempt status.

At your first organizational meeting, you will introduce your approved Articles Of Incorporation into the minutes for your meeting (make them a part of the official record). As needed, you will also use this first meeting to establish and authorize your board, approve your bylaws, elect your officers, and empower your officers to take any additional steps necessary to start operations (apply for an EIN, open a bank account, hire staff, etc.). Minutes of this meeting should be created and filed in a corporate records book.

Request An EIN/TIN

This is not an official step for incorporation, but it is a step that most corporations take as soon as their corporate status is official. This is your federal tax ID number, often called your EIN (Employer Identification Number) or TIN (Tax Identification Number). Your EIN is like your personal SSN – it identifies your organization to the IRS and others. Before you can apply for tax-exempt status at the federal level, you will need an EIN.

Both nonprofit corporations and unincorporated associations can apply for EINs. However, it is best to have selected your legal structure before applying for your EIN, because the IRS assumes that you are a legally formed entity as soon as you receive your EIN. This matters because the issuance of an EIN can trigger reporting requirements with the IRS.

Obtaining an EIN is free and can be done in about 5 minutes online. EINs come in handy for many things – including setting up a bank account for your new corporation. It is often confused with your tax-exempt number – which is a different number issued by a state to state tax-exempt organizations.

To learn more about EIN/TIN, in addition to where your organization can apply, check out the resources below.

State Tax Exemption For Non-Profits

When your incorporation application is approved, you are officially a nonprofit corporation in your state. In most states, incorporating a nonprofit merely establishes it as a legal business entity. It does not qualify you for either federal or state tax exemption.

State tax exemption status benefits vary by state, but they typically include exemption from state taxes, such as sales tax, use tax, property tax, and income tax. In most states, you will need to apply for a “tax-exempt certificate” with your state department of taxation and revenue to obtain state tax-exempt status. Once you have received tax-exempt status, you will likely need to periodically renew this application with the same office to keep your exemption status current. In general, these additional steps are also required for unincorporated nonprofit associations.

Your state tax-exempt certificate will include your state tax-exempt number. When a vendor asks you for your exemption certificate or number, this is the certificate that they are looking for.

For some nonprofits – particularly small unincorporated associations – state tax exemption is all that is needed. If your organization will be seeking lots of donations, applying for federal tax exemption under Section 501(c)(3) is the likely next step. Except in a couple of states, filing for state sales tax exemption is pretty simple once you have 501(c)(3) status from the IRS – which is why many organizations wait to take this step until they have filed for federal tax exemption.

To learn more about specific state tax exemption rules, check out the resources below.

Federal Tax Exemption For Non-Profits

Tax-exempt status at the federal level means that you will not need to pay federal income tax to the IRS. There are more than two dozen types of nonprofits that the IRS recognizes as tax-exempt eligible. If you are an exempt organization that is recognized under Section 501(c)(3) of the Internal Revenue Code, you receive the added benefit that donors that contribute to your 501(c)(3) can deduct the contribution on their federal taxes (which is why many of them will inquire about your “c3 status” when considering a donation.

To qualify under section 3 of section 501(c), an organization needs to be organized and operated exclusively for a purpose that falls within the “exempt purposes” the IRS lays out, as outlined above.

Within the category of 501(c)(3) organizations, the IRS recognizes public charities and private foundations – distinguished primarily by the level of public involvement in their activities. The IRS will assume that you are a private foundation unless you actively demonstrate status as a public charity. In general, public charities perform charitable work, while private foundations support the work of public charities (e.g., through grants). A public charity receives public support – at least 33% of its annual revenue from small donors (the public), other public nonprofits, or the government. In service of the public interest, the IRS expects public charities to have a diversified board of directors – meaning that more than half of the board has to be unrelated and not compensated as employees. There are annual filing requirements for public charities, but they are generally considered less onerous than those for private foundations. Public charities also have higher donor tax-deductibility giving limits than private foundations – which is why public charities tend to be the most popular option if an organization qualifies.

A private foundation is typically controlled by a small group of individuals (or a family) and receives most of its income from a small number of donors or investments, rather than soliciting funds from the public. Organizations typically choose private foundation status because they want more control over their organization. Private foundations can be controlled by a small group (or even one person), and they can be related (all part of the same family). In exchange for maintaining more control, private foundations have lower deductibility limits for donors, a more extensive annual filing requirement, and a few other regulations.

