Steps to Form an Alabama Nonprofit Corporation
The process isn’t as difficult as it seems, but some requirements are necessary to have your corporation approved. In this brief guide, we’ll show you how to form your Alabama nonprofit corporation.
Select initial directors
You’ll need to choose your initial directors to set up the corporation. The State of Alabama requires you to choose at least three unrelated directors but you can choose more. The directors aren’t required to live in the State of Alabama.
Choose a name
Your name will represent your brand and what your corporation stands for, so you’ll want to choose it wisely. You’ll need to make sure that the name you’re choosing isn’t already taken by a corporation in Alabama. You can conduct an Alabama business entity search to see if the name you have in mind is already in use.
If you find a name but aren’t ready to officially form your nonprofit corporation, you can save it through a name reservation request. The reservation lasts for one year. When you are ready to file your Certificate of Formation, you must include your official name reservation certificate to show the name was properly saved.
You can also use ZenBusiness’s name reservation service to ensure no one else takes your name while you’re getting your nonprofit off the ground.
While you’re thinking about names, this is the perfect time to find a domain name that aligns with your business. Once you have one, check out our domain registration service so you can create an online presence for your business.
Choose an Alabama registered agent
It’s important to appoint a registered agent to receive business and legal notices on behalf of your corporation. A registered agent in the State of Alabama must have a physical office that’s open during normal business hours.
Before you decide to act as your own registered agent, be prepared to sort through a lot of mail and be careful not to misplace legal notices. You’ll also need to be available during regular business hours every day., which means not leaving your office.
To avoid the hassle and free up your time, use ZenBusiness’ registered agent services to find one that’s right for you.
File a Certificate of Formation with the state of Alabama
The Certificate of Formation is what makes your entity official. You can find a complete list of requirements on the Alabama Secretary of State website. You can file it by mail, or use the state’s website to file and create your certificate. Keep in mind that this certificate doesn’t include the language suggested by the IRS to obtain federal tax-exempt status, so check the section on federal tax-exemption below.
Create corporate bylaws
Before you file the Certificate of Formation, you’ll want to create the bylaws for your corporation. These are the rules the corporation will follow, explaining how to deal with legal matters and stating the titles and duties of board members. You don’t need to file these bylaws with the state, but keep a copy of them on file with your corporation documents.
Hold an organizational meeting for the board of directors
The board of directors should set up an organizational meeting before filing the Certificate of Formation. At this meeting, each board member will vote on bylaws, ask questions and discuss important information that pertains to the corporation. The meeting is also where other officers can be appointed and where tax planning can be done. A conflict of interest policy should also be written and approved.
Be sure to keep a detailed record of what takes place at this initial meeting, and a copy of these minutes should be kept on file.
Set up a corporate records method
Your corporation will have a lot of paperwork and you will need to keep it organized and be able to access it easily. It’s a good idea to set up a records binder or use online software to store your information in the cloud.
Get tax ID numbers
Before you can submit your federal and state tax exemption applications your corporation will need an employer identification number (EIN). You can get one for free through the IRS. This is also needed to allow you to hire and pay employees, open up a business bank account, and file your taxes each year. Use ZenBusiness’ EIN Service to apply if you want to save time.
Apply for all Alabama licenses and permit
Alabama doesn’t require a corporation to have a general business license to operate, but some cities and counties may have specific licensing requirements. You’ll need to check in your city or county to see if any are required and then apply for them.
It’s important to obtain a business privilege license from the probate judge or License Commissioner in every county where you’ll do business in Alabama. If you need help to apply for these licenses, take advantage of ZenBusiness’ business license report service.
Apply for tax-exempt status
Once the corporation has been formed, you’ll be able to apply for tax-exempt status, which is usually under 501(c)(3). You’ll need to fill out Form 1023 and file it with the IRS. There’s a long version and a short one. Read about them to make sure you fill out the right one for your nonprofit. The IRS will send the decision to your registered agent once the form has been processed.
This doesn’t mean you’ll be exempt from all taxes, however. Nonprofits may still be liable for unemployment taxes provided they have four or more employees that have worked for 20 weeks within the current calendar year. Other taxes may also be applicable, such as sales tax.
Register as a charity with the state
If you plan to solicit for your corporation you will need to register as a charity. This can be done through the Alabama Attorney General Consumer Interest Division. You’ll need to obtain a form and complete it with information about your corporation.
Acquire insurance for your nonprofit
You want to protect your corporation and those who are a part of it. While general liability insurance isn’t a requirement, it’s usually a good idea to have it, especially if you provide services or sell items. In addition, you may need workers’ compensation coverage. This applies if you have five or more employees.
Depending on the industry or type of business you plan to do, you may need other types of insurance. Contact a professional insurance agent to determine what insurance is required or recommended for your corporation.
Open a bank account
Your corporation will need to have a bank account that’s for business purposes. You’ll only be able to open one once your corporation has been formed and you have documentation to prove it. You’ll need your EIN and Certificate of Formation. It’s best to call the bank ahead of time to find out what else you may need to have on hand. You may want your treasurer to handle this aspect of the corporation or appoint someone to do it at your initial board meeting.
Ready to Kick Start Your Business?
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service, want to reserve a business name, or looking to register a domain, our goal is to help you stay on the road to success. Check out our services, and contact us today to see how we can help you grow your company.
Alabama Nonprofit Corporation FAQs
Can the founder of a nonprofit receive a salary?
Yes, the corporation may pay a reasonable salary to founders who are working as employees.
How much does it cost to start a nonprofit corporation in Alabama?
The current cost to start a nonprofit in Alabama is $200 plus a 4% convenience fee for submission of the Certificate of Formation. Always check with the Alabama Secretary of State to find out current fees, as these may change over time.
What happens if a nonprofit makes money?
A nonprofit can make money provided it’s reinvested back into the company or used to help further its mission. It cannot pay the money out as a dividend.
What kinds of businesses can be nonprofit?
There are many types of businesses that can be approved as nonprofits in Alabama. The state is more likely to approve those that are focused on improving their community and helping others.
Can nonprofits sell products?
Yes, nonprofits can sell products to help raise money for their efforts or cause.
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