1.6 Legal Formation of an Impact100 Chapter

Forming the Non-Profit.  

A non-profit is similar to any other business entity, in that it is a separate legal entity.  However, unlike for-profit entities, the non-profit cannot be organized or operated for the benefit of private interests.  The benefit? As long as the non-profit is organized and operated for “exempt purposes”, as defined in the Internal Revenue Code (“IRC”) Section 501(c)(3), the non-profit can receive tax-deductible contributions from individuals or businesses.

  1. What is your Impact100 Chapter’s Geographical Reach?  [Review Section 1.3 for guidance on this]
  2. How do you name your Impact100 Chapter?  Once you decide the geographical reach of your Impact100, decide what your Chapter’s name will be. In order to follow naming protocol, please include “Impact100 and then your location” Examples include,  “Impact100 Pensacola Bay Area,” “Impact100 Traverse City,” and “Impact100 SRQ.” 
  3. Before you finalize your corporate name, you will need to ensure the name you’ve selected is available through your State’s Corporations Division.  The Corporations Division for your State usually has a “name availability” search function on their website, which can be utilized to ensure your desired name will not conflict with one already in use. Most states will also allow you (for a small fee) to reserve your name if you are not yet ready to proceed with formation, but want to ensure your name is available when you are.
  4. What Documents do you File?  Formation of the non-profit is dictated by state and federal law.  The Corporations Division for your State is often a great resource and will be the starting place for formation of the entity.  At a minimum, the non-profit will need the following documents in place:
    1. Articles of Incorporation. You will need to complete Articles of Incorporation, which will set forth, among other things:
      1. The name of your non-profit;
        The purpose of your non-profit (keep in mind the purpose expressed in the Articles of Incorporation must meet the IRC’s specific requirements for qualification for tax-exempt status);
      2. Whether the entity is formed on a stock, membership, or directorship basis (Impact 100 organizations are most often directorships);
      3. The name and address of the registered office and registered agent (keep in mind many States require the registered office and agent to be physically located within the state.);
      4. The names and addresses of the incorporators (the individual(s) who are forming the non-profit); and
      5. Additional provisions regarding limitation of liability, as well as certain permitted actions or activities.Once complete, your Articles of Incorporation – along with a filing fee – are filed with your State’s Corporations Division.
  5. Bylaws.  Bylaws are critical and they lay the groundwork for how operation of the nonprofit will be governed.  Some state statutes require that certain provisions appear in a nonprofit’s Bylaws, so it is important to be familiar with the requirements of your state.Generally, when drafting Bylaws, it is important to consider inclusion of the following:
    1. Name, Location and Statement of Purpose.  Similar to the Articles of Incorporation, the Bylaws will state the non-profit’s name, purpose and physical location.
    2. Meeting Frequency and Quorum.  The Bylaws should set forth the required minimum number of votes required for action to be taken as well as guidelines for the frequency of meetings.
    3. Meeting by telephone or other remote communication.  Technology has changed the way we do business, and the Bylaws should allow for the Board of Directors, in addition to in-person meetings, to convene meetings and vote by telephone or other remote communication.
    4. Board Structure. In a directorship, the Bylaws must specify the term and the manner of electing or appointing the Board of Directors for the non-profit.  It is important to know your state’s statute with respect to the minimum number of directors required.
    5. Officers and Committees.  The non-profit is usually required to appoint at a minimum, a president, secretary and treasurer.  Usually, state law will allow one person to hold two or more offices. The Bylaws should specify the procedure for appointment and replacement of Officers, as well as establishment of Committees of the Board.
    6. Amendment and Dissolution.  Be sure to include provisions regarding the procedure and voting requirement for future Bylaw amendments and dissolution of the non-profit.
    7. Indemnification. A state’s statutes usually allow a non-profit to indemnify directors, officers, employees, nondirector volunteers, and agents of the corporation through provisions in their Bylaws.  It is also prudent to consider obtaining insurance on behalf of any director, officer, employee, volunteer, or agent against any liability, whether or not the corporation indemnifies those persons.
  6. State Charitable Solicitation Requirements.  Since the non-profit will be soliciting contributions for a charitable purpose, most states require the non-profit to register with the Attorney General’s Charitable Trust Section or similar division within the State.  Similarly, when a non-profit holds property for charitable purposes, the non-profit is also required to register and provide financial information about its operations. These forms are usually available on your State’s website, and may require annual renewal.
  7. Employer Identification Number.  The non-profit is a separate legal entity and requires its own identification number for tax purposes.  You will need to obtain an Employer Identification Number by filing the Form SS-4 with the IRS. This can be done online, and is necessary for filing for your 501(c)(3) status.
  8. 501(c)(3) Qualification.  To qualify for tax-exempt status so the non-profit can receive tax-deductible contributions from individuals or businesses, the non-profit must file the IRS Form 1023.  In order to qualify from the date of a nonprofit’s incorporation, the IRS Form 1023 must be filed within fifteen (15) months after the end of the month in which the entity was incorporated.  The entity’s Articles of Incorporation, Bylaws and solicitation materials (if available) are attached to the Form 1023.
  9. Development of Policies and Procedures.  Specific guidelines and procedures for the operation of the non-profit are found in Board approved policies.  Good practice is to have well established policies that address Board expectations, confidentiality, conflict of interest, compensation, external communications, data/document retention and whistleblowing.  Additionally, sound financial policies should also be put in place to address annual spending, financial management, short/long term investment as well as fundraising and gift acceptance. As the non-profit begins to employ individuals or independent contractors, personnel policies should also be added to address employment related issues and compensation.

DISCLAIMER:  Impact Council provides this information purely for educational purposes and discussion.  It contains only general information about legal matters. It is not legal advice and should not be treated as such.  You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional service advisors.  If you have specific questions about any legal matter you should consult your attorney and other professional service advisors.