Forming your own nonprofit corporation in Delaware may seem like a daunting task. In this guide, we’ll walk you through the process step by step.
If your organization has a charitable, religious, civic, or another nonprofit mission, you may be able to file as an exempt corporation. One of the advantages of filing this way is that exempt corporations don’t have to pay state or local property taxes, business fees, and corporate taxes.
If you don’t meet all the Internal Revenue Service’s criteria for exempt status, don’t worry. You can launch your organization as a nonstock corporation instead. As the name suggests, a nonstock corporation is one that doesn’t issue shares of stock or have shareholders. Instead, it has members and a board of directors. Unlike an exempt nonprofit corporation, a nonstock corporation may be subject to Delaware’s annual franchise tax.
Under Delaware law, every nonprofit corporation must have a board with at least one director. The board is responsible for overseeing the organization’s activities. As your organization’s founder, you may also serve on its board as a director.
Consider choosing a name that will be easy for others to say, spell, and remember. As you brainstorm, keep in mind that Delaware has several rules that you must follow when naming a nonprofit corporation. For example, the name you choose must be unique. You can’t select a name that’s already in use or too similar to that of an existing organization. Your nonprofit’s name must also include a designator, either spelled out or in an abbreviated form:
Avoid using “Bank,” “University,” or “Trust.” These titles are restricted to organizations that carry out activities directly related to those specific areas. Once you have a name in mind, you can search Delaware’s database to check whether it’s available. If you’ve found the perfect name for your nonprofit corporation, you can reserve it on the state’s website. They’ll hold the name for 120 days for a $75 fee.
Delaware requires every nonprofit corporation to have a registered agent. Your agent must be located in Delaware and can be an individual or a service company. The agent’s job is to accept legal documents, such as notices of lawsuits, on your nonprofit’s behalf during normal business hours. Then, the agent forwards the documents to the appropriate person at your nonprofit.
Trying to act as your own registered agent has several disadvantages. One of which is it requires you to always be available during standard business hours. If you’re not, you might miss an important document delivery. For this, most nonprofit founders use a service company. Consider partnering with ZenBusiness’s registered agent providers for peace of mind.
You’ll need to file a Delaware Certificate of Incorporation for an exempt corporation. On this certificate, list your nonprofit’s name and purpose, as well as the name and address of your registered agent. To qualify for nonprofit status, you should note the IRS subsection under which you’re applying. There’s specific language that you should include in your Certificate of Incorporation, which you can find on the IRS website.
The fee is $90. Payable via Visa, Mastercard, American Express, Discover, or electronic check.
You can fax (302) 739-3812 with payment information on the form.
Mail or in-person:
Division of Corporations
John G. Towsend Bldg.
401 Federal St., Suite 4
Dover, DE 19901
Next, you’ll create bylaws, which are the rules by which your nonprofit will operate. Bylaws may cover topics including your organization’s name, mission, goals, policies, and procedures. In Delaware, all corporations must have bylaws. You don’t have to file them with the state, but you should keep them on hand and follow them.
Your board’s first meeting will help your new nonprofit to hit the ground running. During this meeting, you may appoint directors and officers, set up minute books and authorize the opening of bank accounts. This meeting is also an opportunity to go over bylaws and organize everything in a binder.
Another important decision to make is how to keep your nonprofit’s records. Accurate recordkeeping of income and expenses is vital to your nonprofit’s success. If you want, you can keep records manually, in a binder. This is a simple, low-cost approach. Another option is to use a computerized solution, such as a cloud service.
Before you can open a bank account or hire staff, you need a federal tax identification number, known as an Employer Identification Number (EIN). Get your EIN today.
After you have your EIN, the next step is to register your nonprofit with the Delaware Division of Revenue. Its website guides you through the process.
Your nonprofit corporation may need licenses, permits, or both to operate in Delaware. There are different licensing requirements at local, state, and federal levels. Requirements also vary by industry. It’s your responsibility to get all necessary licenses and permits, but figuring out which ones you need can be challenging. Let ZenBusiness’s business license report service take the guesswork out for you.
The part of the tax code that allows charitable organizations to be exempt from federal taxes is called 501(c)(3). Various different types of organizations may be considered charitable, including those with educational, scientific, religious, and literary missions.
To apply for federal tax-exempt status for your nonprofit, you’ll need to fill out Form 1023. Then, you must submit your completed application online at www.pay.gov. Note that you’ll have to pay a fee of $600. If you’re a smaller business, you have the option of the 1023-EZ form. It’s shorter and only costs $275.
In Delaware, you don’t need to file for tax-exempt status at the state level. If the IRS recognizes your nonprofit as tax-exempt, then it will also be exempt from Delaware’s corporate income tax.
In Delaware, you don’t have to register with the state to fundraise. However, if you plan to raise funds in other states, then you may need to register your nonprofit as a charity in those states.
Consider what types of insurance you may need. For example, if your nonprofit corporation will have employees, then you need workers’ compensation insurance. Because the type of insurance you’ll need depends on your industry, we recommend you contact a qualified insurance agent to discuss your needs.
Setting up a bank account allows you to manage your nonprofit corporation’s finances. It also helps to keep your nonprofit and personal finances separate.
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service or are 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.
Delaware Business Resources
In Delaware, nonprofit corporations can use part of their income for payroll expenses. As a founder, you can collect a reasonable salary for your services.
The state of Delaware charges an $89 fee to file a one-page Certificate of Incorporation. Additional pages are $9 each.
Despite what the name implies, many nonprofit corporations bring in more money than they spend. Nonprofits reinvest any net earnings back into the organization and its mission.
Yes, nonprofit corporations in Delaware can sell goods and services as long as they follow Delaware laws concerning the sales of goods and services.
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