If you’re passionate about helping others and want to give back through more than just personally volunteering, then a nonprofit organization may be your best choice.
More than 118,000 nonprofit organizations exist in New York state, so if you want your nonprofit to stand out from others with similar goals, it’s important to create your entity properly. You’ll be able to focus on your goals instead of legal or organizational hurdles.
Below, we’ll walk you through how to start a nonprofit organization in NY. When you’re ready, call Lawyer for Business to talk to a nonprofit lawyer about navigating the formation process.
What Is a Nonprofit?
A nonprofit organization exists to serve a charitable cause, the local community, or to advocate for a particular group of people. Unlike a for-profit business, a nonprofit organization doesn't distribute the profits to partners or shareholders. Instead, it re-invests any gains back into the organization or distributes them to an appropriate entity.
A nonprofit organization also holds federal and state tax-exempt status.
A nonprofit is established with a clear mission and vision in mind without a specific end date or time. Suppose that you have an idea for a short-term project that has a limited or time-sensitive impact on your community. In that case, partnering with existing organizations to extend a nonprofit’s services may be a viable option.
How Long Does It Take to Start a Nonprofit in New York State?
Starting a nonprofit in New York State can be a lengthy process, but if you plan ahead, organize your thoughts and business plan, and have all necessary documents ready to go, the timeline becomes much shorter.
The initial steps of assembling a board of directors and then incorporating the nonprofit organization and filing for tax-exempt status can take a few months.
You apply to the Internal Revenue Service (IRS) for tax-exempt status using Form 1023. The IRS can take anywhere from three months to a year to approve your tax-exempt status. In all, expect your nonprofit to take at least a few months, and maybe close to a year, to be legally operational.
How Much Does It Cost to Form a New York Nonprofit?
There are several fees associated with starting a nonprofit organization, so expect to spend about $2,750 in total, when you include lawyer fees:
- Name Reservation Fee: $10
- Certificate of Type Fee: $30
- Filing Fee for a Nonprofit Articles of Incorporation: Payable to the NY Department of State, Division of Corporations, $75
- Certificate of Assumed Name: $25 plus $25 to the county your entity is in (New York, Bronx, Queens, and Richmond Counties charge $100)
- Lawyer Fee: In order to avoid costly mistakes down the road, an experienced lawyer should be consulted. Otherwise, you may find yourself paying thousands of dollars more than you ever anticipated.
Finally, there’s an IRS application fee of $400 for entities that expect to earn less than $10,000 in four years and $850 for entities that expect to earn more than $10,000 over a four-year period.
14 Steps to Start a Nonprofit in New York State
Understanding how to start a nonprofit in NY is easier when you break it down into a step-by-step process. Many people start a nonprofit organization with a dream to make a difference but may not understand how to start a nonprofit organization in compliance with New York and federal regulations.
An experienced nonprofit attorney who understands how to start a nonprofit corporation can provide insightful advice to help you accomplish your mission and avoid common legal pitfalls that many nonprofit entities fall into.
In this guide, you’ll find all the information you need to successfully start a nonprofit entity in New York State, including filing the right legal registration, receiving tax-exempt status with the IRS, and incorporating your nonprofit.
Step 1: Name Your New York Nonprofit
The first step to starting your New York nonprofit is to give it a name. The name you choose is what you’ll use to register it on all your legal documents, but it’s also the name you will use for fundraising and advertising and marketing initiatives.
Not only is it important to choose a name that aligns with your values and clearly communicates your mission statement, but you also need to ensure that it’s compliant with New York naming regulations for nonprofit organizations.
New York Nonprofit Naming Guidelines
New York sets forth several naming requirements that nonprofit organizations must comply with:
- It must be unique and distinguishable from other businesses in the state.
- It must include an organizational description: Inc., Ltd., Company, or Incorporated.
- It cannot indicate that it is intended for any other purpose than what is outlined in its Certificate of Incorporation.
- It cannot include any phrasing that implies the organization acts on behalf of New York State or the United States.
- It cannot include phrasing that is obscene, considered ridicule, or implies the entity engages in illegal activity.