Your public charity status is addressed in Form 1023 (discussed below).

To learn more about the different types of exempt organizations, check out the resources below.

How to File with the IRS for recognition as a 501(c)(3) organization

Like incorporation, becoming a recognized 501(c)(3) involves filing paperwork and managing ongoing reporting requirements. The below language is directed primarily towards nonprofit corporations, although similar procedures generally apply for nonprofit associations as well.

Steps to Apply For 501(c)(3) Recognition

Get Your Corporate Documents In Order Before You File

You will need your Articles Of Incorporation, your bylaws, and your EIN. You will also need to have held the first board meeting of your new organization.

Complete and file Form 1023 or 1023-EZ

Form 1023 is the form you will submit to the IRS to seek recognition as a 501(c)(3) organization. This is the IRS’s chance to make sure that any organization seeking tax exemption is formed exclusively for an exempt purpose, that your programs are structured to fulfill this purpose, and that you are paying attention to possible conflicts of interest that would allow your board members and staff to receive a personal benefit because of their association with your nonprofit. It’s a lengthy application with a lot of different parts, and it’s essential to understand how the different answers you are providing may impact your eligibility for tax exemption.

Form 1023 and the required filing fee must be submitted electronically on Pay.gov. The IRS has a helpful step-by-step tool that walks you through the process of submitting a Form 1023 and an online course about the filing process. To file Form 1023, you will need:

  • Necessary information about your corporation (including the corporation’s name, contact information, and state filing dates).
  • Your Articles Of Incorporation and your bylaws (with the noted required language).
  • A detailed, narrative description of all of your organization’s activities and fundraising plans.
  • Information about all proposed compensation to, and financial arrangements with initial directors and officers, as well as the five top-paid employees and independent contractors.
  • A statement of revenues and expenses and a balance sheet, usually going back three years.

There is also a shorter application form (1023-EZ) available for organizations with receipts of less than $50,000 and less than $250,000 in assets. There is an eligibility worksheet in the instructions to Form 1023 that will help you determine if you are eligible for the shorter form.

You should generally expect to hear from the IRS within six months after submitting your application, though it can take more or less time than that. Ensuring that your application is complete and checks all the required boxes when sent will help expedite things.

Once you are approved, you will receive an official 501(c)(3) determination letter from the IRS granting provisional tax-exempt status for three years. If you have fulfilled all of the IRS’s requirements for 501(c)(3) organizations, including filing an annual report, you will be granted permanent 501(c)(3) status at the end of three years.

One note about the timeline: When the IRS approves your application, your exempt status is retroactive to the date your organization was created, as long as you file your 501(c)(3) application within 27 months of that date. In the meantime, you can begin operating as a nonprofit (including filing IRS reporting Form 990 annually with the IRS). Contributions to your organization during this period will be tax-deductible for your donors if your application is approved.

Key Compliance Issues For Non-Profit Organizations

Compliance is critical! Depending on the steps you chose to take to get to this point, you likely have federal and state nonprofit compliance requirements for as long as you are operating. They are generally not complicated – you just have to be mindful of them. Noncompliance can result in revocation of your tax-exempt status, cancellation of your corporate status, personal liability for corporate obligations, and damage to the credibility and reputation of your organization. Below is a quick round-up of some compliance matters to keep an eye on:

State Compliance

Charitable Solicitation Registrations

In most states, your organization must be fully registered with the state to solicit charitable donations in your state. This is a separate step from incorporation and applying for state tax exemption. If you want to fundraise in other states, including online legally, you will probably need to register in them as well.

Reporting Requirements for State Corporations

Most states have an annual or biennial reporting requirement for all in-state corporations to maintain active corporate status. This is an opportunity for you to update the corporate authority and renew your corporate status with a filing fee. It is important to ensure that you maintain your status as an active corporation in your state. If you do not file the requisite reports, your state can designate your corporation as inactive – which can impact your tax-exempt status, among other things.

