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Submitting Form 1023 for “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code” to the IRS is cause for celebration for any organization seeking that coveted tax-exempt status. While waiting for the determination letter from the IRS regarding the application, there can be many uncertainties regarding what to tell donors about donations, and what to do about other submissions, like Form 990.

For oversight and evaluation purposes, most nonprofits need to annually file Form 990 (Return of Organization Exempt From Income Tax) instead. Beyond aspects of the organization’s finances, Form 990 collects information related to practical and operational aspects like conflicts of interestSarbanes-Oxley compliance, and charitable gift acceptance. Submitting an annual filing is also essential to retaining the tax-exempt status.

When is Form 990 Due?

So, when is Form 990 due exactly? It depends on the end of your organization’s taxable year; the form is due the 15th day of the fifth month after the organization’s taxable year.  For most tax-exempt organizations that follow the typical calendar year (January 1 through December 31), this means Form 990 is due on May 15th every year.

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What Do New Nonprofits Need to Do?

What does this mean for new nonprofits and organizations waiting on the tax-exemption determination letter? Expect to submit a variation of Form 990 in the year following the close of the first tax year. This is the case even if the organization is still waiting on the determination letter from the IRS in regard to tax-exempt status.

So, for example, let’s say a nonprofit filed articles of incorporation with the Secretary of State and adopted bylaws in March 2019. The organization subsequently submitted Form 1023 to apply for tax-exempt 501(c)(3) status. In the governing documents, the organization’s tax year is established as the typical January to December. For this organization, they should expect to file Form 990 by May 15, 2020, with information related to the receipts for the 2019 operating year.

Plan Ahead to be Prepared to Submit

The full Form 990 is over 10 pages (not including additional schedules and written attachments), so no doubt your organization should have a jump start on the process. The best way to be prepared, year after year to avoid a failure to file, is to have updated and applicable policies asked about on the form readily available to be referenced. I’m offering a great deal that features 10 policies related to Form 990 for $990. The rate includes a comprehensive consultation to discuss your organization’s need and a round of reviews so we can make certain the documents fit your organization’s needs.

No matter what stage of the nonprofit process you’re at—from just getting started to hiring employees to board management—don’t hesitate to contact me with questions or challenges. I’m available via email (gordon@gordonfischerlawfirm.com) and by phone (515-371-6077).

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Forming a new nonprofit can involve a lot of organization and decision making. There are some essentials you need to put in place, including two important documents—articles of incorporation and bylaws. I would be remiss if I didn’t delve into a couple of mistakes I often run across when reviewing nonprofits’ articles and bylaws.

volunteers walking in field

DIY Internet-Sourced Documents

Some nonprofits pull their articles of incorporation and bylaws from the Internet. These may or may not have all the Iowa-specific info required. Also, there may be provisions that simply don’t apply. For example, if a “regular” nonprofit copies governing documents from a granting nonprofit, like a community foundation, there’s sure to be language that doesn’t fit.

Pulling articles of incorporation off the web may seem cheap and time-saving, upfront. But, if mistakes and oversights from the template render the document ineffective or lacking legal requirements, you’ll be way worse off than if you just enlisted a nonprofit attorney to draft your articles suited to your organization’s unique needs, goals, and mission.

Misplaced Provisions

This may go along with copying off the web. There are sometimes provisions in bylaws and articles that belong somewhere else—the governing documents aren’t the proper place for them. For example, I sometimes see employee rules in articles/bylaws. Generally speaking, employment provisions belong in an employee handbook or employment contract. The same goes for certain policies and procedures such as those on document retention and the whistleblower process. A nonprofit should definitely have these policies, but they don’t fit in the foundational documents.

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So, How Do I Go About Avoiding Mistakes in my Formational Documents?

Each organization is unique and it’s wise to enlist someone (like an attorney well-versed in nonprofit law!) to draft a quality, comprehensive set of documents personalized for your particular situation.

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!