In addition to these requirements, New York also restricts certain words and phrases for naming an incorporated entity. Your nonprofit name may not contain the following words:
- Lawyer
- Doctor
- Exchange
- Handicapped or blind
- Industrial organization, council, union, or labor
- School, education, prekindergarten, preschool, university, library, arboretum, and other educational terms
There are some exceptions to these word restrictions. Depending on the nature of your organization, you may be able to petition for permission from the appropriate state agency to use these terms in your nonprofit name. An experienced nonprofit attorney can help you file these petitions and construct your argument for their inclusion in your entity name.
Step 2: Choose a New York Nonprofit Corporation Structure
New York nonprofit organizations are divided into two types: religious and non-religious. The New York Religious Corporations Law recognizes religious organizations as a special type of corporation with the stated purpose of enabling members of the faith to gather for worship or other religious observances.
All other nonprofit agencies in New York are governed by the Not-For-Profit Corporation Law, NY NPC Law § 201. This law divides other nonprofits into four groups.
New York also allows you to start a nonprofit for multiple purposes. For example, if charitable organizations are created for Type A and Type B purposes, they will be classified as Type B. If any of the purposes of a nonprofit fall under the Type C classification, the nonprofit is classified as Type C, even if the other purposes may be more appropriately classified as Type A or Type B.
Step 3: Appoint a New York Registered Agent
All nonprofit corporations in New York are required to have a registered agent with a New York State address. A registered agent is a party responsible for receiving legal documents and processes on behalf of the nonprofit. It may be a person, or it may be an entity that provides these kinds of services, such as a business law firm.
The registered agent is a reliable point of contact for all legal matters with New York State. While you may consider designating the nonprofit owner or founder as the registered agent, this may not be feasible — the registered agent must be available to receive legal documents during business hours.
If you choose a registered agent on your own, that party can forward any legal notices or service documents to you. Or you can use the New York Department of State’s registered agent service.
Step 4: Select Your Board Members and Officers
Directors of a nonprofit agency are responsible for overseeing the operations and direction of the agency and come together to form the board of directors. These individuals are separate from the officers of the nonprofit agency. Nonprofit officers have certain responsibilities according to their job titles and the authority to execute decisions based on their roles.
The board of directors and the corporate officers together form the organizational and management structure of your nonprofit. To be eligible for 501(c)(3) (tax exempt) status, your New York nonprofit organization is required to include:
At least three directors who are not related to each other:
- President
- Vice President (at least one)
- Secretary
- Treasurer
In addition to this rule, the president and secretary cannot be the same person.
Step 5: Obtain a New York Certificate of Incorporation
For a corporation to be considered a registered nonprofit in New York, it must file Form DOS-1511, the Certificate of Incorporation. This Certificate must set forth the organization’s purpose so that there can be no question and state that it is limited to one or more of these purposes:
- Literary
- Scientific
- Religious
- Charitable
- Testing for public safety
- Preventing cruelty to animals or children
- Promoting a national or international amateur sports competition
The filing fee for the Certificate of Incorporation is $75, payable via cashier’s check or money order to the Department of State (of New York). Or you can pay by cash, in person, or by major credit card.
Step 6: Draft Bylaws and Conflict of Interest Policy
Once you’ve named your board of directors and corporate officers, the next step is drafting the bylaws and the conflict of interest policy. A business law lawyer familiar with the requirements of a New York nonprofit agency’s incorporation can help you with creating these documents so that your agency is protected.
The organization’s bylaws set forth how the entity operates and how it is governed.
The conflict of interest policy ensures that decisions made by the board or company officers are made with the good of the nonprofit in mind and not motivated by personal interest.
Step 7: Think about Funding and Revenue
Nonprofits need money to fund their operations. These operations may include raising awareness of their purpose, daily expenses, and office space, and paying salaries for employees.
New nonprofits may struggle with generating revenue at first, but there are several sources for obtaining funding:
- Membership dues, branded merchandise for sale, or event fees
- Donations from individuals or corporate sponsors
- Government grants from U.S. agencies that focus on your purpose
- Private grants from foundations and individuals
Before a New York nonprofit can solicit donations or engage in any fundraising activity, it must complete the Charitable Solicitation Registration application, which may be filed along with your incorporation application.
Step 8: Conduct an Organizational Meeting
The organizational meeting is the first official meeting of the charitable organization. It should include all the board members and the proposed officers.