Reporting Requirements for State Tax Exemption

As noted above, once you have received state tax-exempt status, you will likely need to periodically refile with the same office to keep your state tax exemption status current.

Other State Requirements

As you are getting started, make sure to check into other state and local laws that will require compliance. These can include registration and other requirements related to fundraising (above), lobbying, licensing, and permits. Zoning permits are a big one that you’re probably already familiar with. Another common one is sales tax collection: if you’re planning on selling anything, you’ll probably need a sales tax permit.

Federal Compliance

While 501(c)(3) organizations are tax-exempt, the IRS still requires you to file an annual return to report your annual income, expenses, and assets as well as information about your board members, staff, programs, any changes to your bylaws, and other operational information. For nonprofit corporations, this filing is managed via IRS Form 990. The responses that you provide in your annual reports are available for public review. Failure to file annually can result in financial penalties and, eventually, revocation of tax-exempt status.

There are several different versions of Form 990, based on financial thresholds:

Gross receipts of $50,000 or less Form 990-N (a postcard)
Gross receipts of more than $50,000 but less than $200,000 and assets totaling less than $500,000 Form 990EZ or Form 990
Gross receipts of $200,000 or more and total assets of $500,000 or more Form 990
Types of Form 990 available by income

General Compliance Matters: Budgets And Record Keeping

Following sound accounting principles and keeping proper records is important for many reasons: they help with your annual federal and state filings, they are required by the IRS to maintain your c3 status, they may come into play if you are ever subject to a legal challenge, and they are also important for grants and loans and other similar things – donors and lenders are often going to want to see some form of a budget before they provide you with funding.

Budgets don’t have to be complicated. Generally, you’ll want to track income, operating expenses (day to day things like animal care and feeding, staff salaries, veterinary care, etc.), and capital expenses (expenses for fixed assets that last a while, like buildings, equipment, databases, websites, etc.). You will also need to keep appropriate records for employees, such as payroll records and payment of withholding taxes, workers’ compensation, unemployment taxes, and payments made to independent contractors. It’s a great idea to hire a bookkeeper or accountant to set up a budget and an accounting system that initially meets the requirements for nonprofits for you. There are also lots of off the shelf bookkeeping software packages available to make this task easier.

As part of your financial record-keeping, make sure that you are correctly accounting for “unrelated income” – that is, income from activities that don’t directly relate to the nonprofit’s core mission. For example, income from merchandise sold online or in a brick and mortar store, income from on-sanctuary lodging facilities, income from consulting fees, etc. There are limits to how much “unrelated income” you can generate each year and still maintain your exemption status. Be sure to check in with your accountant or attorney about unrelated income if applicable.

To learn more about state and federal compliance needs for your nonprofit sanctuary, check out the resources below.

Governance Issues And Corporate Formalities

It’s important to think about running your nonprofit like a for-profit business. Take governance seriously. Follow the requirements laid out in your bylaws, and take the time to review your bylaws with your board. Your board of directors should meet regularly. Important decisions should be formalized with a resolution, and your corporate secretary should maintain a minute book.

Keep Things Separate!
Part of good governance means setting up a bank account for your nonprofit that keeps corporate funds separate from any personal finances. In the eyes of the law, a corporation is a legal entity, separate and distinct from the people who run it. If you do not take steps to preserve this corporate formality, you run the risk that, even though you’ve incorporated, your corporate structure will not be recognized, and you will be subject to personal liability.

Designate a member of your board (usually the secretary) to ensure you are following the policies established in your bylaws and that you are up to date on all federal and state compliance and reporting requirements. Keep a corporate record book where you keep all critical documents (including articles of association or corporation, bylaws, materials related to tax exemption, information about your board members, board meeting minutes, financial records and reports, etc.) to ensure you’re well-organized and fully compliant. Keep good records and establish a written policy regarding document retention.

Take the time to review the basic rules of the road for public charities with your staff. Make sure everyone on the team understands the restrictions imposed by 501(c)(3) status – in particular, those related to political activity and lobbying activity.

To read more about general governance issues and ways to stay in good standing with state and federal departments, check out our resources below.

 

As you can see, starting and maintaining a nonprofit organization is no walk in the park! But with careful attention to detail and with frequent review and some vigilance, your sanctuary should have no problem maintaining its non-profit status for the long haul!