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At times nonprofits that share highly similar missions, goals, and the like can be consolidated to maximize impact. So, in Iowa, what’s the process of a legal merger between two nonprofits?

Definition of Terms: What’s a Merger

Like many legal terms, the word “merger” is capable of multiple definitions. A merger can mean an asset acquisition; partnership; parent-subsidiary relationship; umbrella organization; and, of course, an outright merger.

Asset Acquisition: Assets of an organization are transferred to another entity, but the organization itself is not acquired.

Partnership: A relationship in which two or more organizations pool money, skills, and/or other resources and share risk and reward, in accordance with mutually agreed-upon terms.

Parent-Subsidiary: A relationship in which two separate corporations are maintained after a merger, with one (the “parent”) being a member corporation with its only member being the other corporation (the “subsidiary”).

Umbrella: An overarching organization that holds several smaller organizations under it, each participating in the same branding and organizational structure as the umbrella, for the purpose of gaining efficiencies, improving and expanding available administrative services, and coordinating programs to better and/or more widely serve the community.

Outright merger: The process of combining two or more organizations into one organization.

Iowa Revised Nonprofit Corporation Act 

The Iowa statute which governs nonprofits is known as the Iowa Revised Nonprofit Corporation Act (“RINCA”) and can be found at Iowa Chapter 504. RINCA has a specific subchapter on mergers, Subchapter XI. Here’s a list of the major sections:

RINCA, Iowa Code Chapter 504, Subchapter XI: Merger

504.1101         Approval of plan of merger

504.1102         Limitations on mergers by public benefit or religious corporations.

504.1103         Action on plan by board, members, and third persons

504.1104         Articles of merger

504.1105         Effect of merger

504.1106         Merger with foreign corporation

504.1107         Bequests, devises, and gifts 

RINCA Definition of Terms

RINCA continually refers to nonprofit as “corporations.” To prevent confusion, and for simplicity’s sake, I change this and refer to “nonprofits.”

Also, RINCA discusses three kinds of nonprofits: religious, mutual benefit, and public benefit.

  • Religious nonprofits,” just as you would expect, refer to nonprofits with a sole or primary purpose that is religious in nature.
  • Mutual benefit nonprofits” work for the betterment of a select group of members, rather than for the benefit of the public. The most obvious type of mutual benefit nonprofit is a membership organization, such as a union, business chamber of commerce, or homeowner’s association.
  • Most nonprofits fall into the third category — “public benefit” nonprofits. This would include nonprofits like the Girl Scouts, Red Cross, and Iowa Public Radio.

Also, RINCA repeatedly refers to “foreign” nonprofits. Foreign nonprofits are simply nonprofits organized under other state laws; states other than Iowa.

Articles of Incorporation and Bylaws

RINCA continually refers to nonprofit articles of incorporation and bylaws. Usually, in a phrase like, “Unless the articles of incorporation or bylaws provide otherwise . . . . ” RINCA very often defers to the nonprofit’s own governing documents. In that way, RINCA acts as a “gap filler,” providing rules where nonprofits’ governing documents are silent or ambiguous.

Step One to Merger: Plan of Merger

RINCA begins quite sensibly by stating that nonprofits may merge. Nonprofits may merge, IF a proper plan of merger is properly approved.

What’s a plan of merger? A plan of merger must contain all of the following:

(1)       The name of the nonprofits;

(2)       The terms and conditions of the planned merger; and

(3)       The manner and basis, if any, of converting the memberships of each nonprofit into memberships of the surviving nonprofit.

A plan of merger may include any of the following:

(1)       Any amendments to the articles of incorporation or bylaws of the surviving corporation to be affected by the planned merger.

(2)       Other provisions relating to the planned merger.

Step Two: Approval of Plan of Merger

Who Approves the Plan of the Merger

Precisely who has the right or obligation to approve the plan of merger? The Iowa Code starts to answer that question with the common phrase, “unless . . . . the articles or bylaws impose other requirements . . . ” and then goes on to say: . . . a plan of merger for a corporation must be approved by all of the following to be adopted:

(1)       The board

(2)       The members, if any, by two-thirds of the votes cast or a majority of the voting power, whichever is less.

