This guide aims to demystify the process with an easy-to-follow roadmap that helps you get your nonprofit corporation up and running.
Steps to Form a Maryland Nonprofit Corporation
Select initial directors
At least one initial director is needed to start a nonprofit in Maryland. Ideally, the board should consist of five to seven unrelated members, who will be responsible for the organization’s finances and legal compliance.
Choose a name
Your nonprofit’s name must be distinguishable from any other business entities on record in Maryland. It also needs to include one of the following terms:
You can check the name’s availability online at the Maryland Department of Assessments & Taxation website. There is a $25 fee to reserve a name, which can prevent someone else from taking it before you’ve filed your Articles of Incorporation. You can do this yourself or have ZenBusiness’s name reservation service take care of it on your behalf.
If you want a website for your nonprofit, search for available names at any domain registrar. ZenBusiness offers a domain registration service that can handle this step for you.
Choose a Maryland resident agent
You’ll need to choose a resident agent before you can file for incorporation in Maryland. (This is called a registered agent in most other states.) A resident agent is a person who receives service of process on behalf of your nonprofit in the event of a lawsuit, subpoena, audit, or other legal or governmental notices. Your resident agent must be an adult resident of Maryland, a Maryland corporation, or a Maryland limited liability company.
Although it’s possible to serve as your own resident agent, doing so comes with a few downsides:
- Resident agents are expected to be available during regular business hours.
- If you file as a resident agent with your personal home address, that information will be publicly available.
- You must reside in Maryland to be your own resident agent. If you move to another state, you’ll need to choose someone else to serve in this role.
Hiring a registered agent service is a good option for nonprofit founders. The service will receive legal correspondence on your behalf, giving you one less thing to worry about in your nonprofit’s early stages.
File Articles of Incorporation with Maryland
To register your nonprofit corporation in Maryland, you’ll need to file Articles of Incorporation with the State Department of Assessments and Taxation (SDAT). The document must include:
- The name of your nonprofit
- A description of your nonprofit and its purpose
- The physical address of your principal place of business (must be a Maryland address)
- The name and address of all incorporators
- Name and address of the resident agent
- Any other provisions, including intent to obtain tax-exempt status
Create corporate bylaws
Bylaws serve as a guide to your nonprofit’s operations and typically include information about how important decisions are made in the corporation. You will need to include a copy of these bylaws with your Maryland state tax exemption application.
Hold an organizational meeting for the board of directors
At your organization’s first board of directors meeting, you should:
- Appoint officers
- Approve corporate bylaws
- Approve the opening of a business bank account and other initial financial transactions
- Create an accounting period and tax year
- Choose a secure method for meeting minutes (records)
Get tax ID numbers
A federal Employer Identification Number (EIN) is used to identify your nonprofit for tax purposes. You’ll need one to file for tax-exempt status. You can apply for an EIN on the IRS website or have ZenBusiness’s EIN service do this for you.
Apply for all necessary licenses and permits
The state of Maryland doesn’t require any one specific license for all nonprofits. However, you may need certain licenses or permits depending on the work your organization does and where in the state it’s located. There is no central place to check which federal, state, or local licenses you might be required to have. It’s your responsibility to find out which licenses you’ll need. ZenBusiness also offers a business license report service that can determine this for you.
Apply for tax-exempt status
You will need to file Form 1023 with the IRS in order to get tax-exempt status. This form includes detailed questions about your nonprofit and its operations, provisions, organizational structure, and financial arrangements between directors and employees. Nonprofits with less than $50,000 in projected annual gross receipts and less than $250,000 in assets can usually file Form 1023-EZ. This form is shorter.
Once you’ve received tax exemption from the IRS, you can apply for an exemption from Maryland state taxes with the Comptroller of the Treasury. You’ll need to submit the following information to the Legal Department of the Revenue Administration Division:
- Description of your nonprofit’s purpose, nature, and scope
- Copy of the IRS exemption determination letter
- Copy of your organization’s latest financial statement
- Copy of your nonprofit’s bylaws
Register as a charity with the state
If you solicit donations in Maryland, you’re required to register as a charitable organization. This is done through the Charitable Organizations Division at the Office of the Secretary of the State. If the nonprofit’s raised funds total less than $25,000, you only need to file the Exempt Organization Fund-Raising Notice form.
Acquire insurance for your nonprofit
Your nonprofit may be required to get certain types of insurance depending on the type of business it does, among other factors. Although charities are immune from certain kinds of liability under Maryland law, you can further protect your nonprofit. This is done with a directors and officers’ liability policy. You should contact a qualified insurance agent to fully understand what coverage your organization requires.
Open a bank account
Once you’ve obtained an EIN, you can use it to open a business bank account for your nonprofit corporation. Many banks offer special benefits to nonprofits, including waived monthly service charges, low minimum balance requirements, and no limits on currency deposits.
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.
Maryland Nonprofit FAQ
Can the founder of a Maryland nonprofit receive a salary?
The founder of a nonprofit can pay themselves a reasonable salary for work that they do while running the organization. What’s considered reasonable depends on a few factors. These include the nonprofit’s budget, the founder’s job description, hours worked, and compensation averages for similar positions in your area.
How much does it cost to start a nonprofit corporation in Maryland?
It costs $170 to file Articles of Incorporation in Maryland ($150 plus $20 Organization and Capitalization fee). Filing Form 1023 with the IRS for tax-exempt status costs $600 or $275 for the shortened Form 1023-EZ.
What happens if a Maryland nonprofit makes money?
Despite the name, nonprofits are allowed to make a profit. This profit can pay for office rent, bills, equipment, and other operating costs.
What kinds of businesses can be a nonprofit in Maryland?
To be considered a nonprofit, a business must have a purpose to advance or achieve a mission that benefits the public in some way. Examples of this include environmental cleanup, disease prevention, and humanitarian aid.
Can Maryland nonprofits sell products?
Nonprofits may sell goods and services in order to further their organization’s goals. A nonprofit earning more than $1,000 from activities unrelated to the organization may be subject to an unrelated business tax from the IRS.