Although your meeting will have a specific agenda, depending on your purpose, there are several procedures that should be addressed at the first meeting to set the professional tone going forward:
- Take attendance and record it, showing that you have a quorum
- Appoint temporary officers
- Adopt the bylaws
- Adopt the conflict of interest policy
The secretary should record the minutes of the meeting, noting who is in attendance, what is discussed, and who is named as a temporary officer. Consider consulting with your nonprofit business attorney about other matters that you should discuss during your first meeting.
Step 9: Get an EIN
The Employment Identification Number (EIN), or the Federal Tax Identification Number, uniquely identifies registered business entities. Although a nonprofit company is exempt from federal and state taxes, the Internal Revenue Service still needs the number. It’s necessary for any organization, whether it has employees or not.
Even though your nonprofit agency is exempt from taxes, it must file income statements and other financial documents with the IRS, as per the Internal Revenue Code. Your EIN identifies your nonprofit.
Step 10: Register for State Tax Accounts
All nonprofit agencies must register their applicable tax accounts with the State of New York’s Department of Taxation and Finance and, if operating in New York City, with the city government as well. Your business attorney can guide you through the tax requirements of the New York Internal Revenue Code.
Step 11: Apply for Exemption from Federal and State Taxes
Nonprofit entities in New York State are eligible for both state and federal tax exemption, although they have to file the appropriate paperwork and supporting documents to gain that status.
Applying for Exemption from Federal Taxes
Federal tax exemption is limited to nonprofits whose purpose is specifically one or more of the following:
- Scientific
- Educational
- Religious
- Charitable
- Preventing cruelty to children or animals
- Administering a national or international sports competition
- Testing for public safety
In addition to having a purpose limited to those above, nonprofit agencies seeking tax-exempt (501(c)(3)) status must also:
- Have at least three elected directors not related to one another
- Be registered as a nonprofit with the State of New York
- Have adopted a conflict of interest policy and company bylaws
- Have an EIN
Once all four of these requirements are met, the nonprofit can fill out Form 1023 to apply for 501(c)(3) tax-exempt status. Once the IRS approves the application, it sends a determination letter stating that the organization is exempt from federal taxes.
Applying for Exemption from State Taxes
After the IRS sends your nonprofit its determination letter, you can file for corporate franchise tax-exempt status with the State of New York. Use Form CT-247, the Application For Exemption.
You can submit the form and a copy of the determination letter by mail to:
NYS Tax Department
Corporation Tax
W.A. Harriman Campus
Albany, NY 12227
For New York sales tax exemption, you will need to fill out and submit Form ST-119.2, the Application For Exempt Organization Certificate, and mail it to:
NYS Tax Department
Sales Tax Exempt Organizations Unit
W.A. Harriman Campus
Albany, NY 12227
If you want to have property tax exemption, then you may need to look at the requirements for the county that your organization owns property in. The process for achieving property tax exemption will vary for the kind of property your organization owns and its location.
A New York nonprofit law attorney can help you learn which property will be tax-exempt and how to file the right paperwork.
Step 12: Open a Nonprofit Bank Account
Once you have an EIN, then you can open a bank account for the nonprofit. It’s important for the organization to have its own business account and finances separate from the founders or anyone else. You can use this account to accept donations and pay vendors, employees, and other business costs.
The IRS will look closely at the financial statements of the nonprofit, which is why record-keeping and a separate business account are so important. Furthermore, a 501(c)(3) bank account is different from other types of business accounts, so you should follow its regulations to the letter.
Step 13: Get Insurance for Your Nonprofit
Nonprofits have assets that can be subject to lose, damage, or legal action and therefore, should be insured. Depending on what your agency owns, you may need property insurance, business insurance, or workers’ compensation insurance.
Step 14: Ensure Ongoing Compliance
Setting up your nonprofit correctly ensures that you begin operations compliant with the requirements of a New York nonprofit. However, you can lose your tax-exempt status and possibly be subject to fines if you fail to comply with all tax-exempt and nonprofit regulations.
File a 990 Form, which collects the financial information for the organization and its revenue, its expenses, the names of board members and officers, and other operational information.
Starting a Nonprofit in NY State: The Bottom Line
Starting a nonprofit in New York can be challenging, especially for people who haven’t started a business before. The legal requirements and tax compliance rules can be hard to maintain over the long term without proper guidance and oversight.
The experienced New York nonprofit attorneys at Lawyer for Business are here to assist you in your endeavors. We are passionate about helping our clients help others.
Contact us today to speak with one of our seasoned business formation lawyers.
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