Sources And Further Reading

General Sources:

The Complete Guide to Registering a 501c3 Nonprofit | Donorbox

How To Start A Nonprofit Organization | Donorbox

Charities And Nonprofits | IRS

How to Form a Nonprofit Corporation | NOLO

More Information About Fiscal Sponsorships

About Fiscal Sponsorship | National Network Of Fiscal Sponsors

Fiscal Sponsorship for Nonprofits | National Council Of Nonprofits

More Information About Unincorporated Non-Profit Associations

Organizations Not Required to File Form 1023 | IRS

State Links for Exempt Organizations | IRS

Reasons To Consider Incorporating Your Organization

Five Reasons to Incorporate Your Nonprofit Association | NOLO

Top Five Reasons to Incorporate a Nonprofit Organization | FindLaw

More Information About Business Plans

Creating A Business Plan For Your Sanctuary | The Open Sanctuary Project

What To Include In Your Nonprofit Business Plan | Wild Apricot

Examples Of Business Plans

Free Nonprofit Sample Business Plans | B Plans

Humane Society Sample Business Plan | Maryland State Government

Rescue Group Best Practices: Creating A Budget And Business Plan | Animal Sheltering

Sample Sanctuary Business Plans Available Online

Our Mission | Loveland Farm Sanctuary

Business Plan | Ziggy’s Refuge

Business Plan | Rude Ranch Animal Rescue

State-Specific Nonprofit Incorporation Resources

How to Form a Nonprofit Corporation: A 50 State Guide | NOLO

State Links for Exempt Organizations | IRS

State Contacts For Nonprofit Incorporation | National Association Of State Charity Officials

How to Start a Nonprofit Organization (By State) | Harbor Compliance

Getting Started With Boards

Forming The Nonprofit’s First Board | Board Source

How To Start A Nonprofit And Create A Board | Board Effect

Nonprofit Governance By State | Harbor Compliance

Build Your Team | Grow Ensemble

Samples And Templates For Articles Of Incorporation

Suggested Language For Corporations And Associations | IRS

Nonprofit Articles Of Incorporation | Harbor Compliance

Steps In Articles Of Incorporation | NOLO

Current Articles Of Incorporation | Stargazing Farm

Samples And Templates For Bylaws

What Are Nonprofit Bylaws? | Candid

Nonprofit Bylaws Made Easy: Tips And Best Practices | Donorbox

Bylaws Checklist | Blue Avocado

The 15 Most Common Nonprofit Bylaw Pitfalls: How to Avoid the Traps | Venable LLP

Current Bylaws | Life With Pigs Farm Animal Sanctuary

More Information About EIN/TIN

Employer Identification Number Information | IRS

Application For EIN | IRS

Form 1023: Purpose of Questions About Organization Applying More than 27 Months After Date of Formation | IRS

More Information About State Income Tax Rules

State Tax-Exempt Status | 501c3Go

Departments Of Revenue: 50 State Directory | Harbor Compliance

State Links For Exempt Organizations | IRS

More Information About Types Of Exempt Organizations

Exempt Organization Types | IRS

Should Your Animal Sanctuary Be A Public Or Private Non-Profit? | The Open Sanctuary Project

More Information On State And Federal Compliance For Non-Profit Organizations

Charitable Solicitation – Initial State Registration | IRS

Charitable Solicitation Registration | National Council Of Nonprofits

Apply For Licenses And Permits | U.S. Small Business Administration

About Form 990, Return of Organization Exempt from Income Tax | IRS

Annual Form 990 Filing Requirements for Tax-Exempt Organizations | IRS

What You Need To Meet the Form 990 Due Date 2019 | Tax Bandits

Unrelated Business Income Defined | IRS

The 5 Best Ways to Generate Earned Income for Your Nonprofit | Wild Apricot

More Information About General Governance Issues

Animal Sanctuary Organizational Record Keeping Basics | The Open Sanctuary Project

Good Governance Practices | IRS

The Complete Nonprofit Compliance Checklist From An Expert | Wild Apricot

Compliance Guide for 501(c)(3) Public Charities | IRS

Stay Exempt | IRS

Updated on March 15, 2021

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