You’ve decided to incorporate – congratulations! This is a big step in any non-profit business venture. When you’re finished, your organization will officially exist as a corporation recognized by your state.
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Your biggest task is writing the articles of incorporation, which will state the specific purpose of the entity’s existence, the names of the primary incorporators, various information satisfying legal requirements, and many other details. As you’re writing yours, be wary of these most common mistakes we see over and over.
Articles of Incorporation: 4 Most Common Mistakes
The purpose statement is too detailed
When writing about your own non-profit organization, you might find that you’re recording every detail you’ve considered up to that point. On the one hand, this is a good thing: it means you know your non-profit inside and out. But on the other, being too detailed could box your organization into a version of itself that will not always be accurate. Give your non-profit room to grow and evolve; don’t constrain it with language.
The language is contrary to IRS parlance.
You want to be careful not to unintentionally describe your non-profit in a way that will make you ineligible for tax-exempt status. Make sure you refer to the tax-exempt purposes found in Section 501(c)(3). These purposes include charitable, religious, and educational, among many others. Review what is specifically meant by the term charitable.
If you have any questions or concerns about the language being used in your articles of incorporation, don’t hesitate to reach out to a qualified non-profit attorney.
Tax-exempt organizations are prohibited from engaging in planned activities.
There are certain restrictions that come with specific activities. In order to still qualify for tax-exempt status, these restricted activities must be prohibited within the articles of incorporation.
This can be a confusing part of the process tax languages change between activities, and there are many different kinds of exemptions. Again, it is recommended to work with a qualified non-profit attorney in order to select the correct language.
The dissolution clause is missing.
Your organization’s assets must be dedicated to tax-exempt purposes. Because of this, a Dissolution Clause must be included in the articles of incorporation that clarifies where assets will go if the organization is dissolved. Don’t skip this step” without this clause, the IRS will reject your application for tax exemption.
If you have any concerns about the language in your articles of incorporation, don’t hesitate to connect with a qualified non-profit lawyer. If you’ve done your research and created a strong, workable plan for your non-profit organization, you’re ready to form a legal entity and apply for tax-exempt status. Download our free guide to the basic steps you’ll need to take and set your organization up to succeed for years to come.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.