(3)       In writing by any person or persons whose approval is required by a provision of the articles authorized by section 504.1031 for an amendment to the articles or bylaws.

OK, so of course the Board of Directors approve the plan of merger, makes perfect sense. What about (2) & (3) above?

Members’ Approval

Who are the “members”?  That term, “members,” has a very specific meaning under RINCA.

RINCA defines “members” as: “Member” means a person who on more than one occasion, pursuant to the provisions of a corporation’s articles or bylaws, has a right to vote for the election of a director or directors of a corporation, irrespective of how a member is defined in the articles or bylaws of the corporation. A person is not a member because of any of the following:

(1)       The person’s rights as a delegate.

(2)       The person’s rights to designate a director.

(3)       The person’s rights as a director.

Note, again, very unusual for RINCA, that the definition of a “member” is given by RINCA, period, irrespective of how a member is defined in the articles or bylaws of the corporation. And, under RINCA, a member is someone who has a right to vote for directors.

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Third Person’s Approval

As to who approves the plan of merger, RINCA goes further, however, to include:

. . . a plan of merger for a corporation must be approved by all of the following to be adopted:

. . . In writing by any person or persons whose approval is required by a provision of the articles authorized by section 504.1031 for an amendment to the articles or bylaws.

What is this Section 504.1031? That section reads as follows:

504.1031 Approval by third persons. The articles of a corporation may require that an amendment to the articles or bylaws be approved in writing by a specified person or persons other than the board. Such a provision in the articles may only be amended with the approval in writing of the person or persons specified in the provision.

So, nonprofits looking to merge must look to their own Articles to see if any third persons must also approve the plan of merger.

 How Does the Board and Members Approve the Plan of Merger

According to RINCA, there are three different ways that a plan of merger can be approved:

(1)       at a membership meeting;

(2)       by “written consent;” or

(3)       by written ballot.

Each of these has different requirements.

Requirements for Membership Meeting, at Which Plan of Merger is to be Approved

If the board seeks to have the plan approved by the members at a membership meeting, the following requirements must be met:

(1)       Notice to its members of the proposed membership meeting in accordance with Section 504.705.

(2)       The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger and contain or be accompanied by a copy or summary of the plan.

(3)       The copy or summary of the plan for members of the surviving nonprofit shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision.

(4)       The copy or summary of the plan for members of the disappearing nonprofit shall include a copy or summary of the articles and bylaws which will be in effect immediately after the merger takes effect.

What is sufficient “notice” under Section 504.705?

Under RINCA, nonprofits must give notice, consistent with its bylaws, and in a fair and reasonable manner. Helpfully, RINCA provides a description of when a notice is fair and reasonable.

Notice is fair and reasonable if all of the following occur:

(a)        The corporation notifies its members of the place, date, and time of each annual, regular, and special meeting of members not more than sixty (60) days and not less than ten (10) days, or if notice is mailed by other than first-class or registered mail, not less than thirty (30) days, before the date of the meeting.

(b)       Again, the notice of a meeting includes a description of the plan of merger.

(c)        Again, the notice of a special meeting includes a description of the purpose for which the meeting is called, e.g., approval of the plan of merger.

Requirements for Merger is to be Approved by Written Consent

Under RINCA, nonprofits may take action by “written consent.” In other words, action by written consent refers to a person’s right to act by written consent instead of a meeting, e.g., a signed document.

Written consent can be limited or even prohibited by a nonprofit’s articles or bylaws of the corporation. Here’s a potential problem: the action must be approved by members holding at least eighty percent (80%) of the voting power. That is a high bar.

