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Posted by: NICOLE S. GREEN amd Keenan Loder

Forming the Not-for-Profit Corporation

Filing a Certificate of Incorporation with the New York State Department of State. Depending on the purposes for which the entity will be formed and the activities it contemplates engaging in, certain regulatory approvals may be required in advance of filing. Preparing this document will require:  

1. The name of the organization which must be unique from names of existing entities. This can be evaluated through searches of publicly available databases like the New York Department of State Corporation and Business Entity Database search tool. Care should be taken to also ensure the name will not infringe on the intellectual property rights of others. This requires a more detailed intellectual property search. In addition, there are certain words that cannot be used in the name of the entity as they are restricted by statute without prior approval from a regulatory agency (e.g., bank, college, museum, and trust). 
2. The purposes for which the corporation is being formed. This should not be a detailed listing of activities to be engaged in and is more akin to the guiding mission of the corporation. These purposes will dictate the types of activities the organization will be permitted to engage once it begins operating. 
3. A statement regarding any governmental agency approvals required to form and operate the entity. The New York Not-for-Profit Corporation Law (the “NPCL”) details certain purposes and activities that require agency approvals. Such approvals must be obtained in advance of the formation of the entity. 
4. The names and addresses of the initial members of the board of directors. The NPCL requires that not-for-profits have at least three (3) directors. Except in limited circumstances, all directors must be at least eighteen (18) years old. 
5. The mailing address for the corporation. This address will be made publicly available through the Department of State database described above.
6. Certain other statements as directed by the Internal Revenue Service to the extent the corporation will apply for federal tax-exempt recognition. This includes statements that the earnings of the corporation will not inure to insiders of the corporation and that upon dissolution, funds will be distributed to another organization recognized as federally tax exempt under Section 501(c)(3) of the Internal Revenue Code. 

Preliminary Governance Matters

• After the Certificate of Incorporation is filed, the corporation will then proceed to address certain preliminary governance matters. Many of these matters are addressed as part of the corporation’s organizational meeting of directors. At this meeting, the directors shold: Adopt bylaws that are consistent with the requirements of the NPCL. A point of consideration is whether it is appropriate for the organization to have members with governance rights. 
  1. Appoint officers such as president, one or more vice-presidents, secretary, treasurer, and such other officers as may be provided in the bylaws. 
  2. Adopt certain policies. The NPCL requires that all New York not-for-profits adopt a conflict-of-interest policy and certain not-for-profits must adopt a whistleblower policy. 
  3. Select a fiscal year. The annual information returns that must be filed with the Internal Revenue Service are due the 15th day of the fifth month after the end of the organization’s fiscal year. 
  4. Authorize the officers or a named authorized representative to open a bank account and apply for recognition of tax-exempt status, if applicable. 

Obtain an EIN

• Once the board of directors has addressed the various organizational matters, the corporation should apply for and obtain an Employer Identification Number (“EIN”). This is accomplished by submitting Form SS-4 to the Internal Revenue Service. This process can be completed online. The EIN will be used in various filings with the Internal Revenue Service, including the Application for Recognition of Tax-Exempt Status (Form 1023) and subsequent information returns (Form 990). 

Apply for Recognition of Federal Tax-Exempt Status

• Depending on the circumstances and anticipated activities of the corporation, there are different forms that the Internal Revenue Service uses to consider whether the corporation will be granted tax-exempt recognition. For corporations that are seeking recognition under Internal Revenue Code 501(c)(3), the required application form will be either the Form 1023 or Form 1023-EZ. The IRS, in the Instructions for Form 1023-EZ, includes an eligibility worksheet that is a series of questions to be used to determine whether the organization qualifies for submitting the short-form application.    
• If the Internal Revenue Service grants the application recognition of tax-exempt status, it will provide the corporation with a Determination Letter.

Apply for State Tax-Exempt Recognition

• The corporation can then use the Determination Letter to apply for state level exemptions from taxes. In New York, this can include an Application for Exemption from Corporation Franchise Taxes (Form CT-247) and an Application for an Exempt Organization Certificate for State and Local Sales and Use Tax (Form ST-119.2). 

Registering with the Charities Bureau

• Prior to the corporation soliciting any charitable contributions in New York State, it must register with the Charities Bureau of the Office of the New York State Attorney General. There are certain registration exemptions such that not all New York not-for-profit corporations must register with the Charities Bureau.

Qualifying to do Business in Other States

• Finally, if the corporation is going to engage in activities in other states, it may be required to qualify to do business in such states. These states may have similar registration requirements with agencies overseeing charitable activities. 

The above guidance relates solely to initial formation and governance matters. As the corporation begins operating, it must satisfy its reporting obligations in order to maintain its tax-exempt recognition. 

Contact Whiteman Osterman & Hanna

The attorneys at Whiteman Osterman & Hanna LLP welcome any questions pertaining to formation, initial governance, and ongoing compliance obligations with respect to not-for-profit organizations. Our Not-for-Profit practice group has extensive experience assisting clients in all phases of the not-for-profit lifecycle. If you’re considering forming a New York not-for-profit corporation or have any questions pertaining to not-for-profit corporation or have any questions pertaining to not-for-profit governance, don’t hesitate to get in touch with Nicole S. Green (ngreen@woh.com - 518.487.7775) or Keenan Loder (kloder@woh.com - 518.487.7667) to see how the Not-for-Profit team at Whiteman Osterman & Hanna may be able to assist.