To get the ball rolling in forming a tax-exempt charitable organization there are just two main documents to put in place. Seriously, just two–articles of incorporation and bylaws. Let’s start with exploring the components of what should be in your nonprofit’s articles of incorporation. (We’ll dig into bylaws in another post!)
Articles of Incorporation
Think of articles of incorporation as the constitution of your nonprofit. While articles of incorporation can be fairly short, there are some necessary elements required under both Iowa and federal law to gain and retain that golden tax-exempt status.
Legal Requirements in Iowa for a Nonprofit’s Articles of Incorporation
Under Iowa law, articles of incorporation for a nonprofit must contain the following:
A corporate name which satisfies two requirements.
First, the corporate name must be distinguishable from any other nonprofit or business authorized to do business in Iowa. In other words, the name must be different and unique from all other names – even if it’s different by just a single letter. For example, no one could incorporate using the name, “Gordon Fischer Law Firm.” But if there were another lawyer with my name, he could legally incorporate simply by naming his business, “Gordon R. Fischer Law Firm,” or “The Gordon Fischer Law Firm.”
The second requirement is that the name does not contain language stating or implying that the corporation is organized for an unlawful purpose. To take an extreme example, “The Nonprofit Association of Heroin Dealers” would not be a proper name (in addition to many other legal issues!).
The address of the corporation’s initial registered office and the name of its initial registered agent at that office.
The “registered agent” is a legal name for “contact person”–the person who will be mailed if there’s any sort of problem or issue with the corporation. The “initial registered office” is simply that person’s (the registered agent’s) physical address, like a home address. It cannot be a PO Box; it must be a street address.
Be certain that the registered agent is responsible and involved. There can be obvious, profoundly negative consequences if the Iowa Secretary of State, or a taxing and/or regulatory agency (like the IRS) were to mail to the registered agent, and the registered agent doesn’t see the mail, and/or doesn’t provide the mail to the organization.
The name and address of each incorporator.
The “incorporator” is a legal term meaning the founder(s); the person(s) responsible for starting the nonprofit.
Whether or not the nonprofit will have members.
Unlike a regular corporation, a nonprofit does not have stockholders. (Of course, this is because nonprofits do not issue stock.) Instead, nonprofit can choose to have “members.” A formal “membership” structure often grants members certain basic rights, such as the power to vote for directors and approve a sale or merger. Most nonprofits (especially smaller ones) do not have members, due to the additional paperwork and required formalities. Instead, most nonprofits instead rely on their board of directors. In any case, a nonprofit must formally declare in their articles whether or not it will have members.
Provisions not inconsistent with law regarding the distribution of assets on dissolution.
When a nonprofit dissolves (i.e., terminates), any remaining assets must be distributed to another nonprofit (or government entity for a public purpose). No individual or group can be unduly enriched when a nonprofit ends. And, if you think about it, that makes a lot of sense. Folks contribute to a nonprofit to support its tax-exempt purposes, they wouldn’t want their funds to end up supporting non-charitable purposes.
An incorporator must sign and file the articles of incorporation.
The articles of incorporation must be filed with the Iowa Secretary of State’s office (and the ISOS will check that all the requirements above are met before filing is allowed). Currently, the filing fee is $20.00.
Federal Legal Requirements for a Nonprofit’s Articles of Incorporation
Of course, like all organizations, a nonprofit is governed by both state and federal law. Simplifying a bit, the IRS has two major requirements for a nonprofit’s initial governing documents.
- The articles of incorporation must limit the nonprofit’s purposes to exempt purposes set forth in Internal Revenue Code Section 501(c)(3). The exempt purposes set forth in section 501(c)(3) are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” An explicit reference or citation to 501(c)(3) and one or more exempt purposes is sufficient to meet this requirement.
- In addition, an organization’s assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose pursuant to 501(c)(3), or to the federal or state government or a local government entity, for a public purpose.
Amended and Restated Articles of Incorporation
No doubt some of you are thinking, hey, we already have articles of incorporation! Sure, we may need better articles, or improved articles, but we do have them.
In such cases, when a nonprofit wants to update or revise current articles, the organization files with the Iowa Secretary of State what is known as “amended and restated articles of incorporation.” These amended and restated articles completely supplant the earlier articles.
If filing amended and restated articles, Iowa law requires a statement in the document to the affect that all the amendments, changes, revisions, etc. are reflected in this new, single document. To meet this requirement, I use this statement:
“I [the incorporator] hereby certify that these Amended and Restated Articles of Incorporation consolidate all amendments into this single document.”
So, How Do I Go About Getting Articles of Incorporation
Each organization is unique and it’s smart to enlist someone (like an attorney well-versed in nonprofit law!) to draft a quality, comprehensive set of articles personalized for your nonprofit’s needs, mission, and goals.
Questions? Want to learn more about turning your dream of an organization that makes a significant impact or positive change? Grab my complimentary Nonprofit Formation Guide and then contact GFLF for a free consult!