Requirements for Merger to be Approved

By Written Consent or Ballot

Whether approval by written consent or written ballot, both share some requirements. If a nonprofit seeks to have the plan of merger approved by the members by written consent or written ballot:

(1)       The material soliciting the approval shall contain or be accompanied by a copy or summary of the plan of merger.

(2)       The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision.

(3)       The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws which will be in effect immediately after the merger takes effect.

writing on desk with coffee and phone

Email for Written Consents or Written Ballots

Can email be used for either written consents or written ballots? Yes! (The issue with email and written consents is the requirement of a signature; the issue of email and ballots is the “checkmark” or “X”).

Unless prohibited by the articles or bylaws, a written ballot may be delivered, and a vote may be cast on that ballot by electronic transmission. Electronic transmission of a written ballot shall contain or be accompanied by information indicating that a member, a member’s agent, or a member’s attorney authorized the electronic transmission of the ballot.

The last sentence simply means there must be an indication that the returned ballot was from the member to whom it was emailed (a block signature, etc.).

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 Step Three: Prepare Articles of Merger

Let’s assume a plan of merger has been approved pursuant to RINCA, specifically, Iowa Code Sections 504.1101 and 504.1103 (and the Iowa Code provisions set forth therein). Next step? Articles of merger.

The articles of merger must contain all of the following:

(1)        The names of the parties to the merger.

(2)        If the articles of incorporation of the survivor of a merger are amended, or if a new corporation is created as a result of the merger, the amendments to the articles of incorporation of the survivor or the articles of incorporation of the new nonprofit.

(3)        If the plan of merger required approval by the members of a nonprofit that was a party to the merger, a statement that the plan was duly approved by the members.

(4)        If the plan of merger did not require approval by the members of the nonprofit that was a party to the merger, a statement to that effect.

(5)        If approval of the plan by some person or persons other than the members of the board is required a statement that the approval was obtained. (This is the “approval by third persons” (Section 504.1031) discussed above).

Articles of merger must be signed on behalf of each party to the merger by an officer or other duly authorized representative. (But only to be signed after the plan of merger is approved).

Step Four: File Articles of Merger with the Iowa Secretary of State

Articles of merger must be delivered to the Iowa Secretary of State for filing by the survivor of the merger. If there are other filings resulting from the merger, say, new and revised Articles of Incorporation, these may be filed as a “combined filing.”

Once the articles of merger are successfully filed, the merger is complete.

Step Five: Recognize the Legal Effect of Merger

Upon a successful merger, all the following occur:

(1)       Every other party to the merger merges into the surviving nonprofit and the separate existence of every nonprofit except the surviving corporation ceases.

(2)       The title to all real estate and other property owned by each party to the merger is vested in the surviving nonprofit without reversion or impairment subject to any and all conditions to which the property was subject prior to the merger.

(3)       The surviving nonprofit has all the liabilities and obligations of each party to the merger.

(4)       A proceeding (e.g., a lawsuit) pending against any party to the merger may be continued as if the merger did not occur or the surviving corporation may be substituted in the proceeding for the nonprofit whose existence ceased.

(5)       The articles of incorporation and bylaws of the surviving nonprofit are amended to the extent provided in the plan of merger.

“Bequests, Devises, and Gifts”

An interesting side note: RINCA’s subchapter on merger contains a provision about “bequests, devises, and gifts.” Bequests are property left to someone by a decedent through his or her will. A devise is the same, only given through a trust. The term “gifts” here means “charitable gifts.”

Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, that is made to a constituent corporation and which takes effect or remains payable after the merger, inures to the surviving corporation unless the will or other instrument otherwise specifically provides.

That’s really pretty great, right? So, if someone should leave property (cash, stock, bonds, real estate, whatever) through a will or trust, or just about any other way, to a “non-surviving” nonprofit after a merger with a surviving nonprofit, the property will go directly, without question, to the surviving nonprofit (unless specific instructions are left to the contrary).

