Starting a nonprofit is an excellent way to translate your vision into reality if you like helping others and serving the community. Some of the common types of nonprofits include educational, religious, animal welfare, human service-oriented, and more.
You should plan on incorporating and applying for 501(c)(3) status when you are considering a nonprofit. This will allow you to accept donations and apply for grants. 501(c)(3) status also makes the nonprofit exempt from federal corporate income tax while limiting the liability of the directors and officers.
Here are the key steps that are necessary for forming a nonprofit corporation in Alabama:
Choose the Name and Directors
You need to file a name reservation request form with the Secretary of State before you can begin filing the certificate of formation. This is something you should do after choosing the initial directors for the corporation. It’s necessary to have at least three directors on the board for creating a nonprofit corporation in Alabama.
The name reservation certification from the office of the Secretary of State has to be included with the certificate of formation for creating a nonprofit. The name reservation request form has detailed instructions for checking whether the name you want is available or not.
Prepare and File the Certificate of Formation
You would need to file a nonprofit certificate of formation with the Alabama Secretary of State along with a filing fee. The certificate of formation should include the following information:
- Statement if the nonprofit is not going to have any members
- Name of the organization
- Type of organization
- Purpose(s) for which the organization is being formed
- Period of duration if the organization is only for a specified period
- Street and mailing address of the initial registered office with the name of the registered agent
- Name and address of each organizer for the filing entity
- Provisions that the incorporators elect for the regulation of the internal affairs of the nonprofit organization. This includes provision for asset distribution on the final liquidation or dissolution. The provisions should not be inconsistent with the law.
- Number of directors on the initial board of directors with their names and addresses
There is a fillable certificate of formation form for nonprofits on the website of the Alabama Secretary of State. You can complete the form following the instructions provided. You should read AL Code § 10A-1-3.05 and 10A-3-3.02 if you want more information on various requirements.
Additional Specific Language for 501(c)(3) Status
The certificate of formation available on the Secretary of State’s website has minimal necessary information for creating a nonprofit entity in Alabama. It doesn’t include the language needed for obtaining 501(c)(3) federal tax-exempt status from the IRS. You need to include additional specific language with the form for receiving tax-exempt status. This includes:
- A statement of purpose meeting the IRS requirements
- Statements that the organization will not engage in any prohibited legislative or political activity
- Provision regarding the dissolution of assets in which the assets will be dedicated to another 501(c)(3) organization
You can read IRS Publication 557, Tax-Exempt Status for Your Organization, for more information on 501(c)(3). You can work with a proven attorney to understand the necessary provisions and specific language required by the IRS in the nonprofit certificate of formation.
The next step is to prepare bylaws in compliance with Alabama law. This should be completed before you file the certificate of formation. The bylaws would need to contain the corporation’s rules and procedures for holding meetings, taking care of corporate formalities, and electing officers or directors. Bylaws are internal operating manuals and don’t need to be filed with the state.
Hold a Board of Directors Meeting
The first board meeting is called the organizational meeting of the board. It should take actions, such as:
- Appointing officers
- Approving the bylaws
- Setting a tax year and accounting period
- Approving initial payments and transactions of the organizations, such as opening a bank account
You should ensure to create minutes that record the actions taken by the board accurately once the meeting is completed. You would need to create a corporate records binder for the nonprofit. This will hold all important documents, including the minutes of meetings, bylaws, and certificate of formation.
Apply for EIN or Employer Identification Number
EIN refers to a unique tax identification number required by a business. You need this number before you submit the applications for federal and state tax exemption. This is a free application that can be submitted online at the IRS website.
Get Local Licensing Requirements
You don’t need to get an Alabama business license for operating your nonprofit. Moreover, you would need to check with local towns and counties about business licenses. This depends on the goods and services you would be offering. Check with the local licensing commission for identifying requirements.
Choose a Knowledgeable Alabama Corporate Attorney
Registering your nonprofit is not as straightforward as it may appear beforehand. You will need to ensure that you remain compliant with all government agencies. Our experienced business attorneys at the BHM Law Group can help you achieve your goals most effectively and provide you with the skilled legal advice you will need in the process. To schedule your free consultation, call us at (205) 994-0902 or fill out this online contact form.