Start a nonprofit FREE^*

Businesses can save up to $2,500 per year with a Rocket Legal+™ membership. This calculation is based on total savings on an initial business registration and registered agent, trademark, and business tax filing services for Rocket Legal+ members (a total cost of $924.97) compared to Rocket Legal members (a total cost of $1,949.96). This is in addition to savings on the average cost of 5 hours for document preparation by a non-Rocket Lawyer network attorney at the average attorney hourly rate in the U.S. of $300 (an estimated cost of $1,500 when purchased without any form of Rocket Lawyer membership) compared to unlimited use of customizable business documents for both Rocket Legal+ and Rocket Legal members at no extra cost.

Yes, with some exceptions.

Most states allow a single person to form a nonprofit corporation. There are some exceptions. For instance, New Jersey requires three initial directors to be named in the Certificate of Incorporation. Incorporation is not the only option, however.

Many states recognize the nonprofit association. This is a semi-formal business entity that provides some protection from liability for the individuals involved in the nonprofit. Also, some states, such as Pennsylvania and Kentucky, recognize the nonprofit limited liability company. Most states allow one person to start a nonprofit association and a nonprofit limited liability company.

Fees for registering a nonprofit differ from state to state, starting from as low as $8 and going as high as $125, not to mention annual fees you may need to pay to maintain the status of your nonprofit.

The Business Services team at Rocket Lawyer are experts when it comes to the legal requirements for nonprofit registration and the steps and processes required to file in the state of your choice. They can help you gather and file the necessary information quickly and at an affordable price. Rocket Legal+ members get their first business registration filing for free, paying only the state filing fees, and also get access to professional services for up to half off, including registered agent services, tax prep and filing, trademark registration, and more.

If your nonprofit does not have a physical address in your state (P.O. boxes are not acceptable substitutions), you may be required to have a registered agent. Registered agents accept official and legal correspondence on behalf of your business. While you are setting up your nonprofit, why not set up Rocket Lawyer as your registered agent at the same time? Better yet, if you have a Rocket Legal+ membership, you can save on your business registration and your registered agent services with the membership that pays for itself.

While we hear about 501(c)(3)s the most, there are other types of nonprofits. The IRS recognizes 27 types of nonprofit organizations. The most familiar type is charitable organizations. Others include:

• 501(c)(4) Civic League, Social Welfare Organization, or Local Employee Association.
• 501(c)(5) Labor, Agricultural and Horticultural.
• 501(c)(6) Trade or Professional Association.
• 501(c)(7) Social or Recreational Club.
• 501(c)(8) Fraternal Societies.
• 501(c)(9) Employee Beneficiary Association.
• 501(c)(12) Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations.
• 501(c)(14) State Chartered Credit Union and Mutual Reserve Fund.
• 501(c)(19) Veterans Organizations.
• 501(c)(29) CO-OP Health Insurance Issuers.

A lot. All 501(c)(3) tax-exempt organizations are nonprofits but not all nonprofits are 501(c)(3) tax-exempt organizations.

A nonprofit is a state law concept. It is an organization that meets the requirements of its state nonprofit law and registers as a nonprofit organization. While most people think of nonprofits as charitable organizations, states recognize many types of nonprofits, including many that do not perform charitable activities. Insurance companies, industry-specific professional societies, homeowners' associations, and social clubs are just a few examples of nonprofits that are not necessarily 501(c)(3) organizations.

Since nonprofit status is a state law concept, there is variation among the states as to nonprofit requirements. For example, some states allow a nonprofit to have only one director while other states require three directors. Some states allow nonprofits to organize as a limited liability company while other states only allow nonprofits to register as a nonprofit or non-stock corporation, unincorporated association, or charitable trust.

In contrast, a 501(c)(3) organization is a federal law concept. A 501(c)(3) organization is a nonprofit organization that is exempt from most state and federal income tax because it applied for recognition as exempt from tax under section 501(c)(3) of the Internal Revenue Code.

A 501(c)(3) organization must operate for exempt purposes. The exempt purpose must be charitable, scientific, educational, religious, literary, public safety, amateur sports competition, or the prevention of cruelty to children or animals.

In addition, a 501(c)(3) organization may engage in only very limited political and lobbying activity. The nonprofits that engage in these activities must qualify under a different section of the Internal Revenue Code.

Most nonprofits want 501(c)(3) status. As a 501(c)(3) organization, the nonprofit is exempt from paying state and federal income tax on income that is related to the nonprofit's purposes. Additionally, donors may receive an income tax deduction on the value of donations made to 501(c)(3) organizations.

To obtain 501(c)(3) status, the nonprofit must meet the requirements of section 501(c)(3) of the Internal Revenue Code. This means the nonprofit must be operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other purposes specified in section 501(c)(3).

Second, to earn the coveted 501(c)(3) status, a nonprofit must file an IRS Form 1023-EZ or Form 1023.

Form 1023-EZ is used by small organizations that do not have (or expect to have) more than $250,000 in total assets and $50,000 in annual gross income within the next three years and are not required to file one of the other tax-exemption applications. Certain types of nonprofits cannot use Form 1023-EZ. Common examples are hospitals, schools, foreign charities, and unincorporated nonprofits. In addition, nonprofits that have had their 501(c)(3) status revoked cannot use the 1023-EZ. Instead, they must use the longer Form 1023.

Form 1023 is used by nonprofits that are not eligible to file the 1023-EZ. This form is much longer than Form 1023-EZ and asks in-depth questions about how the board of directors will operate, the specific purposes of the organization, and how the organization will raise money. In addition, Form 1023 requires the submission of a multi-year budget and copies of the organization's Articles of Incorporation, Bylaws, and Conflict of Interests policy.

The IRS will review the application and if it approves it, the nonprofit organization will receive 501(c)(3) status.

While forming a nonprofit at the state level may be a relatively quick process, receiving approval from the IRS for 501(c)(3) status may take longer. It generally depends on the type of application.

Form 1023-EZ is designed to be a faster process. The 1023-EZ requests limited information and does not require the nonprofit to submit additional documents. The IRS generally reviews and grants 501(c)(3) status within 4 to 6 months of submitting the 1023-EZ application.

Form 1023 is a longer form and a longer process. This form requires the submission of many documents, including bylaws, incorporation documents, and a Conflicts of Interest Policy. The IRS generally reviews and grants 501(c)(3) status within 9 to 12 months of submitting the 1023 application.

Review and approval will take longer than the average time if the application is missing information, if the IRS needs additional information about the nonprofit, or if the IRS requests the nonprofit to amend some of its organizing documents.

A common reason for the delay in approval is inadequate organizing documents. Most state nonprofit statutes and standard incorporation forms do not contain language that is necessary to obtain 501(c)(3) status. Therefore, the IRS will require the nonprofit to amend its organizing documents (which requires paying a fee to the state to amend the documents) before approving the 1023 application.