Is your Iowa nonprofit considering a merger? Please contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077). I’d be happy to discuss the Iowa laws on merger with you anytime. I offer a free, one-hour consultation for all.

discussion over table with laptop

Imagine I’m working with a great new client named Daphne. She wants to found a nonprofit organization to assist at-risk youth in her local community and across Iowa. This is a hypothetical memo I would send to Daphne outlining the steps of what it takes to form a nonprofit in the state of Iowa. (Note, if you’re looking to form a 501(c)(3) it’s best work with a qualified attorney for advice and counsel specific to your situation and goals.)

To:                  Daphne Downright – SENT VIA EMAIL
From:             Gordon Fischer (gordon@gordonfischerlawfirm.com)
Subject:         How to Form a 501(c)(3) Nonprofit
Date:              April 13, 2019

Dear Daphne:

Good afternoon! I very much enjoyed our phone conversation of this morning, where we discussed your intent to begin a nonprofit to assist at-risk youth. Certainly this is an noble mission and I have no doubt that you could make a big impact. I also acknowledge you are very busy and don’t have the time to allocate to dealing with all of the documentation. So, I’m here to take this stress off of your plate!

Let’s recap some details regarding the process for founding a nonprofit organization. These steps will set your public charity up for the best possible success.

Main Steps to a 501(c)(3)

To recap what we talked over, forming a 501(c)(3) involves four steps:

  1. drafting, editing, and filing articles of incorporation;
  2. drafting and editing bylaws, with new board members then voting in favor of the bylaws in a duly authorized meeting;
  3. applying for an Employer Identification Number (EIN); and
  4. drafting, reviewing, and editing the IRS non-exempt status application, known as IRS Form 1023, as well as all the supporting materials IRS Form 1023 requires.

By far, the most difficult and time-consuming of the four steps is the IRS Form 1023. You should definitely review the form immediately, so you can gain a sense of the level of detail and involvement it requires.

How much does it cost?

While my regular hourly rate can go up to $300 per hour, I often have agreed with clients to perform all the legal work required to successfully begin a nonprofit for a flat fee of $4,800. I typically bill this over the span of five months, i.e., five easy payments of $980, due on, say, the first of each of the months.

Additionally, as you would expect, this matter will necessitate payment of filing fees to governmental agencies, such as the Iowa Secretary of State’s Office and the IRS. (The Iowa Secretary of State has a $20 filing fee, and the IRS 1023 Form has a $850 or $400 filing fee depending on the amount of gross revenue expectations). Of course, clients are solely responsible for payment of all such governmental fees.

How long does this take?

It usually takes a few months to pull all the paperwork together, including and especially Form 1023. I’ve had, however, ambitious clients who wanted to do it much faster, and I was able to accommodate. The flat fee includes as many conferences with me as you reasonably need for us to complete steps 1-4, above.

Benefits of Nonprofit Formation

Daphne, the benefits of a 501(c)(3) are many and include:

Tax exemption/deduction

Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible to be completely exempt from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes.

Even better: if an organization has obtained 501(c)(3) tax exempt status, an individual’s or company’s charitable contributions to this entity are tax-deductible.

Eligibility for public and private grants

Nonprofit organizations can solicit charitable donations from the public. Many foundations and government agencies limit their grants to public charities.

Being able to offer donors income tax charitable deductions for donations, as well as eligibility for public and private grants, are probably the two major reasons folks want to obtain 501(c)(3) status.

Formal structure

A nonprofit organization exists as a legal entity and separate from its founder(s). Incorporation puts the nonprofit’s mission and structure above the personal interests of individuals associated with it.

Limited liability

Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. There are exceptions. A person cannot use the corporation to shield illegal or irresponsible acts on his/her part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the nonprofit’s best interests, and the nonprofit is harmed, they can be held liable.

Focus your giving

With charitable giving flowing through a central nonprofit organization, and not through, say, a for-profit business, it’s easier to focus the giving on a singular mission. A for-profit business may be easily pulled away from a charitable mission by the pet causes of lots of different customers, clients, vendors, and employees. A nonprofit should be much less susceptible to such pressure.

Responsibilities of Forming & Managing a  Nonprofit

Of course, there are serious responsibilities that come along with creating and running a nonprofit. These can’t be overstated, and include:

Cost

Creating a nonprofit organization takes time, effort, and money. Plus, keeping a nonprofit on track, compliant, and successful also requires great care.

Paperwork

A nonprofit is required to keep detailed records and submit annual filings to the state and IRS by stated deadlines to keep its active and exempt status. 

Shared control

Although one who creates a nonprofit may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own articles of incorporation and bylaws. A nonprofit is required to have a Board of Directors, who in turn determine policies. 

Scrutiny by the public

A nonprofit is dedicated to the public interest, therefore its finances are open to public inspection. The public may obtain copies of a nonprofit organization’s state and federal filings to learn about salaries and other expenditures. Nonprofits must be transparent in nearly all their actions and dealings.

Continue the discussion

I hope this information is helpful to you as you begin this journey. It won’t always be easy (although I will attempt to make it as simple as possible for you!), but it will be worthwhile.

I would enjoy the opportunity to be of service to you. Thank you for your time and attention. If you have any questions or concerns, please contact me. As I told you this morning, I offer anyone/everyone a free one-hour consultation. Simply reach out to me anytime via my cell, 515-371-6077, or my email, gordon@gordonfischerlawfirm.com.

Warmest regards,

Gordon Fischer

Gordon Fischer Law Firm, P.C.

nonprofit leader at table

When forming a new nonprofit there are really two must-have documents you need to get the dream off the ground. Those two documents are articles of incorporation and bylaws. Of course, there are other important documents you will need, but it’s good to tackle first things first!

Recently on the blog we explored the state and federal requirements and best practices for articles of incorporation. Now, let’s learn about bylaws!

What Exactly Are Bylaws?

Undoubtedly you’ve at least heard of or read through a set bylaws. But, what does this document do? Effective bylaws should do the following:

  • serve as the internal operating rules of a nonprofit.
  • specify processes like the election process of directors and operation of meetings.
  • resolve any uncertainty between board members on issues of correct process.

Do Bylaws Need to be Filed or Adopted?

Unlike articles of incorporation, bylaws are not filed with any government entity like the Iowa Secretary of State. However, Iowa law does require that the initial bylaws of a nonprofit be adopted by its board of directors.

A nonprofit’s bylaws should address the high level governing decisions that founding board members deem non-negotiable for the organization’s success. Here are a few provisions that great bylaws often include:

  • Purpose for organization
  • Board structure
  • Official meeting requirements
  • Terms of board service for officers
  • Officer position descriptions
  • Procedure for officer/board member succession and removal
  • Provisions for membership (if any)
  • Voting rights

Another essential element that can be mistakenly forgotten is a paragraph for amending the bylaws in the future. Times change and the circumstances of how your organization can do the most good can shift. In such a case your board will want to rely on the procedure for amendments outlined in the bylaws to reflect the transition.

Regularly Review and Reference

Again, an organization’s bylaws are like an internal roadmap if there’s any question of structure or procedure. As fiduciaries of the organization, board members should re-read the bylaws at least annually for sustainable good governance. Of course, brand new board members should be provided with a copy as a part of their board orientation.

What About All the Other Documents I Need?

At this point you may be skeptical that you just need two documents–articles of incorporation and bylaws. What about all the other documents you’re certain you need to have? It’s a valid question and to obtain and maintain qualified tax-exempt status there’s certainly more “paperwork” to be done:

So, How Do I Go About Drafting Bylaws

There is much more to be said on bylaws as they can and should be tailored to your individual organization. It’s a wise investment to enlist a professional (like an attorney well-versed in nonprofit law!) to draft quality, comprehensive bylaws 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!

compass journal near macbook

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.

woman holding red heart

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.

  1. 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.
  2. 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!